<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999
File No. 2-77284 (811-03459)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 47 /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 27 /x/
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PENN SERIES FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
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600 Dresher Road
Horsham, Pennsylvania 19044
(Address of Principal Executive Offices)
Registrant's Telephone Number: 215-956-8000
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JAMES B. MCELWAIN
President
Penn Series Funds, Inc.
Philadelphia, Pennsylvania 19172
(Name and Address of Agent for Service)
Copy to:
RICHARD W. GRANT
C. RONALD RUBLEY
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
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It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph a (1) of Rule 485
___ on (date) pursuant to paragraph (a) (1) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
x on May 1, 1999 pursuant to paragraph (a)(2) of Rule 485
---
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<PAGE>
Prospectus -- May 1, 1999
PENN SERIES FUNDS, INC.
600 Dresher Road, Horsham, PA 19044 o Telephone (215) 956-8000
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
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Penn Series Funds, Inc. ("Penn Series") is a mutual fund that provides
investment funds for variable annuity and variable life insurance contracts
issued by The Penn Mutual Life Insurance Company ("Penn Mutual") and its
subsidiary, The Penn Insurance and Annuity Company ("PIA"). Penn Series offers
nine different portfolios or "Funds" advised by Independence Capital Management,
Inc. ("ICMI") and, in the case of certain Funds, sub-advised by T. Rowe Price
Associates, Inc., OpCap Advisors, Vontobel USA Inc. and Robertson Stephens
Investment Management, Inc.
PROSPECTUS CONTENTS
FUND INVESTMENT SUMMARIES
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
ADDITIONAL INFORMATION
MANAGEMENT
Investment Adviser
Sub-Advisers
Expenses and Limitations
ACCOUNT POLICIES
FINANCIAL HIGHLIGHTS
<PAGE>
FUND INVESTMENT SUMMARIES
GROWTH EQUITY FUND
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The investment objective of the Growth Equity Fund is to
achieve long-term growth of capital and increase of future income.
Investment Strategy: The Fund invests primarily in common stocks of well
established companies that the Adviser believes have long-term growth potential.
In selecting the Fund's investments, the Adviser seeks companies that are
expected to demonstrate long-term earnings growth that is greater than the
projected growth rate of the economy as a whole. The Adviser emphasizes those
companies that it believes are capable of generating consistently strong
earnings and sales gains in an increasingly global economy. The Adviser believes
that, over the long term, the earnings of well-established companies will not be
as adversely affected by unfavorable economic conditions as the earnings of more
cyclical companies. Secondarily, the Adviser also considers the dividend-paying
potential of well-established companies.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the risks and uncertainties of investing in common
stocks in the hope of earning above-average long-term growth of capital and
income. The Fund's value will change primarily with changes in the prices of the
common stocks held by the Fund. The prices of common stocks will increase and
decrease based on market conditions, specific industry conditions, and the
conditions of the individual companies who issued the common stocks. Loss of
money is a risk of investing in the Fund. In general, common stocks are more
volatile than those of other investments, such as fixed income securities.
However, over the long-term, common stocks have shown greater potential for
capital appreciation. By investing in the common stocks of larger,
well-established companies, the Adviser seeks to avoid some of the volatility
associated with investment in smaller, less well-established companies. As with
any investment strategy, the Adviser's "growth" strategy may underperform other
investment strategies (e.g., a "value" strategy) or the market as a whole.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. They include only those periods in
which ICMI managed the Fund's investments. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
-1-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
-10% 0% 10% 20% 30% 40% 50%
1998 41.67%
1997 26.74%
1996 19.76%
1995 26.45%
1994 -8.12%
1993 12.43%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
26.14% -7.61%
------------------------------------------
(12/31/98) (9/30/98)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Standard & Poor's 500 Composite Index. The S &
P 500 is an unmanaged index that is a widely recognized benchmark of general
market performance. The index is a passive measure of equity market returns. It
does not factor in the costs of buying, selling and holding securities -- costs
which are reflected in the Fund's results.
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Growth Equity Fund S & P 500
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1 Year......................... 41.67% 28.57%
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5 Year ........................ 20.10% 24.06%
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Since November 1, 1992*/....... 19.47% 21.88%
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*/ Date ICMI began managing the Fund's investments.
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<PAGE>
VALUE EQUITY FUND
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: OpCap Advisors
Investment Objective: The investment objective of the Value Equity Fund is to
maximize total return (capital appreciation and income).
Investment Strategy: The Fund invests primarily in common stocks of companies
that the Sub-Adviser believes are under-valued. The Sub-Adviser uses a
disciplined "value" approach in selecting investments for the Fund. The
Sub-Adviser seeks to identify companies that appear undervalued by various
measures, such as price/earnings, and may be temporarily out of favor, but have
good prospects for capital appreciation. The Sub-Adviser also looks for
companies that have the potential for sustainable high return on invested
capital, maintain a competitive advantage in the market, and generate a high
level of cash throughout the economic cycle. To identify such companies, the
Sub-Adviser performs in-depth primary research of individual companies and
industries. The Sub-Adviser then purchases the stocks of these companies when
they appear under-priced compared to prices of other stock available in the
marketplace.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the risks and uncertainties of investing in common
stocks in the hope of earning above-average total return. The Fund's value will
change primarily with changes in the prices of the common stocks held by the
Fund. The prices of common stocks will increase and decrease based on market
conditions, specific industry conditions, and the conditions of the individual
companies who issued the common stocks. Loss of money is a risk of investing in
the Fund. In general, common stocks are more volatile than those of other
investments, such as fixed income securities. However, over the long-term,
common stocks have shown greater potential for capital appreciation. As with any
investment strategy, the Sub-Adviser's "value" strategy may underperform other
investment strategies (e.g., a "growth" strategy) or the market as a whole. For
example, it may take the market considerable time to recognize the value of the
Fund's investments.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. They include only those periods in
which OpCap Advisors managed the Fund's investments. Past performance does not
necessarily indicate how the Fund will perform in the future. This performance
information does not include the impact of any charges deducted under your
insurance contract. If it did, returns would be lower.
-3-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
0% 5% 10% 15% 20% 25% 30% 35% 40%
1998 9.59%
1997 24.98%
1996 25.19%
1995 37.48%
1994 2.92%
1993 7.08%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
14.35% -14.69%
------------------------------------------
(12/31/98) (9/30/98)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Standard & Poor's 500 Composite Index. The S &
P 500 is an unmanaged index that is a widely recognized benchmark of general
market performance. The index is a passive measure of equity market returns. It
does not factor in the costs of buying, selling and holding securities -- costs
which are reflected in the Fund's results.
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Value Equity Fund S & P 500
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1 Year.......................... 9.59% 28.57%
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5 Year ......................... 19.40% 24.06%
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Since November 1, 1992*/........ 17.49% 20.63%
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*/ Date OpCap Advisors began managing the Fund's investments.
-4-
<PAGE>
SMALL CAPITALIZATION FUND
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: OpCap Advisors
Investment Objective: The investment objective of the Small Capitalization Fund
is to seek capital appreciation.
Investment Strategy: The Fund invests primarily in common stocks of companies
with market capitalizations under $1 billion. In selecting the Fund's
investments, the Sub-Adviser attempts to identify small capitalization companies
which are under-priced. Smaller capitalization companies may often be
under-priced because institutional investors, which currently represent a
majority of the trading volume in the shares of publicly-traded companies, are
often less interested in such companies. Institutional investors may be less
interested because they may be required to buy a large percentage of a company's
outstanding equity securities in order to make the investment meaningful in its
large portfolio. In addition, small cap companies may not be regularly
researched by stock analysts, thereby resulting in greater discrepancies in
valuation. The Sub-Adviser seeks companies that have a significant record of
earnings and revenue growth, have high cash flow returns on assets and are in
very good financial condition. The Sub-Adviser attempts to purchase companies at
attractive multiples relative to the market and to where they have traded in the
past. The Sub-Adviser may also purchase securities in initial public offerings,
or shortly after such offerings have been completed, when the Sub-Adviser
believes that such securities have greater-than-average market appreciation
potential.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the risks and uncertainties of investing in small-cap
stocks in the hope of earning above-average capital appreciation. The Fund's
value will change primarily with changes in prices of the common stocks held by
the Fund. The prices of common stocks will increase and decrease based on market
conditions, specific industry conditions, and the conditions of individual
companies who issued the common stocks. Loss of money is a risk of investing in
the Fund. In addition to the general risks of common stocks, an investment in
small-cap stocks entails special risks. The prices of small-cap stocks tend to
be more volatile than investments in larger, more established companies.
Smaller-capitalization stocks may have limited product lines, markets or
financial resources and may depend upon a limited management group. As a result,
smaller capitalization companies often have higher failure rates than larger
capitalization companies. In addition, the Sub-Adviser's "value" strategy may
underperform other investment strategies (e.g., a "growth" strategy) or the
market as a whole.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
-5-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
-10% -5% 0% 5% 10% 15% 20% 25%
1998 -9.16%
1997 23.02%
1996 19.76%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
16.16% -18.06%
------------------------------------------
(6/30/97) (9/30/98)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Russell 2000 Index. The Russell 2000 Index is
an unmanaged index that is a widely recognized benchmark of general market
performance. The index is a passive measure of equity market returns. It does
not factor in the costs of buying, selling and holding securities -- costs which
are reflected in the Fund's results.
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Small Capitalization Fund Russell 2000
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1 Year................... -9.16% -2.57%
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Since March 1, 1995*/.... 11.32% 15.43%
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*/ Date of Inception.
-6-
<PAGE>
EMERGING GROWTH FUND
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: Robertson Stephens Investment Management, Inc.
Investment Objective: The investment objective of the Emerging Growth Fund is
capital appreciation.
Investment Strategy: The Fund will invest primarily in common stocks of emerging
growth companies. In selecting the Fund's investments, the Sub-Adviser seeks
companies that have the potential, based on superior products or services,
operating characteristics, and financial capabilities, for growth more rapid
than the overall economy. The Sub-Adviser considers a company's rate of earnings
growth and the quality of management, the return on equity, and the financial
condition of the company. In addition to these factors, the Sub-Adviser focuses
on companies that enjoy a competitive advantage in the marketplace. The
Sub-Adviser emphasizes companies in those sectors of the economy that are
experiencing rapid growth.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the risks and uncertainties of investing in emerging
growth companies in the hope of earning above-average capital appreciation. The
Fund's value will change with changes in the prices of the investments held by
the Fund. The prices of common stocks held by the Fund will increase and
decrease based on market conditions, specific industry conditions, and the
conditions of the individual companies who issued common stocks. Loss of money
is a risk of investing in the Fund. In addition to the general risks of stocks,
an investment in emerging growth stocks entails special risks. The prices of
smaller capitalization stocks tend to be more volatile than investments in
larger, more established companies. Smaller-capitalization stocks may have
limited product lines, markets or financial resources and may depend upon a
limited management group. Also, smaller capitalization company universe often
has higher growth rates and experiences higher failure rates than larger
capitalization companies. In addition, the Sub-Adviser's growth-oriented
strategy may underperform other investment strategies (e.g., a "value" strategy)
or the market as a whole.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
-7-
<PAGE>
This bar chart shows changes in the performance of the Fund's shares from year
to year.*
For year ended December 31,
0% 5% 10% 15% 20% 25% 30% 35% 40%
1998 35.7%
*The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
38.00% -22.42%
------------------------------------------
(12/31/98) (9/30/98)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Russell 2000 Index. The Russell 2000 Index is
an unmanaged index that is a widely recognized benchmark of general market
performance. The index is a passive measure of equity market returns. It does
not factor in the costs of buying, selling and holding securities -- costs which
are reflected in the Fund's results.
- --------------------------------------------------------------------------------
Emerging Growth Fund Russell 2000
- --------------------------------------------------------------------------------
1 Year........................ 35.70% -2.57%
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Since May 1, 1997*/........... 46.37% 14.50%
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*/ Date of Inception.
-8-
<PAGE>
FLEXIBLY MANAGED FUND
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: T. Rowe Price Associates, Inc.
Investment Objective: The investment objective of the Flexibly Managed Fund is
to maximize total return (capital appreciation and income).
Investment Strategy: The Sub-Adviser invests primarily in common stocks of
established companies that it believes have above average potential for capital
growth. Common stocks typically compose at least half of total assets. The Fund
may also invest in other securities, including convertibles, warrants, preferred
stocks, corporate and government debt, foreign securities, futures, and options,
in keeping with the Fund's objective. The Fund's investments in common stocks
generally fall into one of two categories. The larger category comprises
long-term core holdings whose prices when we buy them are considered by the
Sub-Adviser to be low in terms of company assets, earnings, or other factors.
The smaller category comprises opportunistic investments whose prices the
Sub-Adviser expects to rise in the short-term, but not necessarily over the
long-term. Since the Sub-Adviser attempts to prevent losses as well as achieve
gains, it typically uses a "value approach" in selecting investments. Its
in-house research team seeks to identify companies that seem undervalued by
various measures, such as price/book value, and may be temporarily out of favor
but have good prospects for capital appreciation. The Sub-Adviser may establish
relatively large positions in companies it finds particularly attractive.
The Fund's approach differs from that of many other stock funds. The Sub-Adviser
works as hard to reduce risk as to maximize gains and may realize gains rather
than lose them in market declines. In addition, the Sub-Adviser searches for the
best risk/reward values among all types of securities. The portion of the Fund
invested in a particular type of security, such as common stocks, results
largely from case-by-case investment decisions, and the size of the Fund's cash
reserve may reflect the manager's ability to find companies that meet valuation
criteria rather than his market outlook. The Fund may sell securities for a
variety of reasons, such as to secure gains, limit losses, or redeploy assets
into more promising opportunities.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are seeking a relatively conservative approach to invest for capital growth
in the equity market and are willing to accept price declines. The Fund's value
will change primarily with changes in the prices of the common stocks held by
the Fund. The prices of common stocks will increase and decrease based on market
conditions, specific industry conditions, and the conditions of the individual
companies who issued the common stocks. Loss of money is a risk of investing in
the Fund. In general, common stocks are more volatile than fixed income
securities. However, over the long-term, common stocks have shown greater
potential for capital appreciation. A particular risk of the Sub-Adviser's value
or "contrarian" approach is that some holdings may not recover and provide the
capital growth we anticipate. If the Fund has large holdings in a relatively
small
-9-
<PAGE>
number of companies, disappointing performance by those companies will have a
more adverse impact on the Fund than would be the case with a more diversified
fund. A sizable cash or fixed income position may hinder the Fund from
participating fully in a strong, rapidly rising bull market. In addition,
significant exposure to bonds increases the risk that the Fund's share value
could be hurt by rising interest rates or credit downgrades or defaults. To the
extent that the Fund invests in foreign securities, it is also subject to the
risk that some holdings may lose value because of declining foreign currencies
or adverse political or economic events overseas. To the extent the Fund uses
futures and options, it is exposed to additional volatility and potential
losses.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
This bar chart shows changes in the performance of the Fund's shares
from year to year.*
For years ended December 31,
-5% 0% 5% 10% 15% 20% 25%
1998 6.09%
1997 15.65%
1996 16.37%
1995 22.28%
1994 4.14%
1993 15.79%
1992 9.61%
1991 21.63%
1990 -0.82%
1989 21.19%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
12.44% -9.28%
------------------------------------------
(3/31/91) (9/30/90)
------------------------------------------
-10-
<PAGE>
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Standard & Poor's 500 Composite Index. The S &
P 500 is an unmanaged index that is a widely recognized benchmark of general
market performance. The index is a passive measure of equity market returns. It
does not factor in the costs of buying, selling and holding securities -- costs
which are reflected in the Fund's results.
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Flexibly Managed Fund S & P 500
- --------------------------------------------------------------------------------
1 Year..................... 6.09% 28.57%
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5 Year .................... 12.70% 24.06%
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10 Year ................... 12.93% 18.10%
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-11-
<PAGE>
INTERNATIONAL EQUITY FUND
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: Vontobel USA Inc.
Investment Objective: The investment objective of the International Equity Fund
is to achieve capital appreciation.
Investment Strategy: The Fund invests primarily in common stocks of companies
operating in the countries in Europe and the Pacific Basin that are generally
considered to have developed markets. These include the eleven euro-zone
countries (France, Germany, Italy, Spain, Portugal, Finland, Ireland, Belgium,
the Netherlands, Luxembourg and Austria), the United Kingdom, Switzerland,
Norway, Japan, Hong Kong, Australia, and Singapore. Using a bottom-up investment
approach, the Sub-Adviser invests in large- and medium-capitalization companies
that have a long record of successful operations in their core business.
Typically such companies occupy a leading position in their industry, have
consistently generated free cash flow, and have achieved earnings growth through
increasing market share and unit sales volumes. The Sub-Adviser's goal is to
construct a portfolio of the best companies in the developed markets of Europe
and the Pacific Basin without making any country bets. With approximately 80-100
names, the Fund also seeks to be well diversified in terms of industry exposure.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the risks and uncertainties of international investing
in the hope of realizing capital appreciation while diversifying their
investment portfolio. The Fund's value will change primarily with changes in the
prices of the common stocks held by the Fund. The prices of common stocks held
by the Fund will increase and decrease based on market conditions, specific
industry conditions, and the conditions of the individual companies who issued
the common stocks. Loss of money is a risk of investing in the Fund. In addition
to the general risks of common stocks, foreign investing involves the risk that
news and events unique to a country or region will affect those markets and
their issuers. These same events will not necessarily have an effect on the U.S.
economy or similar issuers located in the United States. In addition, the
Portfolio's investments in foreign countries generally will be denominated in
foreign currencies. As a result, changes in the value of a country's currency
compared to the U.S. dollar may affect the value of the Portfolio's investments.
These changes may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuing company's home
country. The Sub-Adviser may invest in certain instruments, such as forward
currency exchange contracts and may use certain techniques such as hedging, to
manage these risks. However, the Sub-Adviser cannot guarantee that it will
succeed in doing so. In certain markets, it may not be possible to hedge
currency risk.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. Past performance does not necessarily
indicate how the Fund will
-12-
<PAGE>
perform in the future. This performance information does not include the impact
of any charges deducted under your insurance contract. If it did, returns would
be lower.
-13-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
-10% 0% 10% 20% 30% 40%
1998 18.85%
1997 10.41%
1996 16.87%
1995 13.80%
1994 -6.31%
1993 38.14%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
18.63% -14.90%
------------------------------------------
(12/31/98) (9/30/98)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Morgan Stanley Capital International Europe
Australia Far East (EAFE) Index. The Morgan Stanley Capital International EAFE
Index is an unmanaged index that is a widely recognized benchmark of
International Equity performance. The index is a passive measure of equity
market returns. It does not factor in the costs of buying, selling and holding
securities -- costs which are reflected in the Fund's results.
- --------------------------------------------------------------------------------
International Equity Fund MSCI EAFE Index
- --------------------------------------------------------------------------------
1 Year....................... 18.85% 20.00%
- --------------------------------------------------------------------------------
5 Year ...................... 10.33% 9.19%
- --------------------------------------------------------------------------------
Since November 2, 1992*/..... 14.49% 12.67%
- --------------------------------------------------------------------------------
*/ Date of Inception.
-14-
<PAGE>
QUALITY BOND FUND
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The Quality Bond Fund seeks the highest income over the
long term that is consistent with the preservation of principal.
Investment Strategy: The Fund invests primarily in marketable investment-grade
debt securities. The portfolio manager heads up a team of analysts that uses an
active bond management approach. They seek the best "value" by employing the
following strategies: sector and security rotation, yield curve analysis to
determine which maturities to concentrate in, and arbitrage to take advantage of
inefficient pricing of new corporate bond issues. Duration is set for the
portfolio generally at between 3.5 and 5.5 years, depending on the interest rate
outlook.
Quality: The Fund will invest primarily in investment grade debt securities and
no more than 10% of the net assets in "junk bonds."
Sectors: The fund will invest primarily in the following sectors: Corporate
Bonds, U.S. Government Bonds, U.S. Government Agency Securities, Commercial
Paper, Collateralized Mortgage Obligations, and Asset Backed Securities.
Turnover: Because the portfolio management team looks for inefficiencies in the
market and will sell when they feel a security is fully priced, turnover can be
relatively high. The Fund's annual portfolio turnover rates for 1998, 1997 and
1996 were 477%, 317.3% and 107.6% respectively.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are seeking investment income and preservation of principal. The Fund's
value will change, however, primarily with the changes in the prices of the
fixed income securities (a.g., bonds) held by the Fund. The value of the fixed
income securities will vary inversely with changes in interest rates. A decrease
in interest rates will generally result in an increase in value of the Fund.
Conversely, during periods of rising interest rates, the value of the Fund will
generally decline. Longer term fixed income securities tend to experience larger
changes in value than shorter-term securities because they are more sensitive to
interest rate changes. Accordingly, as with investing in other securities whose
values increase and decrease in the market value, loss of money is a risk of
investing in the Fund.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. They only include those periods in
which ICMI managed the Funds investments. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
-15-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
-10% -5% 0% 5% 10% 15% 20% 25%
1998 10.17%
1997 8.03%
1996 4.14%
1995 20.14%
1994 -5.29%
1993 11.67%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
6.31% -4.71%
------------------------------------------
(3/31/95) (3/31/94)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the Lehman Brothers Aggregate Bond Index. The
Lehman Brothers Aggregate Bond Index is an unmanaged index that is a widely
recognized benchmark of general bond performance. The index is a passive measure
of equity market returns. It does not factor in the costs of buying, selling and
holding securities -- costs which are reflected in the Fund's results.
- --------------------------------------------------------------------------------
Lehman Brothers Aggregate
Quality Bond Fund Bond Index
- --------------------------------------------------------------------------------
1 Year........................ 10.17% 8.67%
- --------------------------------------------------------------------------------
5 Year ....................... 7.12% 7.27%
- --------------------------------------------------------------------------------
Since November 1, 1992*/...... 7.97% 7.74%
- --------------------------------------------------------------------------------
*/ Date ICMI began managing the Fund's investments.
-16-
<PAGE>
HIGH YIELD BOND FUND
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: T. Rowe Price Associates, Inc.
Investment Objective: The investment objective of the High Yield Bond Fund is to
realize high current income.
Investment Strategy: The Fund will normally invest at least 65% of its total
assets in a widely diversified portfolio of high-yield corporate bonds, often
called "junk" bonds, income-producing convertible securities and preferred
stocks. High-yield bonds are rated below investment-grade (BB and lower) and
generally provide high income in an effort to compensate investors for their
higher risk of default, that is failure to make required interest or principal
payments. High-yield bond issuers include small or relatively new companies
lacking the history or capital to merit investment-grade status, former blue
chip companies downgraded because of financial problems, companies electing to
borrow heavily to finance or avoid a takeover or buyout, and firms with heavy
debt loads. The Fund may also invest in common stocks, warrants, private
placements, bank loans, hybrid instruments, foreign securities, futures and
options, various types of bonds such as asset-backed, pay-in-kind, and zero
coupon, and other securities. The Fund's dollar weighted average maturity
generally is expected to be in the eight to ten year range. In selecting
investments for the Fund, the Sub-Adviser relies extensively on its research
analysts. When their outlook for the economy is positive, they may purchase
slightly lower-rated bonds in an effort to secure additional income and
appreciation potential. When they are less positive, they may gravitate toward
higher-rated junk bonds.
Risks of Investing: An investment in the Fund may be appropriate for long-term,
risk oriented investors who are willing to accept the greater risks and
uncertainties of investing in high yield fixed income securities in the hope of
earning high current income. Loss of money is a risk of investing in the Fund.
The Fund's value will change primarily with changes in the prices of the fixed
income securities held by the Fund. The value of fixed income securities will
vary inversely with changes in interest rates. A decrease in interest rates will
generally result in an increase in value of the Fund. Conversely, during periods
of rising interest rates, the value of the Fund will generally decline. Longer
term fixed income securities tend to suffer greater declines than shorter-term
securities because they are more sensitive to interest rate changes. Investing
in lower quality fixed income securities involves additional risks, including
credit risk. High Yield bonds may be considered speculative. The value of lower
quality fixed income securities is affected by the creditworthiness of the
companies that issue the securities, general economic and specific industry
conditions. Companies issuing high-yield bonds are not as strong financially as
those with higher credit ratings, so the bonds are usually considered
speculative investments. These companies are more vulnerable to financial
setbacks and recession than more creditworthy companies which may impair their
ability to make interest and principal payments. The share price of the Fund is
expected to be more volatile than the share price of a fund investing in higher
quality securities, which react primarily
-17-
<PAGE>
to the general level of interest rates. In addition, the trading market for
lower quality bonds may be less active and less liquid, that is, the Sub-Adviser
may not be able to sell bonds at desired prices and large purchases or sales of
certain high-yield bond issues can cause substantial price swings. As a result,
the price at which lower quality bonds can be sold may be adversely affected and
valuing such lower quality bonds can be a difficult task. Shareholders may also
be exposed to foreign investing risk, including greater volatility less
liquidity, and the possibility that foreign currencies will decline against the
dollar, lower than the value of securities denominated in these currencies.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
-18-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
-10% 0% 10% 20% 30% 40%
1998 4.79%
1997 15.78%
1996 13.87%
1995 16.41%
1994 7.33%
1993 19.81%
1992 15.8%
1991 37.01%
1990 -9.04%
1989 -0.60%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
14.09% -6.86%
------------------------------------------
(3/31/91) (9/30/90)
------------------------------------------
This table compares the Fund's average annual total return for periods ending
December 31, 1998 to those of the First Boston High Yield Index. The First
Boston Index is a widely recognized benchmark of high yield bond performance.
The index is a passive measure of equity market returns. It does not factor in
the costs of buying, selling and holding securities -- costs which are reflected
in the Fund's results.
- --------------------------------------------------------------------------------
First Boston
High Yield Bond Fund High Yield Index
- --------------------------------------------------------------------------------
1 Year.................... 4.79% 10.74%
- --------------------------------------------------------------------------------
5 Year ................... 8.29% 10.27%
- --------------------------------------------------------------------------------
10 Year .................. 9.85% 11.81%
- --------------------------------------------------------------------------------
-19-
<PAGE>
MONEY MARKET FUND
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The investment objective of the Money Market Fund is to
preserve shareholder capital, maintain liquidity and achieve the highest
possible level of current income consistent therewith.
Investment Strategy: The Fund will invest in a diversified portfolio of high
quality money market instruments, which are rated within the two highest credit
categories assigned by recognized rating organizations or, if not rated, are of
comparable investment quality as determined by the Adviser. Investments include
commercial paper, U.S. Treasury securities, bank certificates of deposit and
repurchase agreements. The Adviser looks for money market instruments that
present minimal credit risks. Important factors in selecting investments include
a company's profitability, ability to generate funds and capital adequacy, and
liquidity of the investment. The Fund will invest only in securities that mature
in 397 days or less. Penn Series policy is to maintain a stable price of $1.00
per share of the Fund.
Risks of Investing: The Fund may be appropriate for investors who want to
minimize the risk of loss of principal and maintain liquidity of their
investment, and at the same time receive a return on their investment. The Fund
follows strict rules about credit risk, maturity and diversification of its
investments. However, although the Fund seeks to preserve the value of your
investment in shares of the Fund at $1.00 per share, there is no guarantee and
it is still possible to lose money. An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Performance Information: The bar chart and the table below show the risks and
volatility of an investment in the Fund. They include only those periods in
which ICMI managed the Fund's investments. Past performance does not necessarily
indicate how the Fund will perform in the future. This performance information
does not include the impact of any charges deducted under your insurance
contract. If it did, returns would be lower.
-20-
<PAGE>
This bar chart shows changes in the performance of the Fund's
shares from year to year.*
For years ended December 31,
0% 1% 2% 3% 4% 5% 6%
1998 5.00%
1997 5.15%
1996 5.00%
1995 5.51%
1994 3.71%
1993 2.53%
* The performance information shown above is based on a calendar year.
------------------------------------------
Best Quarter Worst Quarter
------------------------------------------
1.39% 0.61%
------------------------------------------
(6/30/95) (3/31/93)
------------------------------------------
This table shows the Fund's average annual total return for periods ending
December 31, 1998. To obtain information about the Fund's yield, call
_____________________.
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
1 Year................................. 5.00%
- --------------------------------------------------------------------------------
5 Year ................................ 4.87%
- --------------------------------------------------------------------------------
Since November 1, 1992*/............... 4.43%
- --------------------------------------------------------------------------------
*/ Date ICMI began managing the Fund's investments.
-21-
<PAGE>
ADDITIONAL INFORMATION
Temporary Investing: When a Fund's Adviser or Sub-Adviser believes that changes
in economic, financial or political conditions warrant, each Fund may invest
without limit in money market instruments and other short-term fixed income
securities. If they incorrectly predict the effects of these changes, such
defensive investments may adversely affect Fund performance.
Portfolio Turnover: Consistent with their investment objectives, the Funds may
sell securities without regard to the effect on portfolio turnover. A high rate
of portfolio turnover (e.g. greater than 100%) may result in increased
transaction costs.
Year 2000: The services provided by the Adviser and the Sub-Advisers, as well as
services provided by others, depend on the smooth functioning of computer
systems. Many computer systems in use today may not recognize the Year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated earlier in this century. If not corrected, computer applications
could fail or create erroneous results by or at the Year 2000. Failure of
computer systems could affect pricing, account services, and the handling of
investment transactions, among other things. The Penn Mutual Life Insurance
Company ("Penn Mutual"), Penn Series' administrative and corporate services
agent, began addressing the Year 2000 problem actively in 1996. The effort
involves careful examination of computers, computer programs and related
equipment, making the necessary changes and ensuring that all systems process
dates correctly. Penn Mutual believes that it has designed and implemented an
efficient process for identifying what needs to be changed. Penn Mutual is
working to correct and test systems that its research shows will be affected by
dates in the Year 2000 and beyond, and expect its computer systems to be Year
2000 compliant.
Penn Mutual, on behalf of Penn Series, is contacting Penn Series' service
providers to obtain assurances that such service providers have taken
appropriate measures to address the Year 2000 problem. Where practicable, Penn
Mutual will assess and attempt to mitigate risks that outside service providers
are not Year 2000 ready. Penn Mutual and Penn Series cannot, however, give
assurance that the failure of outside service providers to complete adequate
preparations in a timely manner, and any resulting systems interruptions or
other consequences, would not have an adverse affect, directly or indirectly, on
the Funds, including, without limitation, its operation or the valuation of its
assets.
The costs to Penn Mutual of addressing the Year 2000 problem are significant but
not material to its financial condition or results of operations. Penn Mutual
will continue to incur costs in addressing the Year 2000, but does not
anticipate that the costs will be material going forward.
Year 2000 costs will not affect the Funds.
The foregoing statements are designated Year 2000 Readiness Disclosure within
the meaning of The Year 2000 Information and Readiness Disclosure Act (P.L.
105-271, S. 2392).
-22-
<PAGE>
MANAGEMENT
Investment Adviser
Independence Capital Management, Inc. Independence Capital Management, Inc.
("ICMI") serves as investment adviser to each of the Funds. 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. Penn Mutual and
its subsidiaries currently have assets under management of over $9 billion. ICMI
was organized in June 1989 and, in addition to serving as investment adviser to
the Funds, 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, 1998, ICMI serves as investment adviser for over $549
million of investment assets.
ICMI makes the day-to-day investment decisions for the Growth Equity,
Quality Bond and Money Market Funds and places purchase and sale orders on
behalf of the Funds to implement the investment decisions. The Funds pay ICMI,
on a monthly basis, an advisory fee based on the average daily net assets of
each Fund at the following annual rates: Growth Equity Fund, 0.50%; Quality Bond
Fund, 0.45%; Money Market Fund, 0.40%. The fees will be reduced by 0.05% for any
of the Funds whose assets exceed $100 million.
Richardson T. Merriman, Senior Vice President of Independence Capital
Management, manages the Growth Equity Fund and has served as portfolio manager
of the Fund since 1995. Mr. Merriman is also President of Pennsylvania Trust
Company, a Penn Mutual subsidiary.
Peter M. Sherman, President and Portfolio Manager of Independence Capital
Management, Inc., since September 1995, is primarily responsible for the
day-to-day investment management of the Quality Bond and Money Market Funds. He
served as Executive Vice President, ICMI, prior to becoming President. Mr.
Sherman is Executive Vice President and Chief Investment Officer of Penn Mutual;
prior to May 1996, he was Vice President, Fixed Income Portfolio Management,
Penn Mutual.
In addition, ICMI provides investment management services to the Value
Equity, Small Capitalization, Emerging Growth, Flexibly Managed, International
Equity and High Yield Bond Funds through Sub-Advisers who are specially selected
and qualified to manage the Funds. In accordance with the investment objectives
and policies of the Funds, and under the supervision of ICMI and general
oversight of the Board of Directors of Penn Series, the Sub-Advisers are
responsible for the day-to-day investment management of the Fund, including
placing purchase and sale orders on behalf of the Funds. ICMI has supervisory
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.
-23-
<PAGE>
For providing investment advisory and management services to the Value
Equity, Small Capitalization, Flexibly Managed, International Equity and High
Yield Bond Funds, the Funds pay ICMI, on a monthly basis, an advisory fee based
on average daily net assets of each Fund, at the following annual rates: Value
Equity Fund - 0.50%; Small Capitalization Fund - 0.50%; Flexibly Managed Fund -
0.50%; International Equity Fund - 0.75%; and High Yield Bond Fund - 0.50%.
For providing investment advisory and management services to the Emerging
Growth Fund, the Fund pays ICMI, on a monthly basis, an advisory fee based on
average daily net assets of the Fund, at the following annual rates: 0.80% of
the first $25,000,000 of average daily net assets; 0.75% of the next $25,000,000
of average daily net assets; and 0.70% of the average daily net assets in excess
of $50,000,000.
Sub-Advisers
T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. ("Price
Associates") is sub-adviser to the Flexibly Managed and the High Yield Bond
Funds pursuant to an investment sub-advisory agreement entered into by ICMI and
Price Associates on May 1, 1998. As sub-adviser, Price Associates provides
investment management services to the Funds. Price Associates was incorporated
in 1947 as successor to the investment counseling firm founded by the late Mr.
Thomas Rowe Price, Jr. in 1937. Its corporate home office is located at 100 East
Pratt Street, Baltimore, Maryland 21202. Price Associates serves as investment
adviser to a variety of individual and institutional investors accounts,
including other mutual funds. As of December 31, 1998, Price Associates and its
affiliates, managed more than $147 billion of assets.
For providing investment management services to the Flexibly Managed and
High Yield Bond Funds, ICMI pays Price Associates, on a monthly basis, fees
based on the average daily net assets of each Fund. The fees are paid 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 fees shall be paid at the rate of 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.
Richard P. Howard, Vice President of Price Associates, has been primarily
responsible for the day-to-day investment management of the Flexibly Managed
Fund since 1989. During the past five years, he has served as a Vice President
and an Equity Portfolio Manager of Price Associates.
Mark J. Vaselkiv, Vice President of Price Associates, has been primarily
responsible for the day-to-day investment management of the High Yield Bond Fund
since 1994. During the past
-24-
<PAGE>
five years, he has been a Vice President and a portfolio manager in the taxable
bond department of Price Associates.
OpCap Advisers. OpCap Advisers ("OpCap") is sub-adviser to the Value Equity
and Small Capitalization Funds pursuant to an investment sub-advisory Agreement
entered into by ICMI and OpCap on May 1, 1998. As sub-adviser, OpCap provides
investment management services to the Funds. OpCap is a subsidiary of
Oppenheimer Capital, a registered investment adviser with approximately $63
billion in assets under management on December 31, 1998. OpCap is located at One
World Financial Center, New York, New York 10281. It acts as investment adviser
and sub-adviser to other mutual funds. As of December 31, 1998, OpCap managed
assets of U.S. investment companies with an aggregate value of more than $16
billion.
For providing investment management services to the Value Equity and Small
Capitalization Funds, ICMI pays OpCap, on a monthly basis, fees based on the
average daily net assets of each Fund. The fees are paid 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.
Eileen P. Rominger, Managing Director of Oppenheimer Capital, the parent of
OpCap Advisers, is primarily responsible for the day-to-day investment
management of the Value Equity Fund. Ms. Rominger has had that responsibility
since November 1992. She has been an analyst and portfolio manager at
Oppenheimer Capital since 1981.
Timothy McCormack and Mark F. Degenhart are responsible for the day-to-day
investment management of the Small Capitalization Fund. Timothy McCormack has
been a portfolio manager of the Fund since March 1996. Mr. McCormack, Vice
President of Oppenheimer Capital, joined the firm in 1994. From 1993 to 1994 he
was a security analyst at U.S. Trust Company and prior thereto he was a
securities analyst at Gabelli & Company. He has a Masters of Business
Administration degree from the Wharton School. Mark F. Degenhart became a
portfolio manager of the Fund on May 1, 1999. He joined Oppenheimer Capital in
January 1999 as a Vice President with responsibilities including research,
analysis and investment management. He acts as a portfolio manager for several
small capitalization funds. Prior to joining Oppenheimer Capital, he was
Director of Research and Associate Portfolio Manager at Palisade Capital
Management. From 1990 to 1993, he was a Generalist for Cazenove & Co. and
previously, a Special Situations Analyst at Argus Research Corp. for over three
years. He has a B.S. degree in marketing from the University of Scranton.
Vontobel USA Inc. Vontobel USA Inc. ("Vontobel") is sub-adviser to the
International Equity Fund pursuant to an investment sub-advisory agreement
entered into by ICMI and Vontobel on May 1, 1998. As sub-adviser, Vontobel
provides investment management services to the Fund. Vontobel is a wholly owned
subsidiary of Vontobel Holding Ltd., and an affiliate of
-25-
<PAGE>
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, 1998, 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
$40 billion under management.
For providing investment management services to the International Equity
Fund, ICMI pays Vontobel, on a monthly basis, an advisory fee based on average
daily net assets of the Fund, at the annual rate of 0.50%.
Fabrizio Pierallini, Senior Vice President and Portfolio Manager, Vontobel
USA Inc., is primarily responsible for the day-to-day investment management of
the International Equity Fund. Mr. Pierallini joined Vontobel in April 1994 with
responsibilities for managing international equities. Prior thereto, he served
as Associate Director/Portfolio Manager, Swiss Bank Corporation, New York.
R. S. Investment Management , Inc. R. S. Investment Management, Inc.
(formerly, Rebertson Stephens Investment Management, Inc.) ("RSIM") is sub-
adviser to the Emerging Growth Fund pursuant to an investment sub-advisory
agreement entered into by ICMI and RSIM on October 1, 1997. As sub-adviser, RSIM
provides investment management services to the Fund. RSIM is located at 555
California Street, San Francisco, CA 94104. As of December 31, 1998, RSIM
managed more than $3.8 billion for individual and institutional clients.
ICMI pays Robertson Stephens, on a monthly basis, a sub-advisory fee based
on average daily net assets of the Fund. The sub-advisory fee is paid at the
following rates: (i) 0.70% of the first $25,000,000 of average daily net assets
of the Fund; (ii) 0.65% of the next $25,000,000 of average daily net assets of
the Fund; and (iii) 0.60% of average daily net assets of the Fund in excess of
$50,000,000.
James Callinan, Managing Director of Robertson Stephens & Company
Investment Management, L.P. and Portfolio Manager of Robertson Stephens, is
responsible for managing the Emerging Growth Fund. Mr. Callinan has more than
ten years of investment research and management experience. From 1986 until June
1996, Mr. Callinan was employed by Putnam Investments, where, beginning in June
1994, he served as portfolio manager of the Putnam OTC Emerging Growth Fund. Mr.
Callinan received an A.B. in economics from Harvard College, and M.S. in
accounting from New York University, and an M.B.A. from Harvard Business School,
and is a Chartered Financial Analyst.
Expenses and Limitations
The Funds bear all expenses of its operations other than those incurred by
its investment adviser and sub-advisers under the investment advisory agreement
and investment sub-advisory agreements and those incurred by Penn Mutual under
its administrative and corporate services
-26-
<PAGE>
agreement. In particular, each Fund pays investment advisory fees,
administrator's fee, shareholder servicing fees and expenses, custodian and
accounting fees and expenses, legal and auditing fees, expenses of printing and
mailing prospectuses and shareholder reports, registration fees and expenses,
proxy and annual meeting expenses, and directors' fees and expenses.
With respect to each Fund, the investment adviser, the investment
sub-advisers and Penn Mutual have agreed to waive fees or reimburse expenses to
the extent the Fund's total expense ratio (excluding interest, taxes, brokerage,
other expenses which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses, but including investment
advisory and administrative and corporate services fees) exceeds the expense
limitation for the Fund. The expense limitations for the Funds are as follows:
- --------------------------------------------------------------------------------
Fund Expense Limitation
- --------------------------------------------------------------------------------
Growth Equity 1.00%
- --------------------------------------------------------------------------------
Value Equity 1.00%
- --------------------------------------------------------------------------------
Small Capitalization 1.00%
- --------------------------------------------------------------------------------
Emerging Growth 1.15%
- --------------------------------------------------------------------------------
Flexibly Managed 1.00%
- --------------------------------------------------------------------------------
International Equity 1.50%
- --------------------------------------------------------------------------------
Quality Bond 0.90%
- --------------------------------------------------------------------------------
High Yield Bond 0.90%
- --------------------------------------------------------------------------------
Money Market 0.80%
- --------------------------------------------------------------------------------
All waivers of fees or reimbursements of expenses with respect to the Flexibly
Managed, High Yield Bond, and Emerging Growth Funds will be shared equally by
the sub-advisers and Penn Mutual. For the other Funds, the sub-adviser will
waive fees with regards to the entirety of the first 0.10% of excess above the
expense limitations; Penn Mutual will waive fees or reimburse expenses for the
entirety of any additional excess above the first 0.10%.
For the year ended December 31, 1998, the annualized ratios of operating
expenses (after waivers) to the average net assets for each of the Funds were:
Growth Equity Fund: 0.76%; Value Equity Fund: 0.76%; Small Capitalization Fund:
0.82%; Emerging Growth Fund: 1.15%; Flexibly Managed Fund: 0.76%; International
Equity Fund: 1.08%; Quality Bond Fund: 0.77%; High Yield Bond Fund: 0.82%; Money
Market Fund: 0.72%.
-27-
<PAGE>
ACCOUNT POLICIES
Purchasing and Selling Fund Shares
Shares are offered on each day that the NYSE is open for business (a "Business
Day").
The Funds offer their shares only to Penn Mutual and PIA for separate accounts
they establish to fund variable life insurance and variable annuity contracts.
Penn Mutual or PIA purchases or redeems shares of the Funds based on, among
other things, the amount of net contract premiums or purchase payments allocated
to a separate account investment division, transfers to or from a separate
account investment division, contract loans and repayments, contract withdrawals
and surrenders, and benefit payments. The contract prospectus describes how
contract owners may allocate, transfer and withdraw amounts to, and from,
separate accounts.
The price per share will be the net asset value per share (NAV) next determined
after receipt of the purchase order. NAV for one share is the value of that
share's portion of all of the assets in the Portfolio. The Fund determines the
net asset value for the Funds (except got the Money Market Fund) as of the close
of business of the NYSE (normally 4:00 p.m. Eastern Time) on each day that the
NYSE is open for business. The NAV of the Money Market Fund is calculated at
Noon (Eastern Time) on each day that the NYSE is open.
How the Funds Calculate NAV
In calculating NAV, the Funds (except for the Money Market Portfolio) generally
value their portfolio securities at their market price. If market prices are
unavailable or the Funds think that they are unreliable, the Funds may determine
fair value prices using methods approved by the Board of Directors. Some Funds
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Funds do not calculate NAV. As a
result, the value of these Funds' investments may change on days when you cannot
purchase or sell Fund shares. The Money Market Portfolio values its assets by
the amortized cost method, which approximates market value.
-28-
<PAGE>
Dividends, Distributions and Taxes
Dividends and Distributions
The Funds distribute their investment income annually as dividends and make
distributions of capital gains, if any, at least annually except for
distributions from the Money Market Portfolio which will be made monthly.
Taxes
Please consult your tax adviser regarding your specific questions about federal,
state and local income taxes. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
The Funds expect that they will not have to pay income taxes if they distribute
all of their income and gains. Net income and realized capital gains that the
Funds distribute are not currently taxable to owners of variable annuity or
variable life insurance contracts when left to accumulate in the contracts.
For information on federal income taxation of a life insurance company with
respect to its receipt of distributions from the Funds and federal income
taxation of owners of variable annuity or variable life insurance contracts,
refer to the contract prospectus.
-29-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE MONEY MARKET FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ------------ ---------- ----------- -----------
Income from investment operations:
Net investment income.......................... 0.0489 0.0503 0.0489 0.0538 0.0365
---------- ------------ ---------- ----------- -----------
Total from investment operations............ 0.0489 0.0503 0.0489 0.0538 0.0365
---------- ------------ ---------- ----------- -----------
Less dividends:
Dividends from net investment income........... (0.0489) (0.0503) (0.0489) (0.0538) (0.0365)
---------- ------------ ---------- ----------- -----------
Total dividends................................ (0.0489) (0.0503) (0.0489) (0.0538) (0.0365)
---------- ------------ ---------- ----------- -----------
Net asset value, end of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ============ ========== =========== ===========
Total return............................... 5.00% 5.15% 5.00% 5.51% 3.71%
Ratios/Supplemental data:
Net assets, end of year (in thousands)......... $ 53,626 $ 37,476 $ 34,501 $ 24,726 $ 16,531
========== ============ ========== =========== ===========
Ratio of expenses to average net assets........ 0.72% 0.70% 0.73%(a) 0.69%(a) 0.73%(a)
========== ============ ========== =========== ===========
Ratio of net investment income to average
net assets.................................. 4.88% 5.04% 4.88%(a) 5.37%(a) 3.74%(a)
========== ============ ========== =========== ===========
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been .74%,
.74%, and .79%, and the ratios of net investment income to average net
assets would have been 4.87%, 5.32%, and 3.68% for the years ended December
31, 1996, 1995, and 1994, respectively.
-30-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE QUALITY BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 10.20 $ 10.00 $ 10.24 $ 9.04 $ 10.19
---------- ------------ ---------- ----------- -----------
Income from investment operations:
Net investment income............................ 0.51 0.60 0.66 0.61 0.61
Net realized and unrealized gain (loss) on
investment transactions....................... 0.53 0.20 (0.24) 1.21 (1.15)
---------- ------------ ---------- ----------- -----------
Total from investment operations.............. 1.04 0.80 0.42 1.82 (0.54)
---------- ------------ ---------- ----------- -----------
Less distributions:
Dividend from net investment income.............. (0.51) (0.60) (0.66) (0.61) (0.61)
Distribution from net realized gain.............. (0.33) 0.00 0.00 0.00 0.00
Distribution in excess of net investment income.. 0.00 0.00 0.00 (0.01) 0.00
---------- ------------ ---------- ----------- -----------
Total distributions........................... (0.84) (0.60) (0.66) (0.62) (0.61)
---------- ------------ ---------- ----------- -----------
Net asset value, end of year..................... $ 10.40 $ 10.20 $ 10.00 $ 10.24 $ 9.04
========== ============ ========== =========== ===========
Total return.................................. 10.17% 8.03% 4.14% 20.14% (5.29)%
Ratios/Supplemental data:
Net assets, end of year (in thousands)........... $ 53,505 $ 40,077 $ 37,611 $ 38,048 $ 31,338
========== ============ ========== =========== ===========
Ratio of expenses to average net assets.......... 0.77% 0.75% 0.77%(a) 0.73%(a) 0.78%(a)
========== ============ ========== =========== ===========
Ratio of net investment income to average
net assets.................................... 5.26% 5.87% 6.03%(a) 6.20%(a) 6.14%(a)
========== ============ ========== =========== ===========
Portfolio turnover rate.......................... 477.2% 317.3% 107.6% 449.2% 380.9%
========== ============ ========== =========== ===========
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratio of expenses to average net assets would have been .78%,
.78%, and .83%, and the ratio of net investment income to average net assets
would have been 6.02%, 6.15%, and 6.09% for the years ended December 31,
1996, 1995, and 1994, respectively.
-31-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 22.55 $ 19.32 $ 16.28 $ 12.67 $ 12.68
---------- ------------ ---------- ----------- -----------
Income from investment operations:
Net investment income.......................... 0.31 0.29 0.22 0.25 0.20
Net realized and unrealized gain on
investment transactions..................... 1.85 4.53 3.88 4.50 0.17
---------- ------------ ---------- ----------- -----------
Total from investment operations............ 2.16 4.82 4.10 4.75 0.37
---------- ------------ ---------- ----------- -----------
Less distributions:
Dividend from net investment income............ (0.31) (0.29) (0.22) (0.25) (0.20)
Distribution from net realized gain............ (2.01) (1.30) (0.84) (0.89) (0.18)
---------- ------------ ---------- ----------- -----------
Total distributions......................... (2.32) (1.59) (1.06) (1.14) (0.38)
---------- ------------ ---------- ----------- -----------
Net asset value, end of year................... $ 22.39 $ 22.55 $ 19.32 $ 16.28 $ 12.67
========== ============ ========== =========== ===========
Total return................................ 9.59% 24.98% 25.19% 37.48% 2.92%
Ratios/Supplemental data:
Net assets, end of year (in thousands)......... $ 335,479 $ 302,960 $ 200,674 $ 127,260 $ 79,021
========== ============ ========== =========== ===========
Ratio of expenses to average net assets........ 0.76% 0.76% 0.78% 0.80% 0.82%
========== ============ ========== =========== ===========
Ratio of net investment income to average
net assets.................................. 1.27% 1.43% 1.38% 1.71% 1.59%
========== ============ ========== =========== ===========
Portfolio turnover rate........................ 24.0% 18.7% 25.0% 34.3% 30.6%
========== ============ ========== =========== ===========
</TABLE>
-32-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE GROWTH EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 24.37 $ 21.46 $ 20.00 $ 18.30 $ 20.49
---------- ------------ ---------- ----------- -----------
Income from investment operations:
Net investment income.......................... 0.02 0.10 0.11 0.09 0.13
Net realized and unrealized gain (loss) on
investment transactions..................... 10.12 5.64 3.85 4.75 (1.80)
---------- ------------ ---------- ----------- -----------
Total from investment operations............ 10.14 5.74 3.96 4.84 (1.67)
---------- ------------ ---------- ----------- -----------
Less distributions:
Dividend from net investment income............ (0.02) (0.10) (0.11) (0.09) (0.13)
Distribution from net realized gains........... (3.61) (2.73) (2.39) (3.05) (0.39)
---------- ------------ ---------- ----------- -----------
Total distributions......................... (3.63) (2.83) (2.50) (3.14) (0.52)
---------- ------------ ---------- ----------- -----------
Net asset value, end of year................... $ 30.88 $ 24.37 $ 21.46 $ 20.00 $ 18.30
========== ============ ========== =========== ===========
Total return................................ 41.67% 26.74% 19.76% 26.45% (8.12)%
Ratios/Supplemental data:
Net assets, end of year (in thousands)......... $ 195,692 $ 136,058 $ 106,039 $ 95,593 $ 80,078
========== ============ ========== =========== ===========
Ratio of expenses to average net assets........ 0.76% 0.77% 0.80%(a) 0.77%(a) 0.79%(a)
========== ============ ========== =========== ===========
Ratio of net investment income to average
net assets.................................. 0.08% 0.39% 0.48%(a) 0.43%(a) 0.70%(a)
========== ============ ========== =========== ===========
Portfolio turnover rate........................ 161.3% 169.1% 177.1% 169.8% 156.2%
========== ============ ========== =========== ===========
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratio of expenses to average net assets would have been .81%,
.82%, and .84%, and the ratio of net investment income to average net assets
would have been .47%, .38%, and .65% for the years ended December 31, 1996,
1995, and 1994, respectively.
-33-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................... $ 9.52 $ 8.91 $ 8.44 $ 7.94 $ 9.55
------------ ------------ ------------ ------------ -----------
Income from investment operations:
Net investment income................. 0.79 0.80 0.70 0.80 0.90
Net realized and unrealized gain
(loss) on investment transactions (0.33) 0.61 0.47 0.50 (1.60)
------------ ------------ ------------ ------------ -----------
Total from investment operations... 0.46 1.41 1.17 1.30 (0.70)
------------ ------------ ------------ ------------ -----------
Less distributions:
Dividend from net investment
income............................. (0.79) (0.80) (0.70) (0.80) (0.90)
Distribution in excess of net
investment income.................. 0.00 0.00 0.00 0.00 (0.01)
------------ ------------ ------------ ------------ -----------
Total distributions................ (0.79) (0.80) (0.70) (0.80) (0.91)
------------ ------------ ------------ ------------ -----------
Net asset value, end of year.......... $ 9.19 $ 9.52 $ 8.91 $ 8.44 $ 7.94
============ ============ ============ ============ ===========
Total return....................... 4.79% 15.78% 13.87% 16.41% 7.33%
Ratios/Supplemental data:
Net assets, end of year (in
thousands)......................... $ 69,003 $ 59,138 $ 44,042 $ 36,442 $ 32,081
============ ============ ============ ============ ===========
Ratio of expenses to average net
assets............................ 0.82% 0.81% 0.84% 0.87% 0.86%
============ ============ ============ ============ ===========
Ratio of net investment income to
average net assets................ 8.30% 8.96% 8.14% 9.20% 9.18%
============ ============ ============ ============ ===========
Portfolio turnover rate............... 82.7% 111.3% 118.5% 84.3% 90.7%
============ ============ ============ ============ ===========
</TABLE>
-34-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 19.83 $ 18.74 $ 17.40 $ 15.19 $ 15.70
---------- ------------ ---------- ----------- -----------
Income from investment operations:
Net investment income.......................... 0.60 0.61 0.65 0.53 0.43
Net realized and unrealized gain (loss) on
investment transactions..................... 0.61 2.33 2.19 2.86 0.22
---------- ------------ ---------- ----------- -----------
Total from investment operations............ 1.21 2.94 2.84 3.39 0.65
---------- ------------ ---------- ----------- -----------
Less distributions:
Dividend from net investment income............ (0.60) (0.61) (0.65) (0.53) (0.43)
Distribution in excess of net investment
income...................................... (0.00) 0.00 0.00 (0.01) (0.02)
Distribution from net realized gains........... (2.13) (1.24) (0.85) (0.64) (0.71)
---------- ------------ ---------- ----------- -----------
Total distributions (2.73) (1.85) (1.50) (1.18) (1.16)
---------- ------------ ---------- ----------- -----------
Net asset value, end of year................... $ 18.31 $ 19.83 $ 18.74 $ 17.40 $ 15.19
========== ============ ========== =========== ===========
Total return................................ 6.09% 15.65% 16.37% 22.28% 4.14%
Ratios/Supplemental data:
Net assets, end of year (in thousands)......... $ 545,486 $ 516,139 $ 398,544 $ 266,556 $ 169,847
========== ============ ========== =========== ===========
Ratio of expenses to average net assets........ 0.76% 0.76% 0.77% 0.79% 0.82%
========== ============ ========== =========== ===========
Ratio of net investment income to average
net assets.................................. 2.78% 3.10% 3.90% 3.45% 3.14%
========== ============ ========== =========== ===========
Portfolio turnover rate........................ 48.0% 37.1% 32.9% 37.2% 37.3%
========== ============ ========== =========== ===========
</TABLE>
-35-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995 1994
---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.............. $ 16.13 $ 15.61 $ 14.47 $ 13.01 $ 13.94
---------- ------------ ---------- ----------- -----------
Income (loss) from investment operations:
Net investment income........................... 0.10 0.58 0.63 0.13 0.09
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions................................. 2.93 1.04 1.81 1.67 (0.97)
---------- ------------ ---------- ----------- -----------
Total from investment operations............. 3.03 1.62 2.44 1.80 (0.88)
---------- ------------ ---------- ----------- -----------
Less distributions:
Dividend from net investment income............. (0.10) (0.53) (0.56) (0.12) (0.02)
Distribution in excess of net investment income. (0.08) 0.00 (0.74) (0.22) 0.00
Distribution from net realized gains............ (0.61) (0.57) 0.00 0.00 0.00
Distribution from capital....................... 0.00 0.00 0.00 0.00 (0.03)
---------- ------------ ---------- ----------- -----------
Total distributions.......................... (0.79) (1.10) (1.30) (0.34) (0.05)
---------- ------------ ---------- ----------- -----------
Net asset value, end of year.................... $ 18.37 $ 16.13 $ 15.61 $ 14.47 $ 13.01
========== ============ ========== =========== ===========
Total return................................. 18.85% 10.41% 16.87% 13.80% 6.31%
Ratios/Supplemental data:
Net assets, end of year (in thousands).......... $ 153,822 $ 129,638 $ 104,418 $ 69,531 $ 59,393
========== ============ ========== =========== ===========
Ratio of expenses to average net assets......... 1.08% 1.13% 1.17% 1.23% 1.22%
========== ============ ========== =========== ===========
Ratio of net investment income to average
net assets................................... 0.45% 0.62% 0.66% 0.91% 0.82%
========== ============ ========== =========== ===========
Portfolio turnover rate......................... 43.5% 35.7% 54.8% 62.5% 15.6%
========== ============ ========== =========== ===========
</TABLE>
-36-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND
The following table includes selected data for a share outstanding throughout
each period or year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996 1995*
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period or year... $ 14.43 $ 12.53 $ 10.96 $ 10.00
---------- ------------ ---------- -----------
Income from investment operations:
Net investment income.......................... 0.08 0.07 0.07 0.09
Net realized and unrealized gain (loss) on
investment transactions..................... (1.41) 2.81 2.09 1.19
---------- ------------ ---------- -----------
Total from investment operations............ (1.33) 2.88 2.16 1.28
---------- ------------ ---------- -----------
Less distributions:
Dividend from net investment income............ (0.08) (0.07) (0.07) (0.09)
Distribution from net realized gains........... (0.21) (0.91) (0.52) (0.23)
---------- ------------ ---------- -----------
Total distributions......................... (0.29) (0.98) (0.59) (0.32)
---------- ------------ ---------- -----------
Net asset value, end of period or year......... $ 12.81 $ 14.43 $ 12.53 $ 10.96
========== ============ ========== ===========
Total return................................ (9.16)% 23.02% 19.76% 12.76%(b)
Ratios/Supplemental data:
Net assets, end of period or year
(in thousands).............................. $ 43,635 38,726 16,134 $ 4,828
========== ============ ========== ===========
Ratio of expenses to average net assets........ 0.82% 0.85% 0.99%(a) 1.00%(a)
========== ============ ========== ===========
Ratio of net investment income to average
net assets.................................. 0.65% 0.66% 0.85%(a) 1.53%(a)
========== ============ ========== ===========
Portfolio turnover rate........................ 61.9% 71.1% 39.2% 64.3%
========== ============ ========== ===========
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been 1.06% and
1.29%, and the ratios of net investment income to average net assets would
have been 0.78% and 1.24%, respectively, for the year ended December 31,
1996 and the period ended December 31, 1995.
(b) Not annualized.
* For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
-37-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE EMERGING GROWTH FUND
The following table includes selected data for a share outstanding throughout
each period or year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended Period ended
December December
31, 1998 31, 1997*
------------ ----------
<S> <C> <C>
Net asset value, beginning of period or year................ $ 12.85 $ 10.00
----------- ----------
Income from investment operations:
Net investment income....................................... (0.06) 0.00
Net realized and unrealized gain (loss) on investment
transactions............................................. 4.65 3.92
----------- ----------
Total from investment operations......................... 4.59 3.92
----------- ----------
Less distributions:
Distribution from net realized gains........................ (0.01) (1.07)
----------- ----------
Total distributions...................................... 0.00 (1.07)
----------- ----------
Net asset value, end of period or year...................... $ 17.43 $ 12.85
=========== ==========
Total return............................................. 35.70% 39.22%(c)
Ratios/Supplemental data:
Net assets, end of period or year (in thousands)............ $ 38,664 $ 17,942
=========== ==========
Ratio of expenses to average net assets..................... 1.15%(b) 1.15%(a)(b)
=========== ==========
Ratio of net investment income to average net assets........ (0.66)%(b) (0.73)%(a)(b)
=========== ==========
Portfolio turnover rate..................................... 240.9% 392.3%
=========== ==========
</TABLE>
(a) Annualized.
(b) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been 1.21% and
1.41%, and the ratios of net investment loss to average net assets would
have been (0.73)% and (0.99)%, respectively, for the periods ended December
31, 1998 and December 31, 1997.
(c) Not annualized.
* For the period from May 1, 1997 (commencement of operations) through December
31, 1997.
-38-
<PAGE>
Statement of Additional Information
In addition to this Prospectus, Penn Series has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Funds. The SAI is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus.
Shareholder Reports
Penn Series publishes annual and semi-annual reports containing additional
information about each Fund's investments. In Penn Series' shareholder reports,
you will find a discussion of the market conditions and the investment
strategies that significantly affected each Fund's performance during that
period.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at 1-800-523-0650.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington, D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the
Commission's web site at "http://www.sec.gov"; or (3) By mail; you may request
documents, upon payment of a duplicating fee, by writing to Securities Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, Penn Series' Investment Company Act registration
number is 811-03459.
-39-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PENN SERIES FUNDS, INC.
600 Dresher Road
Horsham, Pennsylvania 19044
Penn Series Funds, Inc. ("Penn Series") is a no-load mutual fund with nine
separate investment portfolios (the "Funds").
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
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Penn Series prospectus dated May 1, 1999. A copy of the
prospectus is available, without charge, by writing to The Penn Mutual Life
Insurance Company, Customer Service Group - H3F, Philadelphia, PA, 19172. Or,
you may call, toll free, 1-800-548-1119.
The date of this Statement of Additional Information is May 1, 1999.
<PAGE>
TABLE OF CONTENTS
Investment Objectives.........................................................2
Investment Policies...........................................................3
Securities and Investment Techniques..........................................9
Investments in Debt Securities.......................................9
Investments in Foreign Equity Securities............................12
Investments in Smaller Companies....................................12
Foreign Currency Transactions.......................................12
Repurchase Agreements...............................................14
Lending of Portfolio Securities.....................................14
Illiquid Securities.................................................15
Warrants ...........................................................15
When-Issued Securities..............................................15
The Quality Bond Fund's Policy Regarding Industry Concentration.....15
Options ...........................................................16
Futures Contracts...................................................17
Investment Companies................................................17
Loan Participations and Assignments.................................18
Trade Claims........................................................18
Investment Restrictions......................................................20
Growth Equity Fund..................................................20
Value Equity Fund...................................................21
Small Capitalization Fund...........................................22
Emerging Growth Fund................................................23
Flexibly Managed Fund...............................................23
International Equity Fund...........................................24
Quality Bond Fund...................................................25
High Yield Bond Fund................................................26
Money Market Fund...................................................27
General Information..........................................................30
Investment Advisory Services........................................30
Administrative and Corporate Services...............................31
Accounting Services.................................................32
Limitation on Fund Expenses.........................................33
Portfolio Transactions..............................................33
Directors and Officers..............................................36
Custodial Services..................................................37
Independent Auditors................................................37
Legal Matters.......................................................37
Net Asset Value of Shares...........................................37
Ownership of Shares.................................................38
Tax Status..........................................................38
Ratings of Commercial Paper..................................................40
Ratings of Corporate Debt Securities.........................................41
Financial Statements of Penn Series..........................................43
Report of Independent Auditors...............................................__
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objectives of the Funds are as follows. There can be no
assurance that these objectives will be achieved.
- --------------------------------------------------------------------------------
Growth Equity Fund long-term growth of capital and increase
of future income;
- --------------------------------------------------------------------------------
Value Equity Fund maximize total return (capital
appreciation and income);
- --------------------------------------------------------------------------------
Small Capitalization Fund capital appreciation;
- --------------------------------------------------------------------------------
Emerging Growth Fund capital appreciation;
- --------------------------------------------------------------------------------
Flexibly Managed Fund maximize total return (capital
appreciation and income);
- --------------------------------------------------------------------------------
International Equity Fund capital appreciation;
- --------------------------------------------------------------------------------
Quality Bond Fund the highest income over the long term
consistent with the preservation of principal;
- --------------------------------------------------------------------------------
High Yield Bond Fund high current income;
- --------------------------------------------------------------------------------
Money Market Fund to preserve shareholder capital, maintain
liquidity and achieve the highest possible
level of current income consistent therewith.
2
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Information in this Statement of Additional Information supplements the
discussion in the Penn Series Prospectus regarding investment policies and
restrictions of the Funds. Unless otherwise specified, the investment policies
and restrictions are not fundamental policies and may be changed by the Board of
Directors without shareholder approval. Fundamental policies and restrictions of
each Fund may not be changed without the approval of at least a majority of the
outstanding shares of that Fund or, if it is less, 67% of the shares represented
at a meeting of shareholders at which the holders of 50% or more of the shares
are represented.
- --------------------------------------------------------------------------------
Growth Equity Fund
Ordinarily, the Fund's assets will be invested primarily in common stocks,
but the Fund may also invest in convertible securities, preferred stocks, and
securities of foreign issuers which hold the prospect of contributing to the
achievement of the Fund's objectives. The Fund's holdings are generally listed
on a national securities exchange. While the Fund may invest in unlisted
securities, such securities will usually have an established over-the-counter
market. In addition, the Fund may increase its reserves for temporary defensive
purposes or to enable it to take advantage of buying opportunities. The Fund's
reserves will be invested in money market instruments, such as U.S. Government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
and short-term corporate debt securities or shares of investment companies that
invest in such instruments. The Fund may write covered call options and purchase
put options on its portfolio securities, purchase call or put options on
securities indices and invest in stock index futures contracts (and options
thereon) for hedging purposes. As a matter of fundamental policy, the Fund will
not purchase the securities of any company if, as a result, more than 25% of its
total assets would be concentrated in any one industry.
- --------------------------------------------------------------------------------
Value Equity Fund
The Fund will invest primarily in common stock, and may invest in other
equity securities, including preferred stocks and bonds, debentures and notes
convertible into common stocks and depository receipts for such securities. The
Fund may write covered call options and purchase put options on its portfolio
securities, purchase call or put options on securities indices and invest in
stock index futures' contracts (and options thereon) for hedging purposes. As a
matter of fundamental policy, the Fund will not purchase the securities of any
company if, as a result, more than 25% of the Fund's assets would be
concentrated in any one industry.
The Fund may also invest its assets in fixed income securities (corporate,
government, and municipal bonds of various maturities), preferred stock, and
warrants. The Fund will generally purchase debt securities that are considered
investment grade securities (e.g., AAA, AA, A, or BBB by S&P, or Aaa, Aa, A, or
Baa by Moody's), or, if not rated, are of equivalent investment quality as
determined by OpCap Advisors. Debt securities within the top credit categories
(e.g., AAA, AA, and A by S&P) comprise what are generally known as high-grade
bonds. Medium-grade bonds (e.g., BBB by S&P) are regarded as having an adequate
capacity to pay principal and interest, although adverse economic conditions or
changing circumstances are more likely to lead to a weakening of such capacity
than that for higher grade bonds. The Fund may also invest up to 5% of its
assets in noninvestment grade debt securities, which are also known as "junk
bonds." The Fund may, from time to time, invest in municipal bonds when the
expected total return from such bonds appears to exceed the total returns
obtainable from corporate or government bonds of similar credit quality. The
Fund's holdings are generally listed on a national securities exchange. While
the Fund may invest in unlisted securities, such securities will usually have an
established over-the-counter market.
- --------------------------------------------------------------------------------
Small Capitalization Fund
The Fund will invest primarily in common stocks, and may also invest in
bonds, convertible securities, preferred stocks and securities of foreign
issuers which hold the prospect of contributing to the achievement of the Fund's
objective. The majority of securities purchased by the Fund will be traded on
the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market. It is the present intention of the Fund to invest no
more than 5% of its assets in bonds rated below Baa by Moody's or BBB by S&P,
sometimes referred to as "junk bonds." The Fund may write covered call options
and purchase put options on its portfolio securities, purchase put or call
options on securities indices and invest in stock index futures contracts (and
options thereon) for hedging or other non-speculative purposes.
3
<PAGE>
- --------------------------------------------------------------------------------
Emerging Growth Fund
The Fund will invest primarily in common stocks, and may also invest in
bonds, convertible securities, preferred stocks and securities of foreign
issuers which hold the prospect of contributing to the achievement of the Fund's
objective. The Fund may also invest in bonds rated below Baa by Moody's or BBB
by S&P (sometimes referred to as "junk bonds"), but presently does not expect
such investments in any such bonds to exceed 5% of the Fund's assets. The Fund
may write covered call options and purchase put options on its portfolio
securities, purchase put and call options on securities indices and invest in
stock index futures contracts (and options thereon) for hedging and other
non-speculative purposes.
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Flexibly Managed Fund
In addition to investing in common stocks, the Fund may invest in the
following securities:
o Equity-related securities, such as convertible securities (i.e., bonds
or preferred stock convertible into or exchangeable for common stock),
preferred stock, warrants, futures, and options.
o Corporate debt securities within the four highest credit categories
assigned by established rating agencies, which include both high and
medium-quality investment grade bonds. The Fund may also invest in
non-investment grade corporate debt securities, which are sometimes
referred to as "junk bonds," if immediately after such investment the
Fund would not have more than 15% of its total assets invested in such
securities. The Fund's investment in all corporate debt securities
will be limited to 35% of net assets. The Fund's convertible bond
holdings will not be subject to these debt limits, but rather, will be
treated as equity-related securities. Medium-quality investment grade
bonds are regarded as having an adequate capacity to pay principal and
interest although adverse economic conditions or changing
circumstances are more likely to lead to a weakening of such capacity
than that for higher grade bonds.
o Short-term reserves (i.e., money market instruments), which may be
used to reduce downside volatility during uncertain or declining
equity market conditions. The Fund's reserves will be invested in the
following high-grade money market instruments: U.S. Government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities and repurchase agreements.
If the Fund's position in money market securities maturing in one year or
less equals 35% or more of the Fund's total assets, the Fund will normally have
25% or more of its assets concentrated in securities of the banking industry.
Investments in the banking industry may be affected by general economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. The adviser believes that any risk to the Fund which might result
from concentrating in the banking industry will be minimized by diversification
of the Fund's investments, the short maturity of money market instruments, and
the advisers' credit research.
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International Equity Fund
Under normal circumstances the Fund will have at least 65% of its assets
invested in European and Pacific Basin equity securities. The Fund intends to
diversify investment broadly among countries and to invest in the securities of
companies in not less than three different countries, in addition to the United
States.
The Fund may not always purchase securities on the principal market. For
example, American Depository Receipts ("ADRs") may be purchased if trading
conditions make them more attractive than the underlying security. ADRs are
registered receipts typically issued in the U.S. by a bank or trust company
evidencing ownership of an underlying foreign security. The Fund may invest in
ADRs which are structured by a U.S. bank without the sponsorship of the
underlying foreign issuer. In addition to the risks of foreign investment
applicable to the underlying securities, such unsponsored ADRs may also be
subject to the risks that the foreign issuer may not be obligated to cooperate
with the U.S. bank, may not provide additional financial and other information
to the bank or the investor, or that such information in the U.S. market may not
be current. The Fund may likewise utilize European Depository Receipts ("EDRs"),
which are receipts typically issued in Europe by a bank or trust company
evidencing ownership of an underlying foreign security. Unlike ADRs, EDRs are
issued in bearer form. For purposes of determining the country of origin, ADRs
and EDRs will not be deemed to be domestic securities.
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The Fund may also acquire fixed income investments where these fixed income
securities are convertible into equity securities (and which may therefore
reflect appreciation in the underlying equity security), and where anticipated
interest rate movements, or factors affecting the degree of risk inherent in a
fixed income security, are expected to change significantly so as to produce
appreciation in the security consistent with the objective of the Fund. Fixed
income securities in which the Fund may invest will be rated at the time of
purchase Baa or higher by Moody's Investor Service, Inc., or BBB or higher by
Standard and Poor's Ratings Group or, if they are foreign securities which are
not subject to standard credit ratings, the fixed income securities will be
"investment grade" issues (in the judgment of the adviser) based on available
information.
The Fund may invest in securities which may be considered to be
"thinly-traded" if they are deemed to offer the potential for appreciation, but
does not presently intend to invest more than 5% of its total assets in such
securities. The trading volume of such securities is generally lower and their
prices may be more volatile as a result, and such securities are less likely to
be exchange-listed securities. The Fund may also invest, subject to
restrictions, in options (puts and calls) and restricted securities.
Additional Risk Considerations. Investments in foreign securities involve
sovereign risk in addition to the credit and market risks normally associated
with domestic securities. Such foreign investments may also be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
the financial markets on which they are traded may be subject to less strict
governmental supervision, and foreign brokerage commissions and custodian fees
are generally higher than in the United States. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and currency blockage (which would prevent cash
from being brought back to the United States). A contract owner who selects this
Fund will incur the risks generally associated with investment in equity
securities and, in addition, the risk of losses attributable to changes in
currency exchange rates to the extent that those risks are not adequately hedged
by the investment adviser.
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Quality Bond Fund
The Fund invests in a diversified portfolio primarily consisting of long,
intermediate, and short-term marketable (i.e., securities for which market
quotations are readily available) debt securities. Except as provided below, the
Fund will only purchase debt securities that are considered investment grade
securities (e.g., AAA, AA, A, or BBB by S&P) by at least one of the established
rating agencies (S&P, Moody's, Duff & Phelps, Inc., Fitch Investors Service,
Inc., or McCarthy, Crisanti & Maffei, Inc.) or, if not rated, are of equivalent
investment quality as determined by the investment adviser. The Fund may also
invest up to 10% of its net assets in securities rated BB or B by S&P (or
securities with a comparable rating by another established rating agency), which
are sometimes referred to as "junk bonds." In normal times, at least 80% of the
Fund's total assets will be invested in income producing securities. At least
75% of the value of the Fund's total assets (not including cash) will be
invested in one or more of the following categories of investments: (i)
Marketable Corporate Debt Securities; (ii) U.S. Government Obligations; (iii)
U.S. Government Agency Securities; (iv) Bank Obligations; (v) Savings and Loan
Obligations; (vi) Commercial Paper; (vii) Collateralized Mortgage Obligations;
(viii) Securities of Certain Supranational Organizations; (ix) Repurchase
Agreements involving these securities; (x) Private Placements (restricted
securities); (xi) Asset Backed Securities; and (xii) Municipal Obligations. In
addition, the Fund may, as part of this minimum 75% of its assets, write covered
call options and purchase put options on its portfolio securities, purchase call
or put options on securities indices and invest in interest rate futures
contracts (and options thereon) for hedging purposes. Without regard to the
above described quality of investments, the Fund may invest up to 25% of the
value of its total assets (not including cash) in Convertible Securities, which
can be converted into or which carry warrants to purchase common stock or other
equity interests, and Preferred and Common Stocks. The Fund may from time to
time purchase these securities on a when-issued basis; the value of such
income-producing securities may decline or increase prior to settlement date.
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High Yield Bond Fund
The Fund will invest at least 80% of the value of its total assets in a
widely diversified portfolio of high-yield corporate bonds, often called "junk"
bonds, income-producing convertible securities and preferred stocks. The
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Fund seeks to invest its assets in securities rated Ba or lower by Moody's, or
BB or lower by S&P, or, if not rated, of comparable investment quality as
determined by Price Associates.
Because high yield bonds involve greater risks than higher quality bonds,
they are referred to as "junk bonds." The Fund may, from time to time, purchase
bonds that are in default, rated Ca by Moody's or CC by S&P, if, in the opinion
of Price Associates, there is potential for capital appreciation. Such bonds are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation (see "Ratings of Corporate Debt Securities"). In addition, the Fund
may invest its portfolio in medium quality investment grade securities (rated
Baa by Moody's or BBB by S&P) which provide greater liquidity than lower quality
securities. Moreover, the Fund may, for temporary defensive purposes under
extraordinary economic or financial market conditions, invest in higher quality
securities.
Investments in the Fund's portfolio may include: (i) Corporate Debt
Securities; (ii) U.S. Government Obligations; (iii) U.S. Government Agency
Securities; (iv) Bank Obligations; (v) Savings and Loan Obligations; (vi)
Commercial Paper; (vii) Securities of Certain Supranational Organizations;
(viii) Repurchase Agreements involving these securities; (ix) Private Placements
(restricted securities); (x) Foreign Securities; (xi) Convertible
Securities--debt securities convertible into or exchangeable for equity
securities or debt securities that carry with them the right to acquire equity
securities, as evidenced by warrants attached to such securities or acquired as
part of units of the securities; (xii) Preferred Stocks--securities that
represent an ownership interest in a corporation and that give the owner a prior
claim over common stock on the company's earnings and assets; (xiii) Loan
Participation and Assignments; (xiv) Trade Claims and (xv) Zero Coupon and
Pay-in-Kind Bonds. The Fund may purchase securities, from time to time, on a
when-issued basis; the value of such securities may decline or increase prior to
settlement date.
Credit Analysis. Because investment in lower and medium quality
fixed-income securities involves greater investment risk, including the
possibility of default or bankruptcy, achievement of the Fund's investment
objectives will be more dependent on Price Associates' credit analysis than
would be the case if the Fund were investing in higher quality fixed-income
securities. Although the ratings of Moody's or S&P are used as preliminary
indicators of investment quality, a credit rating assigned by such a commercial
rating service will not measure the market risk of lower quality bonds and may
not be a timely reflection of the condition and economic viability of an
individual issuer.
Price Associates therefore places primary significance on its own in-depth
credit analysis and security research. All of the Fund's investments will be
selected from an approved list of securities deemed appropriate for the Fund by
Price Associates, which maintains a credit rating system based upon comparative
credit analyses of issuers within the same industry and individual credit
analysis of each company. These analyses take into consideration such factors as
a corporation's present and potential liquidity, profitability, internal
capability to generate funds, and adequacy of capital. Although some issuers do
not seek to have their securities rated by Moody's or S&P, such unrated
securities will also be purchased by the Fund only after being subjected to
analysis by Price Associates. Unrated securities are not necessarily of lower
quality than rated securities, but the market for rated securities is usually
broader.
Maturity. The maturity of debt securities may be considered long (10 plus
years), intermediate (1 to 10 years), or short-term (12 months or less). The
proportion invested by the Fund in each category can be expected to vary
depending upon the evaluation of market patterns and trends by Price Associates.
The Fund's dollar weighted average maturity is expected to be in the 8 to 12
year range.
Yield and Price. Lower to medium quality, long-term fixed-income
securities typically yield more than higher quality, long-term fixed-income
securities. Thus, the Fund's yield normally can be expected to be higher than
that of a fund investing in higher quality debt securities. The yields and
prices of lower quality fixed income securities may tend to fluctuate more than
those for higher rated securities. In the lower quality segments of the fixed
income markets, changes in perception of issuers' creditworthiness tend to occur
more frequently and in a more pronounced manner than do changes in higher
quality securities, which may result in greater price and yield volatility. For
a given period of time, the Fund may have a high yield but a negative total
return.
Other Investments. The Fund may invest up to 20% of its total assets in
dividend-paying common stocks (including up to 10% in warrants to purchase
common stocks) that are considered by Price Associates to be consistent with the
Fund's current income and capital appreciation investment objectives. In seeking
higher
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<PAGE>
income or a reduction in principal volatility, the Fund may write covered call
options and purchase covered put options and spreads and purchase uncovered put
options and uncovered call options; and the Fund may invest in interest rate
futures contracts (and options thereon) for hedging purposes. There are also
special risks associated with investments in foreign securities whether
denominated in U.S. dollars or foreign currencies. These risks include
potentially adverse political and economic developments overseas, greater
volatility, less liquidity and the possibility that foreign currencies will
decline against the dollar, lower the value of securities denominated in those
currencies. Currency risk affects the Fund to the extent that it holds nondollar
foreign bonds.
Additional Risks of High Yield Investing. There can be no assurance that
the High Yield Bond Fund will achieve its investment objective. The high yield
securities in which the Fund may invest are predominantly speculative as regards
the issuer's continuing ability to meet principal and interest payments. The
value of the lower quality securities in which the Fund may invest will be
affected by the creditworthiness of individual issuers, general economic and
specific industry conditions, and will fluctuate inversely with changes in
interest rates. Furthermore, the share price and yield of the Fund are expected
to be more volatile than the share price and yield of a fund investing in higher
quality securities, which react primarily to movements in the general level of
interest rates. Price Associates carefully considers these factors and the Fund
attempts to reduce risk by diversifying its portfolio, by analyzing the
creditworthiness of individual issuers, and by monitoring trends in the economy,
financial markets, and specific industries. Such efforts, however, will not
eliminate risk. High yield bonds may be more susceptible than investment grade
bonds to real or perceived adverse economic and competitive industry conditions.
High yield bond prices may decrease in response to a projected economic downturn
because the advent of a recession could lessen the ability of highly leveraged
issuers to make principal and interest payments on their debt securities. Highly
leveraged issuers also may find it difficult to obtain additional financing
during a period of rising interest rates. In addition, the secondary trading
market for lower quality bonds may be less active and less liquid than the
trading market for higher quality bonds. As such, the prices at which lower
quality bonds can be sold may be adversely affected and valuing such lower
quality bonds can be a difficult task. If market quotations are not available,
these securities will be valued by a method that, in the good faith belief of
the Fund's Board of Directors, accurately reflects fair value. The judgment of
the Penn Series Board of Directors plays a greater role in valuing high yield
securities than is the case with respect to securities for which more objective
market data are available.
During 1998 the dollar weighted average ratings (computed monthly) of the
debt obligations held by the Fund (excluding equities and reserves), expressed
as a percentage of the Fund's total net investments, were as follows:
Standard and Poor's Ratings Percentage of Total Net Investments**
AAA 0.3%
AA 0.0%
A 0.0%
BBB 0.3%
BB 14.1%
B 64.3%
CCC 3.8%
CC 0.3%
C 0.1%
D 4.1%
Unrated*
* Price Associates has advised that in its view the unrated debt obligations
were comparable in quality to debt obligations rated in the S&P categories as
follows: BBB: 0.0%; BB: 0.7%; B: 3%; CCC: 0.3%; CC: 0.0%; C: 0.0%; D: 0.0%;
Unrated: 4.1%.
** Unaudited.
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Money Market Fund
Investment Program. The Fund invests in a diversified portfolio of money
market securities, limited to those described below, which are rated within the
two highest credit categories assigned by nationally recognized statistical
rating organizations, or, if not rated, are of comparable investment quality as
determined by Independence Capital Management and approved by the Penn Series
Board of Directors. Such securities include: (i) U.S. Government Obligations;
(ii) U.S. Government Agency Securities; (iii) Bank Obligations; (iv) Commercial
Paper;
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(v) Short-Term Corporate Debt Securities; (vi) Canadian Government Securities,
limited to 10% of the Fund's assets; (vii) Savings and Loan Obligations; (viii)
Securities of Certain Supranational Organizations; (ix) Repurchase Agreements
involving these securities other than Foreign Securities; (x) Foreign
Securities--U.S. dollar-denominated money market securities issued by foreign
issuers, foreign branches of U.S. banks and U.S. branches of foreign banks; and
(xi) Asset Backed Securities. Certain of the securities may have adjustable
rates of interest with periodic demand features. The Fund may also invest in
securities of investment companies that invest in money market securities
meeting the foregoing criteria.
Portfolio Quality. The Fund will invest in U.S. dollar-denominated money
market instruments determined by Independence Capital Management, under
guidelines adopted by the Penn Series Board of Directors, to present minimum
credit risk. This determination will take into consideration such factors as
liquidity, profitability, ability to generate funds and capital adequacy. In
addition, the Fund will observe investment restrictions contained in Rule 2a-7
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940, including the following: (a) the Fund will not invest in a
money market instrument if, as a result, more than the greater of 1% of the
Fund's total assets or $1,000,000 would be invested in securities of that issuer
which are not rated in the highest rating category of nationally recognized
statistical rating organizations (or, if not rated, are not of comparable
quality); and (b) the Fund will not invest in a money market instrument if, as a
result, more than 5% of the Fund's total assets would be invested in securities
which are not rated in the highest rating category of nationally recognized
statistical rating organizations (or, if not rated, are not of comparable
quality).
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SECURITIES AND INVESTMENT TECHNIQUES
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Investments in Debt Securities
Debt securities in which one or more of the Funds may invest in include
those described below.
U.S. Government Obligations. The Funds may invest in bills, notes, bonds,
and other debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in the length of their
maturities.
U.S. Government Agency Securities. The Funds may invest in debt securities
issued or guaranteed by U.S. Government sponsored enterprises, federal agencies,
and international institutions. These include securities issued by the Federal
National Mortgage Association, Government National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm
Credit Banks, and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; and the
remainder are supported only by the credit of the instrumentality.
Long-Term, Medium to Lower Quality Corporate Debt Securities. The High
Yield Bond Fund will invest in outstanding convertible and nonconvertible
corporate debt securities (e.g., bonds and debentures) that generally have
maturities between 8 and 12 years. This Fund will generally invest in long-term
corporate obligations which are rated BBB or lower by Standard & Poor's Ratings
Group ("Standard & Poor's") or Baa or lower by Moody's Investors Service, Inc.
("Moody's"), or, if not rated, are of equivalent quality as determined by the
Fund 's investment adviser. Other Funds may invest limited amounts in medium to
lower quality corporate debt securities in accordance with their stated
investment policies. The Flexibly Managed Fund may invest up to 15% of its
assets in medium to lower quality corporate debt.
Investment Grade Corporate Debt Securities. The Quality Bond Fund will
invest principally in corporate debt securities of various maturities that are
considered investment grade securities by at least one of the established rating
services (e.g., AAA, AA, A, or BBB by Standard & Poor's) or, if not rated, are
of equivalent quality as determined by the Fund's investment adviser,
Independence Capital Management, Inc. ("ICMI").
Bank Obligations. The Funds may invest in certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Certificates of deposit are
short-term obligations of commercial banks. A bankers' acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with
international commercial transactions.
No Fund will invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank by any
one Income Fund is limited to $100,000 and the principal amount of such
investment is insured in full by the Federal Deposit Insurance Corporation, (ii)
in the case of a U.S. Bank, it is a member of the Federal Deposit Insurance
Corporation, and (iii) in the case of foreign banks, the security is, in the
opinion of the Fund's investment adviser, of an investment quality comparable
with other debt securities which may be purchased by the Fund. These limitations
do not prohibit investments in securities issued by foreign branches of U.S.
banks, provided such U.S. banks meet the foregoing requirements.
Commercial Paper. The Funds may invest in short-term promissory notes
issued by corporations primarily to finance short-term credit needs. The Money
Market Fund will only invest in commercial paper which is rated A-2 or better by
Standard & Poor's, Prime-2 or better by Moody's or, if not rated, is of
equivalent quality as determined by the investment adviser, and further will
invest only in instruments permitted under the SEC Rule 2a-7 which governs money
market fund investing.
Canadian Government Securities. The Funds may invest in debt securities
issued or guaranteed by the Government of Canada, a Province of Canada, or an
instrumentality or political subdivision thereof. However, the Money Market Fund
will only purchase these securities if they are marketable and payable in U.S.
dollars. The Money Market Fund will not purchase any such security if, as a
result, more than 10% of the value of its total assets would be invested in such
securities.
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Savings and Loan Obligations. The Quality Bond, High Yield Bond, and Money
Market Funds may invest in negotiable certificates of deposit and other debt
obligations of savings and loan associations. They will not invest in any
security issued by a savings and loan association unless: (i) the savings and
loan association has total assets of at least $1 billion, or, in the case of
savings and loan associations which do not have total assets of at least $1
billion, the aggregate investment made in any one savings and loan association
is limited to $100,000 and the principal amount of such investment is insured in
full by the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation; (ii) the savings and loan association issuing the security is a
member of the Federal Home Loan Bank System; and (iii) the security is insured
by the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation.
No Fund will purchase any security of a small bank or savings and loan
association which is not readily marketable if, as a result, more than 10% of
the value of its total assets would be invested in such securities, other
illiquid securities, and securities without readily available market quotations,
such as restricted securities and repurchase agreements maturing in more than
seven days.
Municipal Obligations. The Quality Bond and Value Equity Funds may invest
in Municipal Obligations that meet the Fund's quality standards. The two
principal classifications of Municipal Obligations are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Revenue securities
include private activity bonds which are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal Obligations may include variable and floating rate instruments.
If such instruments are unrated, they will be determined by the adviser to be of
comparable quality at the time of the purchase to rated instruments purchasable
by a Fund.
To the extent a Fund's assets are to a significant extent invested in
Municipal Obligations that are payable from the revenues of similar projects,
the Fund will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects to a greater extent than it would
be if its assets were not so invested.
Foreign Debt Securities. Subject to the particular Fund's quality and
maturity standards, the Quality Bond, High Yield Bond and Money Market Funds may
invest without limitation in the debt securities (payable in U.S. dollars) of
foreign issuers in developed countries and in the securities of foreign branches
of U.S. banks such as negotiable certificates of deposit (Eurodollars). The High
Yield Bond Fund may also invest up to 20% of its assets in non-U.S.
dollar--denominated fixed-income securities principally traded in financial
markets outside the United States.
The International Equity Fund may invest in debt securities of foreign
issuers. The securities will be rated Baa or higher by Moody's Investor
Services, Inc. or BBB or higher by Standard and Poor's Ratings Group or, if they
have not been so rated, will be the equivalent of investment grade (Baa or BBB)
as determined by the adviser or sub-adviser. The Value Equity Fund may also
invest up to 15% of its assets in U.S.-traded dollar denominated debt securities
of foreign issuers, and up to 5% of its assets in non-dollar denominated fixed
income securities issued by foreign issuers.
The Small Capitalization and Emerging Growth Funds may also invest up to
15% of its assets in U.S.-traded dollar denominated debt securities of foreign
issuers, and up to 5% of its assets in non-dollar denominated fixed income
securities issued by foreign issuers.
For information on risks involved in investing in foreign securities, see
information on "Investment in Foreign Equity Securities" below.
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Prime Money Market Securities Defined. Prime money market securities
include: U.S. Government obligations; U.S. Government agency securities; bank or
savings and loan association obligations issued by banks or savings and loan
associations whose debt securities or parent holding companies' debt securities
or affiliates' debt securities guaranteed by the parent holding company are
rated AAA or A-1 or better by Standard & Poor's, Aaa or Prime-1 by Moody's, or
AAA by Fitch; commercial paper rated A-1 or better by Standard & Poor's, Prime-1
by Moody's, or, if not rated, issued by a corporation having an outstanding debt
issue rated AAA by Standard & Poor's, Moody's, or Fitch; short-term corporate
debt securities rated AAA by Standard & Poor's, Moody's, or Fitch; Canadian
Government securities issued by entities whose debt securities are rated AAA by
Standard & Poor's, Moody's, or Fitch; and repurchase agreements where the
underlying security qualifies as a prime money market security as defined above.
Collateralized Mortgage Obligations. The Quality Bond Fund may invest in
collateralized mortgage obligations ("CMOs"). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Fund invests, the investment may be subject to a greater or lesser risk of
prepayment than other types of mortgage-related securities. CMOs may also be
less marketable than other securities.
Asset-Backed Securities. The Quality Bond and Money Market Funds may invest
a portion of their assets in debt obligations known as "asset-backed
securities." The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such securities, how
well the entity issuing the security is insulated from the credit risk of the
originator or any other affiliated entities, and the amount and quality of any
credit support provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety of
economic and other factors. As a result, the yield on any asset-backed security
is difficult to predict with precision and actual yield to maturity may be more
or less than the anticipated yield to maturity. Asset-backed securities may be
classified as "pass through certificates" or "collateralized obligations."
"Pass through certificates" are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets. Pass
through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because pass
through certificates represent an ownership interest in the underlying assets,
the holders thereof bear directly the risk of any defaults by the obligors on
the underlying assets not covered by any credit support.
Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or automobile
receivables. The assets collateralizing such asset-backed securities are pledged
to a trustee or custodian for the benefit of the holders thereof. Such issuers
generally hold no assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments on such
asset-backed securities are obligations of the issuers, in the event of defaults
on the underlying assets not covered by any credit support, the issuing entities
are unlikely to have sufficient assets to satisfy their obligations on the
related asset-backed securities.
Zero Coupon and Pay-in-Kind Bonds. The High Yield Bond and Flexibly Managed
Funds may invest in zero coupon and pay-in-kind bonds. A zero coupon security
has no cash coupon payments. Instead, the issuer sells the security at a
substantial discount from its maturity value. The interest received by the
investor from holding this security to maturity is the difference between the
maturity value and the purchase price. The advantage to the investor is that
reinvestment risk of the income received during the life of the bond is
eliminated. However, zero coupon bonds like other bonds retain interest rate and
credit risk and usually display more price volatility than those securities that
pay a cash coupon.
Pay-in-Kind (PIK) Instruments are securities that pay interest in either
cash or additional securities, at the issuer's option, for a specified period.
PIK's, like zero coupon bonds, are designed to give an issuer flexibility in
managing cash flow. PIK bonds can be either senior or subordinated debt and
trade flat (i.e., without accrued interest). The price of PIK bonds is expected
to reflect the market value of the underlying debt plus an amount representing
accrued interest since the last payment. PIK's are usually less volatile than
zero coupon bonds, but more volatile than cash pay securities.
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Convertible Securities. The Flexibly Managed Fund may invest in debt
securities or preferred equity securities convertible into or exchangeable for
equity securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than nonconvertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertible securities have developed which combine higher or
lower current income with options and other features.
For federal income tax purposes, these types of bonds will require the
recognition of gross income each year even though no cash may be paid to the
Fund until the maturity or call date of the bond. The Fund will nonetheless be
required to distribute substantially all of this gross income each year to
comply with the Internal Revenue Code, and such distributions could reduce the
amount of cash available for investment by the Fund.
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Investments in Foreign Equity Securities
The Growth Equity, Value Equity, Small Capitalization, Emerging Growth and
Flexibly Managed Funds may invest in the equity securities of foreign issuers,
subject to the following limitations based upon the total assets of each Fund:
Growth Equity - 30%; Value Equity Fund - 25%; Small Capitalization Fund - 15%;
Emerging Growth Fund - 10%; and Flexibly Managed Fund - 25%. The International
Equity Fund, under normal circumstances, will have at least 65% of its assets in
such investments. Because these Funds may invest in foreign securities,
selection of these Funds involves risks that are different in some respects from
an investment in a fund which invests only in securities of U.S. domestic
issuers. Foreign investments may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing, and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Securities of some foreign companies are less liquid or more volatile
than securities of U.S. companies, and foreign brokerage commissions and
custodian fees are generally higher than in the United States. Investments in
foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and currency blockage (which would prevent cash
from being brought back to the United States).
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Investments in Smaller Companies
The Small Capitalization and Emerging Growth Funds may invest a substantial
portion of their assets in securities issued by smaller companies. Such
companies may offer greater opportunities for capital appreciation than larger
companies, but investments in such companies may involve certain special risks.
Such companies may have limited product lines, markets, or financial resources
and may be dependent on a limited management group. While the markets in
securities of such companies have grown rapidly in recent years, such securities
may trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply than those
of other securities, and a Fund may experience some difficulty in establishing
or closing out positions in these securities at prevailing market prices. There
may be less publicly available information about the issuers of these securities
or less market interest in such securities than in the case of larger companies,
and it may take a longer period of time for the prices of such securities to
reflect the full value of their issuers' underlying earnings potential or
assets. Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of a Fund to dispose of such
securities may be greatly limited, and a Fund may have to continue to hold such
securities during periods when they would otherwise be sold.
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Foreign Currency Transactions
As a means of reducing the risks associated with investing in
securities denominated in foreign currencies, a Fund, other than the Money
Market Fund, may purchase or sell foreign currency on a forward basis ("forward
contracts"), enter into foreign currency futures and options on futures
contracts ("forex futures") and foreign currency options ("forex options").
These investment techniques are designed primarily to hedge against anticipated
future changes in currency prices that otherwise might adversely affect the
value of the Fund's investments.
Forward contracts involve an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
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Forex futures are standardized contracts for the future delivery of a
specified amount of a foreign currency at a future date at a price set at the
time of the contract. Forex futures traded in the United States are traded on
regulated futures exchanges. A Fund will incur brokerage fees when it purchases
or sells forex futures and it will be required to maintain margin deposits.
Parties to a forex future must make initial margin deposits to secure
performance of the contract, which generally range from 2% to 5% of the contract
price. There also are requirements to make "variation" margin deposits as the
value of the futures contract fluctuates. Forex futures and forex options will
be used only to hedge against anticipated future changes in exchange rates that
might otherwise adversely affect the value of the Fund's securities or adversely
affect the prices of the securities the Fund intends to purchase at a later
date.
The Funds may enter into forward foreign contracts only under two
circumstances. FIRST, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transactions, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received. SECOND, when the adviser or sub-adviser to
one of these Funds believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, the Fund may enter
into a forward contract to sell, for a fixed amount of dollars, the amount of
the foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The International Equity Fund may enter into a
forward contract to buy or sell foreign currency (or another currency which acts
as a proxy for that currency) approximating the value of some or all of the
Fund's portfolio securities denominated in such currency. In certain
circumstances the adviser or sub-adviser to the International Equity Fund may
commit a substantial portion of the portfolio to the consummation of forward
contracts. The Growth Equity Fund, Value Equity Fund, Small Capitalization Fund,
Emerging Growth Fund and High Yield Bond Fund do not intend to enter into such
forward contracts under this second circumstance on a regular or continuous
basis, and will not do so if, as a result, the Fund will have more than 15% of
the value of its total assets committed to the consummation of such contracts.
The Funds will also not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate them to deliver an amount of foreign currency in excess of the value of
the Fund's portfolio securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency parities
will be incorporated into the longer term investment decisions made with regard
to overall diversification strategies. A Fund's custodian bank will place cash
or liquid equity or debt securities in a separate account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts entered into under
the second circumstance, as set forth above. If the value of the securities
placed in the separate account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Fund's commitments with respect to such contracts.
At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency.
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Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of a foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
It also should be realized that this method of protecting the value of a
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which one can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result from the value of such
currency increase.
Although the International Equity Fund, Growth Equity Fund, Value Equity
Fund, Small Capitalization Fund, Emerging Growth Fund, Flexibly Managed and High
Yield Bond Fund value their assets daily in terms of U.S. dollars, they do not
intend to convert their holdings of foreign currencies into U.S. dollars on a
daily basis. They will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer.
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Repurchase Agreements
Each Fund, other than the Growth Equity Fund, may enter into repurchase
agreements through which an investor (such as a Fund) purchases a security
(known as the "underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Concurrently, the bank
or securities dealer agrees to repurchase the underlying security at a future
point at the same price, plus specified interest. Repurchase agreements are
generally for a short period of time, often less than a week. A Fund will not
enter into a repurchase agreement with a maturity of more than seven business
days if, as a result, more than 10% of the value of its total assets would then
be invested in such repurchase agreements. The Quality Bond Fund will only enter
into a repurchase agreement where the underlying securities are (excluding
maturity limitations) rated within the four highest credit categories assigned
by established rating services (Aaa, Aa, A, or Baa by Moody's or AAA, AA, A, or
BBB by Standard & Poor's), or, if not rated, of equivalent investment quality as
determined by the investment adviser. With the exception of the Money Market
Fund, the underlying security must be rated within the top three credit
categories, or, if not rated, must be of equivalent investment quality as
determined by the investment adviser or sub-adviser. In the case of the Money
Market Fund, the underlying security must be rated within the top credit
category or, if not rated, must be of comparable investment quality as
determined by the investment adviser and the repurchase agreement must meet the
other quality and diversification standards of Rule 2a-7 under the Investment
Company Act of 1940. In addition, each Fund will only enter into a repurchase
agreement where (i) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (ii) payment for the underlying security is made only
upon physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, a Fund could experience both
delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
a Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
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Lending of Portfolio Securities
For the purpose of realizing additional income, each Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. This policy is a fundamental policy for all the Funds. Securities loans
are made to unaffiliated broker-dealers or institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent. The collateral
received will consist of government securities, letters of credit or such other
collateral as may be permitted under its investment program and by regulatory
agencies and approved by the Board of Directors. While the securities are being
lent, the Fund will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Each Fund has a right
to call each loan and obtain the securities on five business days' notice. No
Fund will have the right to vote securities while they are being lent, but it
will call a loan in anticipation of any important vote. The risks in lending
portfolio
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securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
Loans will only be made to firms deemed by the adviser to be of good standing
and will not be made unless, in the judgment of the adviser, the consideration
to be earned from such loans would justify the risk.
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Illiquid Securities
Illiquid securities generally are those which may not be sold in the
ordinary course of business within seven days at approximately the value at
which the Fund valued has them.
The Funds may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the adviser or sub-adviser,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the adviser or sub-adviser will consider, among other relevant
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades. A
Fund's treatment of Rule 144A securities as liquid could have the effect of
increasing the level of fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. The adviser or sub-adviser will continue to monitor the liquidity of
any Rule 144A security which has been determined to be liquid. If a security is
no longer liquid because of changed conditions, the holdings of illiquid
securities will be reviewed to determine if any steps are required to assure
compliance with applicable limitations on investments in illiquid securities.
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Warrants
The Flexibly Managed and High Yield Bond Funds may invest in warrants if,
after such investment, no more than 10% of the value of a Fund's net assets
would be invested in warrants. The Value Equity, Small Capitalization, Emerging
Growth, International Equity, Quality Bond and Money Market Funds may invest in
warrants; however, not more than 5% of any such Fund's assets (at the time of
purchase) will be invested in warrants other than warrants acquired in units or
attached to other securities. Of such 5% not more than 2% of such assets at the
time of purchase may be invested in warrants that are not listed on the New York
or American Stock Exchange. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. They have
no voting rights, pay no dividends and have no rights with respect to the assets
of the corporation issuing them. Warrants differ from call options in that
warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities.
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When-Issued Securities
The Value Equity Fund, Small Capitalization Fund, Quality Bond Fund,
Flexibly Managed Fund, Emerging Growth Fund and High Yield Bond Fund may from
time to time purchase securities on a "when-issued" basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues
to the Fund purchasing the when-issued security. Forward commitments involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Fund's other assets. While when-issued securities may be sold prior to the
settlement date, the Funds intend to purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons. At the time the particular Fund makes the commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect the
value of the security in determining its net asset value. The advisers do not
believe that the net asset value or income of the Funds will be adversely
affected by the respective Fund's purchase of securities on a when-issued basis.
The Funds will maintain cash and marketable securities equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.
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The Quality Bond Fund's Policy Regarding Industry Concentration
When the market for corporate debt securities is dominated by issues in the
gas utility, gas transmission utility, electric utility, telephone utility, or
petroleum industries, the Quality Bond Fund will as a matter of fundamental
policy concentrate 25% or more, but not more than 50%, of its assets in any one
such industry, if the Fund has cash for such investment (i.e., will not sell
portfolio securities to raise cash) and, if in Independence Capital Management's
judgment, the return available and the marketability, quality, and availability
of the debt securities of such industry justifies such concentration in light of
the Fund's investment objective. Domination would exist with respect to any one
such industry, when, in the preceding 30-day period, more than 25% of all
new-issue corporate debt offerings (within the four highest grades of Moody's or
S&P and with maturities of 10 years or less) of $25,000,000 or more consisted of
issues in such industry. Although the Fund will normally purchase corporate debt
securities in the secondary market as opposed to new offerings, Independence
Capital Management believes that the new issue-based dominance standard, as
defined above, is appropriate because it is easily determined and represents an
accurate correlation to the secondary market. Investors should understand that
concentration in any industry may result in increased risk. Investments in any
of these industries may be affected by environmental conditions, energy
conservation programs, fuel shortages, difficulty in obtaining adequate return
on capital in financing operations and large construction programs, and the
ability of the capital markets to absorb debt issues. In addition, it is
possible that the public service commissions which have jurisdiction over these
industries may not grant future increases in rates sufficient to offset
increases in operating expenses. These industries also face numerous legislative
and regulatory uncertainties at both federal and state government levels.
Independence Capital Management believes that any risk to the Fund which might
result from concentration in any industry will be minimized by the Fund's
practice of diversifying its investments in other respects. The Quality Bond
Fund's policy with respect to industry concentration is a fundamental policy.
See INVESTMENT RESTRICTIONS below.
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Options
Each Fund, other than the Money Market Fund, may write covered call and buy
put options on its portfolio securities and purchase call or put options on
securities indices. The aggregate market value of the portfolio securities
covering call or put options will not exceed 25% of a Fund's total assets. Such
options may be exchange-traded or dealer options. An option gives the owner the
right to buy or sell securities at a predetermined exercise price for a given
period of time. Although options will primarily be used to minimize principal
fluctuations, or to generate additional premium income for the Funds, they do
involve certain risks. Writing covered call options involves the risk of not
being able to effect closing transactions at a favorable price or participate in
the appreciation of the underlying securities or index above the exercise price.
The High Yield Bond Fund may engage in other options transactions described in
INVESTMENT RESTRICTIONS below, including the purchase of spread options, which
give the owner the right to sell a security that it owns at a fixed dollar
spread or yield spread in relation to another security that the owner does not
own, but which is used as a benchmark.
A Fund will write call options only if they are "covered." This means that
a Fund will own the security or currency subject to the option or an option to
purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. Options on particular securities may be more volatile
than the underlying securities, and therefore, on a percentage basis, more risky
than an investment in the underlying securities themselves.
There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange
("Exchange"), may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on
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that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
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Futures Contracts
Each Fund, other than the Money Market Fund, may invest in futures
contracts and options thereon (interest rate futures contracts, currency futures
or stock index futures contracts, as applicable). Each Fund will limit its use
of futures contracts so that: (1) no more than 5% of the Fund's total assets
will be committed to initial margin deposits or premiums on options and (2)
immediately after entering into such contracts, no more than 30% of the Fund's
total assets would be represented by such contracts. Such futures contracts
would not be entered into for speculative purposes, but to hedge risks
associated with the Fund's securities investments or to provide an efficient
means of regulating its exposure to the market. To enter into a futures
contract, a Fund must make a deposit of initial margin with its custodian in a
segregated account in the name of its futures broker. Initial margin on futures
contracts is in the nature of a performance bond or good faith deposit.
Subsequent payments to or from the broker, called variation margin, will be made
on a daily basis as the price of the underlying index or instrument fluctuates,
making the long and short positions in the futures contracts more or less
valuable.
Successful use of futures by a Fund is subject, first, to the investment
adviser's or sub-adviser's ability to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit of the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions.
Even if the investment adviser or sub-adviser has correctly predicted
market movements, the success of a futures position may be affected by imperfect
correlations between the price movements of the futures contract and the
securities being hedged. A Fund may purchase or sell futures contracts on any
stock index or interest rate index or instrument whose movements will, in the
investment adviser's or sub-adviser's judgment, have a significant correlation
with movements in the prices of all or portions of the Fund's portfolio
securities. The correlation between price movements in the futures contract and
in the portfolio securities probably will not be perfect, however, and may be
affected by differences in historical volatility or temporary price distortions
in the futures markets. To attempt to compensate for such differences, the Fund
could purchase or sell futures contracts with a greater or lesser value than the
securities it wished to hedge or purchase. Despite such efforts, the correlation
between price movements in the futures contract and the portfolio securities may
be worse than anticipated, which could cause the Fund to suffer losses even if
the investment adviser had correctly predicted the general movement of the
market.
A Fund which engages in the purchase or sale of futures contracts may also
incur risks arising from illiquid markets. The ability of a Fund to close out a
futures position depends on the availability of a liquid market in the futures
contract, and such a market may not exist for a variety of reasons, including
daily limits on price movements in futures markets. In the event a Fund is
unable to close out a futures position because of illiquid markets, it would be
required to continue to make daily variation margin payments, and could suffer
losses due to market changes in the period before the futures position could be
closed out.
The trading of futures contracts is also subject to the risks of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Options on futures contracts are subject to risks similar to those
described above, and also to a risk of loss due to an imperfect correlation
between the option and the underlying futures contract.
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Investment Companies
Each Fund may invest in securities issued by other investment companies
which invest in short-term, high quality debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method of valuation. The International Equity Fund may invest in securities of
mutual funds that invest in foreign securities. Securities of investment
companies will be acquired by a Fund within the limits prescribed by the 1940
Act. The High Yield and Flexibly Managed Funds may invest cash reserves in
shares of the T. Rowe Price
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Reserve Investment Fund, an internally-managed money market fund. In addition to
the advisory fees and other expenses a Fund bears directly in connection with
its own operations, as a shareholder of another investment company, a Fund would
bear its pro rata portion of the other investment company's advisory fees and
other expenses.
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Loan Participations and Assignments
The High Yield Bond Fund may invest in loan participations and assignments
(collectively "participations"). Such participations will typically be
participating interests in loans made by a syndicate of banks, represented by an
agent bank which has negotiated and structured the loan, to corporate borrowers
to finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buyouts and other corporate activities. Such loans may also have been made to
governmental borrowers, especially governments of developing countries (LDC
debt). LDC debt will involve the risk that the governmental entity responsible
for the repayment of the debt may be unable or unwilling to do so when due. The
loans underlying such participations may be secured or unsecured, and the Fund
may invest in loans collateralized by mortgages on real property or which have
no collateral. The loan participations themselves may extend for the entire term
of the loan or may extend only for short "strips" that correspond to a quarterly
or monthly floating rate interest period on the underlying loan. Thus, a term or
revolving credit that extends for several years may be subdivided into shorter
periods.
The loan participations in which the High Yield Bond Fund will invest will
also vary in legal structure. Occasionally, lenders assign to another
institution both the lender's rights and obligations under a credit agreement.
Since this type of assignment relieves the original lender of its obligations,
it is called a novation. More typically, a lender assigns only its right to
receive payments of principal and interest under a promissory note, credit
agreement or similar document. A true assignment shifts to the assignee the
direct debtor-creditor relationship with the underlying borrower. Alternatively,
a lender may assign only part of its rights to receive payments pursuant to the
underlying instrument or loan agreement. Such partial assignments, which are
more accurately characterized as "participating interests," do not shift the
debtor-creditor relationship to the assignee, who must rely on the original
lending institution to collect sums due and to otherwise enforce its rights
against the agent bank which administers the loan or against the underlying
borrower.
Because the High Yield Bond Fund is allowed to purchase debt securities,
including debt securities at private placement, the Fund will treat loan
participations as securities and not subject to its fundamental investment
restriction prohibiting the Fund from making loans.
There is not a recognizable, liquid public market for the loan
participations. Hence, the High Yield Bond Fund would consider loan
participations as illiquid securities and subject them to the Fund's restriction
on investing no more than 10% of assets in securities for which there is no
readily available market. The Fund would initially impose a limit of no more
than 5% of total assets in illiquid loan participations.
Where required by applicable SEC positions, the Fund will treat both the
corporate borrower and the bank selling the participation interest as an issuer
for purposes of its fundamental investment restriction which prohibits investing
more than 5% of Fund assets in the securities of a single issuer.
Various service fees received by the High Yield Bond Fund from loan
participations may be treated as non-interest income depending on the nature of
the fee (commitment, takedown, commission, service or loan origination). To the
extent the service fees are not interest income, they will not qualify as income
under Section 851(b) of the Internal Revenue Code. Thus the sum of such fees
plus any other non-qualifying income earned by the Fund cannot exceed 10% of
total income.
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Trade Claims
The High Yield Bond Fund may invest up to 5% of its total assets in trade
claims. Trade claims are non-securitized rights of payment arising from
obligations other than borrowed funds. Trade claims typically arise when, in the
ordinary course of business, vendors and suppliers extend credit to a company by
offering payment terms. Generally, when a company files for bankruptcy
protection payments on these trade claims cease and the claims are subject to a
compromise along with the other debts of the company. Trade claims typically are
bought and sold at a discount reflecting the degree of uncertainty with respect
to the timing and extent of recovery. In addition to the
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risks otherwise associated with low-quality obligations, trade claims have other
risks, including the possibility that the amount of the claim may be disputed by
the obligor.
Over the last few years a market for the trade claims of bankrupt companies
has developed. Many vendors are either unwilling or lack the resources to hold
their claim through the extended bankruptcy process with an uncertain outcome
and timing. Some vendors are also aggressive in establishing reserves against
these receivables, so that the sale of the claim at a discount may not result in
the recognition of a loss.
Trade claims can represent an attractive investment opportunity because
these claims typically are priced at a discount to comparable public securities.
This discount is a reflection of a less liquid market, a smaller universe of
potential buyers and the risks peculiar to trade claim investing. It is not
unusual for trade claims to be priced at a discount to public securities that
have an equal or lower priority claim.
As noted above, investing in trade claims does carry some unique risks
which include:
Establishing the Amount of the Claim. Frequently, the supplier's estimate
of its receivable will differ from the customer's estimate of its payable.
Resolution of these differences can result in a reduction in the amount of the
claim. This risk can be reduced by only purchasing scheduled claims (claims
already listed as liabilities by the debtor) and seeking representations from
the seller.
Defenses to Claims. The debtor has a variety of defenses that can be
asserted under the bankruptcy code against any claim. Trade claims are subject
to these defenses, the most common of which for trade claims relates to
preference payments. (Preference payments are all payments made by the debtor
during the 90 days prior to the filing. These payments are presumed to have
benefitted the receiving creditor at the expense of the other creditors. The
receiving creditor may be required to return the payment unless it can show the
payments were received in the ordinary course of business.) While none of these
defenses can result in any additional liability of the purchaser of the trade
claim, they can reduce or wipe out the entire purchased claim. This risk can be
reduced by seeking representations and indemnification from the seller.
Documentation/Indemnification. Each trade claim purchased requires
documentation that must be negotiated between the buyer and seller. This
documentation is extremely important since it can protect the purchaser from
losses such as those described above. Legal expenses in negotiating a purchase
agreement can be fairly high. Additionally, it is important to note that the
value of an indemnification depends on the seller's credit.
Volatile Pricing Due to Illiquid Market. There are only a handful of
brokers for trade claims and the quoted price of these claims can be volatile.
All trade claims would be considered illiquid investments.
No Current Yield/Ultimate Recovery. Trade claims are almost never entitled
to earn interest. As a result, the return on such an investment is very
sensitive to the length of the bankruptcy, which is uncertain. Although not
unique to trade claims, it is worth noting that the ultimate recovery on the
claim is uncertain and there is no way to calculate a conventional yield to
maturity on this investment. Additionally, the exit for this investment is a
plan of reorganization which may include the distribution of new securities.
These securities may be as illiquid as the original trade claim investment.
Tax Issue. Although the issue is not free from doubt, it is likely that
trade claims would be treated as nonsecurities investments. As a result, any
gains would be considered "non-qualifying" under the Internal Revenue Code. The
High Yield Bond Fund may have up to 10% of its gross income (including capital
gains) derived from non-qualifying sources.
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INVESTMENT RESTRICTIONS
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Except as otherwise specified, the investment restrictions described below
have been adopted as fundamental policies of the eight respective Funds.
Fundamental policies may not be changed without the approval of the lesser of
(1) 67% of a Fund's shares present at a meeting if the holders of more than 50%
of the outstanding shares are present in person or by proxy or (2) more than 50%
of the Fund's outstanding shares. Operating policies are subject to change by
Penn Series' Board of Directors without shareholder approval. Any investment
restriction which involves a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets of,
or borrowings by, a Fund.
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Growth Equity Fund
Investment restrictions (1) through (14) and (20) through (22) described
below have been adopted by the Growth Equity Fund and are fundamental policies,
except as otherwise indicated. Restrictions (15) through (19) are operating
policies which are subject to change by the Board of Directors without
shareholder approval.
The Fund may not: (1) Percent Limit on Assets Invested in Any One Issuer.
Purchase any securities which would cause more than 5% of its total assets at
the time of such purchase to be invested in the securities of any issuer, except
for securities issued or guaranteed by the U.S. Government; (2) Percent Limit on
Share Ownership of Any One Issue. Purchase any securities which would cause the
Fund at the time of such purchase to own more than 10% of the outstanding
securities of any class of any issuer; (3) Unseasoned Issuers. Purchase the
securities of any issuer engaged in continuous operation for less than three
years; (4) Industry Concentration. Purchase any securities which would cause
more than 25% of its total assets at the time of such purchase to be
concentrated in the securities of issuers engaged in any one industry; (5) Real
Estate. Purchase or sell real estate, although it may invest in the securities
of companies whose business involves the purchase or sale of real estate; (6)
Commodities. Purchase or sell commodities or commodity contracts; except that it
may enter into futures contracts subject to (22) below; (7) Investment
Companies. Acquire the securities of any investment company, except securities
purchased in regular transactions in the open market or acquired pursuant to a
plan of merger or consolidation (to the extent permitted by the Investment
Company Act of 1940 and any rules adopted thereunder); (8) Short Sales and
Purchases on Margin. Effect short sales of securities or purchase securities on
margin, except for use of short-term credit necessary for clearance of purchases
of portfolio securities, and except for margin deposits made in connection with
futures contracts, subject to (22) below; (9) Loans. Make loans, except that it
may (i) acquire publicly distributed bonds, debentures, notes, and other debt
securities, and (ii) lend portfolio securities provided that no such loan may be
made if as a result the aggregate of such loans would exceed 30% of the value of
the Fund's total assets; (10) Borrowing. Borrow money, except the Fund may
borrow from banks as a temporary measure for extraordinary or emergency
purposes, and then only in amounts not exceeding 15% of its total assets valued
at market. The Fund will not borrow in order to increase income (leveraging),
but only to facilitate redemption requests which might otherwise require
untimely disposition of portfolio securities. Interest paid on such borrowings
will reduce net investment income. The Fund may also enter into futures
contracts as set forth in (22) below; (11) Underwriting. Act as an underwriter
of securities, except insofar as it might technically be deemed to be an
underwriter for purposes of the Securities Act of 1933 upon disposition of
certain securities; (12) Securities of Adviser. Purchase or retain the
securities of its investment adviser, or of any corporation of which any
officer, director, or member of the investment committee of the investment
adviser is a director; (13) Allocation of Principal Business to Officers and
Directors. Deal with any of its officers or directors, or with any firm of which
any of its officers or directors is a member, as principal in the purchase or
sale of portfolio securities; (14) Allocation of Brokerage Business to Adviser.
Pay commissions on portfolio transactions to its investment adviser or to any
officer or director of its investment adviser; (15) Control of Portfolio
Companies. Invest in companies for the purpose of exercising management or
control; (16) Restricted and Illiquid Securities. Purchase any securities which
would cause more than 5% of its total assets at the time of such purchase to be
invested in securities which may not be publicly sold without registration under
the Securities Act of 1933, or are otherwise illiquid or not readily marketable;
(17) Puts, Calls, Etc. Invest in puts, calls, straddles, spreads, or any
combination thereof, except that the Fund reserves the right to write covered
call options and purchase put and call options; (18) Oil and Gas Programs.
Purchase participations or other direct interests in oil, gas, or other mineral
exploration or development programs; (19) Ownership of Portfolio Securities by
Officers and Directors. Purchase or retain the securities of any issuer if those
officers or directors of Penn Series, or of its investment adviser, who each
owns beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such
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<PAGE>
securities; (20) Mortgaging. Mortgage, pledge, or hypothecate or, in any other
manner, transfer as security for indebtedness any security owned by the Growth
Equity Fund, except (i) as may be necessary in connection with permissible
borrowings, in which event such mortgaging, pledging, or hypothecating may not
exceed 15% of the Fund's assets, valued at cost; provided, however, that as a
matter of operating policy, which may be changed without shareholder approval,
the Fund will limit any such mortgaging, pledging, or hypothecating to 10% of
its net assets, valued at market, and (ii) it may enter into futures contracts;
(21) Senior Securities. Issue any class of securities senior to any other class
of securities; or (22) Futures Contracts. Enter into a futures contract if, as a
result thereof, (i) the then current aggregate futures market prices of
securities required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of securities required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
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Value Equity Fund
Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and
(15) are fundamental policies of the Value Equity Fund, except as otherwise
indicated. Restrictions (4), (6), (12) and (13) are operating policies and are
subject to change by the Board of Directors without shareholder approval.
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (a) Percent Limit on Assets Invested in Any
One Issuer. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (b) Percent Limit on Share Ownership of Any One Issue.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (c) Industry Concentration. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; (d) Unseasoned
Issuers. More than 5% of the value of the Value Equity Fund's total assets would
be invested in the securities of issuers which at the time of purchase had been
in operation for less than three years, including predecessors and unconditional
guarantors; (2) Restricted or Not Readily Marketable Securities. Purchase a
security if, as a result, more than 10% of the Fund's total assets would be
invested in (a) securities with legal or contractual restrictions on resale; (b)
repurchase agreements maturing in more than seven (7) days; and (c) other
securities that are not readily marketable; (3) Real Estate. Purchase or sell
real estate (although it may purchase money market securities secured by real
estate or interests therein, or issued by companies which invest in real estate
or interests therein); (4) Investment Companies. Purchase securities of open-end
and closed-end investment companies, except to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder; (5)
Commodities. Purchase or sell commodities or commodity contracts; except that it
may enter into futures contracts subject to (15) below; (6) Oil and Gas
Programs. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (7) Short Sales and Purchases
on Margin. Effect short sales of securities or purchase securities on margin,
except for use of short-term credit necessary for clearance of purchases of
portfolio securities, except that it may make margin deposits in connection with
futures contracts, subject to (15) below; (8) Loans. Make loans, although the
Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; provided, however, that the Fund may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
purchase debt securities at private placement within the limits imposed on the
acquisition of restricted securities; (9) Borrowing. Borrow money, except from
banks as a temporary measure for extraordinary or emergency purposes, and then
only in amounts not exceeding 15% of its total assets valued at market. The Fund
will not borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities; interest paid on any such borrowings will reduce net
investment income; the Fund may also enter into futures contracts as set forth
in (15) below; (10) Mortgaging. Mortgage, pledge, or hypothecate or, in any
other manner, transfer as security for indebtedness any security owned by the
Fund, except (i) as may be necessary in connection with permissible borrowings,
in which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market; and (ii) it may enter into futures contracts; (11)
Underwriting. Underwrite securities issued by other persons except: (i) to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; and (ii) the later disposition of
restricted securities acquired within the limits imposed on the acquisition of
restricted securities; (12)
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Control of Portfolio Companies. Invest in companies for the purpose of
exercising management or control; (13) Ownership of Portfolio Securities by
Officers and Directors. Purchase or retain the securities of any issuer if, to
the knowledge of the Fund's management or investment adviser, those officers and
directors of Penn Series, and of its investment adviser, who each owns
beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities; (14) Senior
Securities. Issue any class of securities senior to any other class of
securities; or (15) Futures Contracts. Enter into a futures contract if, as a
result thereof, (i) the then current aggregate futures market prices of
securities required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of securities required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
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Small Capitalization Fund
Investment restrictions (1) through (9) are fundamental policies of the
Small Capitalization Fund, except as otherwise indicated. Restrictions (10)
through (15) are non-fundamental operating policies and are subject to change by
the Board of Directors without shareholder approval.
The Fund may not: (1) Diversification. Make an investment unless, when
considering all its other investments, 75% of the value of the Fund's assets
would consist of cash, cash items, obligations of the U.S. Government, its
agencies or instrumentalities and other securities; for purposes of this
restriction, "other securities" are limited for each issuer to not more than 5%
of the value of the Fund's assets and to not more than 10% of the issuer's
outstanding voting securities held by Penn Series as a whole; (2) Industry
Concentration. Invest more than twenty-five percent or more of the value of the
Fund's total assets in the securities of issuers having their principal business
activities in the same industry; (3) Real Estate. Invest in real estate or
interests in real estate, but may purchase readily marketable securities of
companies holding real estate or interests therein, and securities which are
secured by real estate or interests therein; (4) Commodities. Invest in physical
commodities or physical commodity contracts, but it may purchase and sell
financial futures contracts and options thereon; (5) Purchases on Margin.
Purchase securities on margin, except that it may make margin deposits in
connection with financial futures contracts or options; (6) Loans. Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed 30%
of the value of the Fund's total assets; provided, however, that the Fund may
acquire publicly distributed bonds, debentures, notes and other debt securities
and may purchase debt securities at private placement within the limits imposed
on the acquisition of restricted securities; (7) Borrowing. Borrow money, except
the Fund may borrow from banks as a temporary measure for extraordinary or
emergency purposes, and then only in amounts not exceeding 15% of its total
assets valued at market; the Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities; (8) Underwriting.
Underwrite securities issued by other persons except: (i) to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in connection with the purchase of government securities directly from
the issuer in accordance with the Fund's investment objectives, program, and
restrictions; and (ii) the later disposition of restricted securities acquired
within the limits imposed on the acquisition of restricted securities; (9)
Senior Securities. Issue any class of securities senior to any other class of
securities. Entering into repurchase agreements, borrowing money in accordance
with restriction (7) above, or lending portfolio securities in accordance with
restriction (6) above, shall not be considered for purposes of the present
restriction a senior security; (10) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management or control; (11) Ownership of
Portfolio Securities by Officers and Directors. Invest in securities of any
issuer if, to the knowledge of the Fund, any officer or director of the Fund or
any officer or director of the adviser or sub-adviser, owns more than .5% of the
outstanding securities of such issuer, and such officers and directors who own
more than .5% own in the aggregate more than 5% of such securities; (12) Oil and
Gas Programs. Invest in oil, gas or mineral exploration or developmental
programs, except that it may invest in the securities of companies which
operate, invest in, or sponsor such programs; (13) Restricted or Not Readily
Marketable Securities. Purchase a security if, as a result, more than 10% of the
Fund's total assets would be invested in illiquid securities; (14) Short Sales.
Effect short sales of securities, except short sales "against the box;" (15)
Mortgaging. Mortgage, pledge, hypothecate or, in any other manner, transfer as
security for indebtedness any security owned by the Fund, except as may be
necessary in connection with permissible borrowings (including reverse
repurchase agreements) financial options and other hedging activities.
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Emerging Growth Fund
Investment restrictions (1) through (9) are fundamental policies of the
Emerging Growth Fund, except as otherwise indicated. Restrictions (10) through
(15) are non-fundamental operating policies and are subject to change by the
Board of Directors without shareholder approval.
The Fund may not: (1) Diversification. Make an investment unless, when
considering all its other investments, 75% of the value of the Fund's assets
would consist of cash, cash items, obligations of the U.S. Government, its
agencies or instrumentalities and other securities; for purposes of this
restriction, "other securities" are limited for each issuer to not more than 5%
of the value of the Fund's assets and to not more than 10% of the issuer's
outstanding voting securities held by Penn Series as a whole; (2) Industry
Concentration. Invest more than twenty-five percent or more of the value of the
Fund's total assets in the securities of issuers having their principal business
activities in the same industry; (3) Real Estate. Invest in real estate or
interests in real estate, but may purchase readily marketable securities of
companies holding real estate or interests therein, and securities which are
secured by real estate or interests therein; (4) Commodities. Invest in physical
commodities or physical commodity contracts, but it may purchase and sell
financial futures contracts and options thereon; (5) Purchases on Margin.
Purchase securities on margin, except that it may make margin deposits in
connection with financial futures contracts or options; (6) Loans. Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed 30%
of the value of the Fund's total assets; provided, however, that the Fund may
acquire publicly distributed bonds, debentures, notes and other debt securities
and may purchase debt securities at private placement within the limits imposed
on the acquisition of restricted securities; (7) Borrowing. Borrow money, except
the Fund may borrow from banks as a temporary measure for extraordinary or
emergency purposes, and then only in amounts not exceeding 15% of its total
assets valued at market; the Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities; (8) Underwriting.
Underwrite securities issued by other persons except: (i) to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in connection with the purchase of government securities directly from
the issuer in accordance with the Fund's investment objectives, program, and
restrictions; and (ii) the later disposition of restricted securities acquired
within the limits imposed on the acquisition of restricted securities; (9)
Senior Securities. Issue any class of securities senior to any other class of
securities. Entering into repurchase agreements, borrowing money in accordance
with restriction (7) above, or lending portfolio securities in accordance with
restriction (6) above, shall not be considered for purposes of the present
restriction a senior security; (10) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management or control; (11) Ownership of
Portfolio Securities by Officers and Directors. Invest in securities of any
issuer if, to the knowledge of the Fund, any officer or director of the Fund or
any officer or director of the adviser or sub-adviser, owns more than .5% of the
outstanding securities of such issuer, and such officers and directors who own
more than .5% own in the aggregate more than 5% of such securities; (12) Oil and
Gas Programs. Invest in oil, gas or mineral exploration or developmental
programs, except that it may invest in the securities of companies which
operate, invest in, or sponsor such programs; (13) Restricted or Not Readily
Marketable Securities. Purchase a security if, as a result, more than 10% of the
Fund's total assets would be invested in illiquid securities; (14) Short Sales.
Effect short sales of securities, except short sales "against the box;" (15)
Mortgaging. Mortgage, pledge, hypothecate or, in any other manner, transfer as
security for indebtedness any security owned by the Fund, except as may be
necessary in connection with permissible borrowings (including reverse
repurchase agreements) financial options and other hedging activities.
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Flexibly Managed Fund
Investment restrictions (1), (3), (5), (7) through (11), (13), and (14) are
fundamental policies of the Flexibly Managed Fund, except as otherwise
indicated. Restrictions (2), (4), (6) and (12) are operating policies and are
subject to change by the Board of Directors without shareholder approval.
The Flexibly Managed Fund may not: (1) purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (a) Percent Limit on Assets
Invested in Any One Issuer. With respect to 75% of the Fund's 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; (c) Industry Concentration.
Twenty-five percent or more of the value of the Fund's total assets would be
invested in the
23
<PAGE>
securities of issuers having their principal business activities in the same
industry; provided, however, that the Fund will normally concentrate 25% or more
of its assets in the banking industry when the Fund's position in issues
maturing in one year or less equals 35% or more of the Fund's total assets; (2)
Restricted or Illiquid Securities. Purchase a security if, as a result, more
than 15% of the value of the Fund's net assets would be invested in repurchase
agreements maturing in more than seven days and restricted securities, illiquid
securities, and securities without readily available market quotations; (3) Real
Estate. 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); (4) Investment Companies.
Purchase securities of open-end and closed-end investment companies, except (i)
to the extent permitted by the Investment Company Act of 1940 and any rules
adopted thereunder or (ii) securities of the Reserve Investment Fund, an
internally-managed money market fund of T. Rowe Price; (5) Commodities. Purchase
or sell commodities or commodity contracts; except that it may enter into
futures contracts, subject to (15) below; (6) Oil and Gas Programs. Purchase
participations or other direct interests in oil, gas, or other mineral
exploration or development programs if, as a result thereof, more than 5% of its
total assets would be invested in such programs; (7) Short Sales and Purchases
on Margin. Effect short sales of securities or purchase securities on margin,
except for use of short-term credit necessary for clearance of purchases of
portfolio securities; except that it may make margin deposits in connection with
futures contracts, subject to (15) below; (8) Loans. Make loans, although the
Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; provided, however, that the Fund may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
purchase debt securities at private placement within the limits imposed on the
acquisition of restricted securities; (9) Borrowing. Borrow money, except the
Fund may borrow from banks as a temporary measure for extraordinary or emergency
purposes, and then only in amounts not exceeding 15% of its total assets valued
at market; the Fund will not borrow in order to increase income (leveraging),
but only to facilitate redemption requests which might otherwise require
untimely disposition of portfolio securities. Interest paid on any such
borrowings will reduce net investment income. The Fund may enter into futures
contracts as set forth in (15) below; (10) Mortgaging. Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness any
security owned by the Fund, except (i) as may be necessary in connection with
permissible borrowings, in which event such mortgaging, pledging, or
hypothecating may not exceed 15% of the Fund's assets, valued at cost; provided,
however, that as a matter of operating policy, which may be changed without
shareholder approval, the Fund will limit any such mortgaging, pledging, or
hypothecating to 10% of its net assets, valued at market, and (ii) it may enter
into futures contracts; (11) Underwriting. Underwrite securities issued by other
persons, except: (i) to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933 in connection with
the purchase of government securities directly from the issuer in accordance
with the Fund's investment objectives, program, and restrictions; and (ii) the
later disposition of restricted securities acquired within the limits imposed on
the acquisition of restricted securities; (12) Control of Portfolio Companies.
Invest in companies for the purpose of exercising management or control; (13)
Senior Securities. Issue any class of securities senior to any other class of
securities; or (14) Futures Contracts. Enter into a futures contract if, as a
result thereof, (i) the then current aggregate futures market prices of
securities required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of securities required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
- --------------------------------------------------------------------------------
International Equity Fund
Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and
(15) are fundamental policies of the International Equity Fund, except as
otherwise indicated. Restrictions (4), (6), (12) and (13) are operating policies
and are subject to change by the Board of Directors without shareholder
approval.
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (a) Percent Limit on Assets Invested in Any
One Issuer. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (b) Percent Limit on Share Ownership of Any One Issue.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (c) Industry Concentration. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; (d) Unseasoned
Issuers. More
24
<PAGE>
than 5% of the value of the Fund's total assets would be invested in the
securities of issuers which at the time of purchase had been in operation for
less than three years, including predecessors and unconditional guarantors; (2)
Restricted or Not Readily Marketable Securities. Purchase a security if, as a
result, more than 10% of the Fund's total assets would be invested in (a)
securities with legal or contractual restrictions on resale; (b) repurchase
agreements maturing in more than seven (7) days; and (c) other securities that
are not readily marketable; (3) Real Estate. Purchase or sell real estate
(although it may purchase money market securities secured by real estate or
interests therein, or issued by companies which invest in real estate or
interests therein); (4) Investment Companies. Purchase securities of open-end
and closed-end investment companies, except to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder; (5)
Commodities. Purchase or sell commodities or commodity contracts; except that it
may enter into futures contracts subject to (15) below; (6) Oil and Gas
Programs. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (7) Short Sales and Purchases
on Margin. Effect short sales of securities or purchase securities on margin,
except for use of short-term credit necessary for clearance of purchases of
portfolio securities, except that it may make margin deposits in connection with
futures contracts, subject to (15) below; (8) Loans. Make loans, although the
Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; provided, however, that the Fund may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
purchase debt securities at private placement within the limits imposed on the
acquisition of restricted securities; (9) Borrowing. Borrow money, except from
banks as a temporary measure for extraordinary or emergency purposes, and then
only in amounts not exceeding 15% of its total assets valued at market. The Fund
will not borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities. Interest paid on any such borrowings will reduce net
investment income. The Fund may also enter into futures contracts as set forth
in (15) below; (10) Mortgaging. Mortgage, pledge, or hypothecate or, in any
other manner, transfer as security for indebtedness any security owned by the
Fund, except (i) as may be necessary in connection with permissible borrowings,
in which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market; and (ii) it may enter into futures contracts; (11)
Underwriting. Underwrite securities issued by other persons except: (i) to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; and (ii) the later disposition of
restricted securities acquired within the limits imposed on the acquisition of
restricted securities; (12) Control of Portfolio Companies. Invest in companies
for the purpose of exercising management or control; (13) Ownership of Portfolio
Securities by Officers and Directors. Purchase or retain the securities of any
issuer if, to the knowledge of the Fund's management or investment adviser,
those officers and directors of Penn Series, and of its investment adviser, who
each owns beneficially more than .5% of the outstanding securities of such
issuer, together own beneficially more than 5% of such securities; (14) Senior
Securities. Issue any class of securities senior to any other class of
securities; or (15) Futures Contracts. Enter into a futures contract if, as a
result thereof, (i) the then current aggregate futures market prices of
securities required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of securities required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
- --------------------------------------------------------------------------------
Quality Bond Fund
Investment restrictions (1), (2), (4) through (9), (14) and (15) have been
adopted by the Quality Bond Fund as fundamental policies, except as otherwise
indicated. Restrictions (3) and (10) through (13) are operating policies subject
to change by the Board of Directors without shareholder approval.
The Fund may not (1) purchase a security if, as a result: (a) Percent Limit
on Assets Invested in Any One Issuer. More than 5% of the value of the Fund's
total assets would be invested in the securities of a single issuer, except
securities issued or guaranteed by the U.S. Government, or any of its agencies
or instrumentalities; (b) Percent Limit on Share Ownership of Any One Issue.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund, except securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities; (c) Industry Concentration.
Twenty-five percent or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal activities in the
same industry; provided, however, that the Fund will invest 25% or more of its
assets, but not more than 50%, in any one of the gas
25
<PAGE>
utility, gas transmission utility, electric utility, telephone utility, and
petroleum industries under certain circumstances (see The Quality Bond Fund's
Policy Regarding Industry Concentration above), but this limitation does not
apply to bank certificates of deposit; (d) Unseasoned Issuers. More than 5% of
the value of the Fund's total assets would be invested in the securities (taken
at cost) of issuers which at the time of purchase had been in operation less
than three years (for this purpose, the period of operation of any issuer shall
include the period of operation of any predecessor or unconditional guarantor of
the issuer) and in equity securities which are not readily marketable for
reasons other than restrictions against sale to the public without registration
under the Securities Act of 1933; (e) Restricted Securities. More than 10% of
the value of the total assets of the Fund would be invested in securities which
are subject to legal or contractual restrictions on resale; or (f) Warrants.
More than 2% of the value of the total assets of the Fund would be invested in
warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange, or more than 5% of the value of the total assets of the Fund
would be invested in warrants whether or not so listed, such warrants in each
case to be valued at the lesser of cost or market, but assigning no value to
warrants acquired by the Fund in units with or attached to debt securities; (2)
Real Estate. Purchase or sell real estate (although it may purchase securities
of companies whose business involves the purchase or sale of real estate); (3)
Investment Companies. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (4) Commodities. Purchase or sell commodities
or commodity contracts, except that the Fund may enter into interest rate
futures contracts, subject to (15) below; (5) Short Sales and Purchases on
Margin. Purchase securities on margin or effect short sales of securities, but
the Fund may make margin deposits in connection with interest rate futures
transactions subject to (15) below; (6) Loans. Make loans (although it may
acquire publicly-distributed bonds, debentures, notes, and other debt
securities, may enter into repurchase agreements, may lend portfolio securities,
and may purchase debt securities at private placement within the limits imposed
above on the acquisition of restricted securities); (7) Borrowing. Borrow money,
except the Fund may (i) borrow money for temporary administrative purposes and
then only in amounts not exceeding the lesser of 10% of its total assets valued
at cost, or 5% of its total assets valued at market and, in any event, only if
immediately thereafter there is an asset coverage of at least 300%, and (ii)
enter into interest rate futures contracts; (8) Mortgaging. Mortgage, pledge, or
hypothecate securities, except (i) in connection with permissible borrowings
where the market value of the securities mortgaged, pledged, or hypothecated
does not exceed 15% of the Fund's assets taken at cost; provided, however, that
as a matter of operating policy, the Fund will limit any such mortgaging,
pledging, or hypothecating to 10% of its net assets, taken at market, in order
to comply with certain state investment restrictions, and (ii) interest rate
futures contracts; (9) Underwriting. Act as an underwriter of securities, except
insofar as it might be deemed to be such for purposes of the Securities Act of
1933 upon the disposition of certain portfolio securities acquired within the
limitations of restriction (e) above; (10) Ownership of Portfolio Securities by
Officers and Directors. Purchase or retain securities of any issuer if, to the
knowledge of the Fund's management or investment adviser, those officers or
directors of Penn Series, or of its investment adviser, who each owns
beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities; (11) Control of
Portfolio Companies. Invest in companies for the purpose of exercising
management or control; (12) Puts, Calls, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except the Fund reserves the right to write
covered call options and purchase put and call options; (13) Oil and Gas
Programs. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (14) Senior Securities. Issue
any class of securities senior to any other class of securities; or (15) Futures
Contracts. Enter into an interest rate futures contract if, as a result thereof,
(i) the then current aggregate futures market prices of financial instruments
required to be delivered under open futures contract sales plus the then current
aggregate purchase prices of financial instruments required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
- --------------------------------------------------------------------------------
High Yield Bond Fund
Investment restrictions (1), (2), (4), (6), (8) through (12), and (15)
through (16) have been adopted by the High Yield Bond Fund as fundamental
policies, except as otherwise indicated. Restrictions (3), (5), (7), (13)
through (14), and (17) through (18) are operating policies subject to change by
the Board of Directors without shareholder approval.
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (a) Percent Limit on Assets Invested in Any
One Issuer. 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)
26
<PAGE>
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; (c) Industry Concentration. Twenty-five
percent or more of the value of the Fund's total assets would be invested in the
securities of issuers having their principal business activities in the same
industry; provided, however, that the Fund will normally concentrate 25% or more
of its assets in the securities of the banking industry when the Fund's position
in issues maturing in one year or less equals 35% or more of the Fund's total
assets; (2) Equity Securities. Invest more than 20% of the Fund's total assets
in common stocks (including up to 10% in warrants); (3) Restricted or Illiquid
Securities. Invest more than 15% 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; (4) Real Estate.
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); (5) Investment Companies. Purchase securities of
open-end or closed-end investment companies except (i) in compliance with the
Investment Company Act of 1940 or (ii) securities of the Reserve Investment
Fund, an internally-managed money market fund of T. Rowe Price; (6) Commodities.
Purchase or sell commodities or commodity contracts, except that it may enter
into interest rate futures contracts, subject to (17) below; (7) Oil and Gas
Programs. Purchase participations or other direct interests in or enter into
leases with respect to oil, gas, or other mineral exploration or development
programs if, as a result, more than 5% of the Fund's total assets would be
invested in such programs; (8) Purchases on Margin. Purchase securities on
margin, except for use of short-term credit necessary for clearance of purchases
of portfolio securities; except that it may make margin deposits in connection
with interest rate futures contracts, subject to (17) below; (9) Loans. Make
loans, although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no such
loan may be made if as a result the aggregate of such loans would exceed 30% of
the value of the Fund's total assets; provided, however, that the Fund may
acquire publicly distributed bonds, debentures, notes and other debt securities
and may purchase debt securities at private placement within the limits imposed
on the acquisition of restricted securities; (10) Borrowing. Borrow money,
except the Fund may borrow from banks as a temporary measure for extraordinary
or emergency purposes, and then only in amounts not exceeding 15% of its total
assets valued at market; the Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities. Interest paid on any such
borrowings will reduce net investment income; the Fund may enter into interest
rate futures contracts as set forth in (17) below; (11) Mortgaging. Mortgage,
pledge, hypothecate or, in any other manner, transfer as security for
indebtedness any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued at
cost; provided, however, that as a matter of operating policy, which may be
changed without shareholder approval, the Fund will limit any such mortgaging,
pledging, or hypothecating to 10% of its net assets, valued at market, and (ii)
it may enter into interest rate futures contracts; (12) Underwriting. Underwrite
securities issued by other persons, except: (i) to the extent that the Fund may
be deemed to be an underwriter within the meaning of the Securities Act of 1933
in connection with the purchase of government securities directly from the
issuer in accordance with the Fund's investment objectives, program, and
restrictions; and (ii) the later disposition of restricted securities acquired
within the limits imposed on the acquisition of restricted securities; (13)
Control of Portfolio Companies. Invest in companies for the purpose of
exercising management or control; (14) Puts, Calls, Etc. Invest in puts, calls,
straddles, spreads, or any combination thereof, except to the extent permitted
by the prospectus and Statement of Additional Information; (15) Senior
Securities. Issue any class of securities senior to any other class of
securities; (16) Futures Contracts. Enter into an interest rate futures contract
if, as a result thereof, (i) the then current aggregate futures market prices of
financial instruments required to be delivered under open futures contract sales
plus the then current aggregate purchase prices of financial instruments
required to be purchased under open futures contract purchases would exceed 30%
of the Fund's total assets (taken at market value at the time of entering into
the contract) or (ii) more than 5% of the Fund's total assets (taken at market
value at the time of entering into the contract) would be committed to margin on
such futures contracts or to premiums on options thereon; (17) Purchases when
Borrowings Outstanding. Purchase additional securities when money borrowed
exceeds 5% of the Fund's total assets; (18) Short Sales. Effect short sales of
securities; or (19) Warrants. Invest in warrants if, as a result, more than 10%
of the value of the net assets of the Fund would be invested in warrants.
- --------------------------------------------------------------------------------
Money Market Fund
Investment restrictions (1) through (4), (6), (8) through (12), and (16)
described below have been adopted by the Money Market Fund and are fundamental
policies, except as otherwise indicated. Restrictions (5), (7), and (13) through
(15) are operating policies subject to change by the Board of Directors without
shareholder approval.
27
<PAGE>
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (a) Percent Limit on Assets Invested in Any
One Issuer. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (b) Percent Limit on Share Ownership of Any One Issue.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (c) Industry Concentration. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided that
this limitation does not apply to obligations issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities, or to certificates of deposit,
or bankers' acceptances; (d) Unseasoned Issuers. More than 5% of the value of
the Fund's total assets would be invested in the securities of issuers which at
the time of purchase had been in operation for less than three years, including
predecessors and unconditional guarantors; (2) Equity Securities. Purchase any
common stocks or other equity securities, or securities convertible into equity
securities; (3) Restricted or Illiquid Securities. Purchase restricted
securities, illiquid securities, or securities without readily available market
quotations, or invest more than 10% of the value of its total assets in
repurchase agreements maturing in more than seven days and in the obligations of
small banks and savings and loan associations which do not have readily
available market quotations; (4) Real Estate. Purchase or sell real estate
(although it may purchase money market securities secured by real estate or
interests therein, or issued by companies which invest in real estate or
interests therein); (5) Investment Companies. Purchase securities of open-end
and closed-end investment companies, except to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder; (6)
Commodities. Purchase or sell commodities or commodity contracts; (7) Oil and
Gas Programs. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (8) Purchases on Margin.
Purchase securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities; (9) Loans. Make loans, although
the Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; (10) Borrowing. Borrow money, except that the Fund
may borrow from banks as a temporary measure for extraordinary or emergency
purposes, and then only from banks in amounts not exceeding the lesser of 10% of
its total assets valued at cost or 5% of its total assets valued at market. The
Fund will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities. Interest paid on any such borrowings will
reduce net investment income; (11) Mortgaging. Mortgage, pledge, hypothecate or,
in any other manner, transfer as security for indebtedness any security owned by
the Fund, except as may be necessary in connection with permissible borrowings,
in which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market; (12) Underwriting. Underwrite securities issued by
other persons, except to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933 in connection with
the purchase of government securities directly from the issuer in accordance
with the Fund's investment objectives, program, and restrictions; (13) Control
of Portfolio Companies. Invest in companies for the purpose of exercising
management or control; (14) Puts, Calls, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof; or (15) Senior Securities. Issue any class
of securities senior to any other class of securities.
In addition to the restrictions set forth above each Fund may be subject to
investment restrictions imposed under the insurance laws and regulations of
Pennsylvania and other states. These restrictions are non-fundamental and, in
the event of amendments to the applicable statutes or regulations, each Fund
will comply, without the approval of the shareholders, with the requirements as
so modified.
Section 817(h) of the Internal Revenue Code requires that the assets of
each Fund be adequately diversified so that Penn Mutual or its affiliated
insurance companies, and not the variable contract owners, are considered the
owners for federal income tax purposes of the assets held in the separate
accounts. Each Fund ordinarily must satisfy the diversification requirements
within one year after contract owner funds are first allocated to the particular
Fund. In order to meet the diversification requirements of regulations issued
under Section 817(h), each Fund will meet the following test: no more than 55%
of the assets will be invested in any one investment; no more than 70% of the
assets will be invested in any two investments; no more than 80% of the assets
will be invested in any three investments; and no more than 90% will be invested
in any four investments. Each Fund must meet the above diversification
requirements within 30 days of the end of each calendar quarter.
28
<PAGE>
In addition to the foregoing, the Money Market Fund will restrict its
investments in accordance with the portfolio quality, diversification and
maturity standards contained in Rule 2a-7 under the Investment Company Act of
1940. See "Investment Policies -- Money Market Fund" above for certain of the
restrictions contained in the Rule.
29
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Investment Advisory Services
Independence Capital Management, Inc. Independence Capital Management,
Inc. ("ICMI") serves as investment adviser to all of the Funds and performs
day-to-day investment management services for the Growth Equity, Quality Bond
and Money Market Funds. See "INVESTMENT ADVISER" in the prospectus for
information regarding ownership of ICMI, investment advisory and management
services provided to the Funds by ICMI and the method of computing the advisory
fees payable by the Funds to ICMI.
OpCap Advisors. OpCap Advisors ("OpCap") serves as sub-adviser to the
Small Capitalization Fund Value Equity and Small Capitalization Funds and
performs day-to-day investment management services for the Funds. See
"INVESTMENT SUB-ADVISERS" in the prospectus for information regarding the
sub-advisory services provided to the Funds and the method of computing the
sub-advisory fees payable by ICMI to the OpCap.
OpCap Advisors, the investment adviser to the Fund (the "Manager"), is
a majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser whose employees perform all investment advisory and management services
provided to the Fund by the Advisor. Oppenheimer Capital is an indirect wholly
owned subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser. The general partners of PIMCO Advisors are PIMCO Partners
G.P. and PIMCO Advisors Holdings L.P. PIMCO Partners, G.P. is a general
partnership between PIMCO Holding LLC, a Delaware limited liability company and
an indirect wholly-owned subsidiary of Pacific Life Insurance Company, and
PIMCO Partners LLC, a California limited liability company controlled by the
current Managing Directors and two former Managing Directors of Pacific
Investment Management. PIMCO Partners, G.P. is the sole general partner of
PIMCO Advisors Holdings L.P., a wholly-owned subsidiary of PIMCO Advisors.
T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. ("Price
Associates") serves as sub-adviser the Flexibly Managed and High Yield Bond
Funds and performs day-to-day investment management services for the Funds. See
"INVESTMENT SUB-ADVISERS" in the prospectus for information regarding ownership
of Price Associates, the sub-advisory services provided to the Funds and the
method of computing the sub-advisory fees payable by ICMI to the Price
Associates.
Vontobel USA Inc. Vontobel USA Inc. ("Vontobel") serves as sub-adviser
to the International Equity Fund and performs the day-to-day investment
management services for the Fund. See "INVESTMENT SUB-ADVISERS" in the
prospectus for information regarding ownership of Vontobel, the sub-advisory
services provided to the Fund and the method of computing the sub-advisory fees
payable by ICMI to the Vontobel.
R.S. Investment Management, Inc. R.S. Investment Management, Inc.
(formerly "Robertson Stephens Investment Management, Inc.") ("RSIM") serves as
sub-adviser to the
30
<PAGE>
Emerging Growth Fund and performs day-to-day investment management services for
the Fund. See "INVESTMENT SUB-ADVISERS" in the prospectus for information
regarding the ownership of Robertson Stephens, the sub-advisory services
provided to the Fund and the method of computing the sub-advisory fees payable
by ICMI to the Robertson Stephens.
In the years 1998, 1997 and 1996, the Funds paid advisory fees to ICMI
as set forth in the following table.
<TABLE>
<CAPTION>
Fund 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Equity Fund $753,060 $ 600,772 $ 494,636
- ---------------------------------------------------------------------------------------
Value Equity Fund 1,651,501 1,279,429 800,404
- ---------------------------------------------------------------------------------------
Small Capitalization Fund 210,456 137,566 51,982
- ---------------------------------------------------------------------------------------
Emerging Growth Fund* 208,963 50,608 N/A
- ---------------------------------------------------------------------------------------
Flexibly Managed Fund 2,719,881 2,310,427 1,645,769
- ---------------------------------------------------------------------------------------
International Equity Fund 1,071,377 912,368 646,040
- ---------------------------------------------------------------------------------------
Quality Bond Fund 206,065 164,758 175,993
- ---------------------------------------------------------------------------------------
High Yield Bond Fund 326,267 254,474 196,230
- ---------------------------------------------------------------------------------------
Money Market Fund 181,722 148,226 119,842
- ---------------------------------------------------------------------------------------
</TABLE>
* The Emerging Growth Fund commenced operations on May 1, 1997.
In 1998, the advisory fee paid by the Emerging Growth Fund is after a
voluntary fee waiver of $8,604. In 1997, the advisory fee paid by the Emerging
Growth Fund is after a voluntary fee waiver of $9,862. In 1996, the advisory
fees paid by the Growth Equity Fund, Small Capitalization Fund, International
Equity Fund, Quality Bond Fund and Money Market Fund are after a voluntary fee
waiver of $10,173, $7,964, $1,262, $4,132 and $2,778, respectively.
In 1998, ICMI paid sub-advisory fees to OpCap, Price Associates, Vontobel
and RSIM in the amounts of $855,132, $1,812,839, $486,157 and $175,491
respectively. For the eight months ended December 31, 1997, ICMI paid
sub-advisory fees to RSIM in the amount of $45,346.
- --------------------------------------------------------------------------------
Administrative and Corporate Services
Penn Mutual provides administrative and corporate services to Penn Series
and receives a fee from Penn Series for those services equal to the annual rate
of 0.15% of each Fund's average daily net assets. The administrative and
corporate services include: (a) maintenance of records pertaining to Penn
Series' affairs, except those that are required to be maintained by Penn Series'
investment adviser, accounting services agent, custodian, or transfer agent; (b)
preparation of certain filings, reports and proxy statements required by the
federal securities laws; (c) preparation of Penn Series' federal and state tax
returns and any other filings required for tax purposes other than those
required to be made by Penn Series' custodian, transfer agent, accounting
services agent, or investment adviser; (d) such services as Penn Series' Board
of Directors may require in connection with its oversight of Penn Series'
investment adviser, accounting services agent, custodian, or transfer agent,
including the periodic collection and presentation of data concerning the
investment performance of Penn Series' various investment portfolios; (e) the
organization of all meetings of Penn Series' Board of Directors; (f) the
organization of all meetings of Penn Series' shareholders; (g) the collection
and presentation of any financial or other data required by Penn Series' Board
of Directors, accountants, or counsel; and (h) the preparation and negotiation
of any amendments to, or substitutes for, the present agreements with Penn
Series' investment adviser, accounting services agent, custodian, or transfer
agent. Penn Mutual also bears certain expenses in connection with the services
it renders as administrative and corporate services agent, including all rent
and other expense involved in the provision of office space for Penn Series and
in connection with Penn Mutual's performance of its services as administrative
and corporate services agent.
For fiscal years 1998, 1997, and 1996 the administrative fees paid to Penn
Mutual by each of the Funds then in existence were as follows:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Equity Fund $234,353 $186,580 $149,014
- ---------------------------------------------------------------------------------------------------------
Value Equity Fund 495,450 383,864 240,121
- ---------------------------------------------------------------------------------------------------------
Small Capitalization Fund 63,137 41,270 15,135
- ---------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Emerging Growth Fund* 39,416 1,483 N/A
- ---------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 815,964 693,190 493,731
- ---------------------------------------------------------------------------------------------------------
International Equity Fund 214,275 182,487 129,460
- ---------------------------------------------------------------------------------------------------------
Quality Bond Fund 68,688 56,299 58,663
- ---------------------------------------------------------------------------------------------------------
High Yield Bond Fund 97,880 76,344 58,869
- ---------------------------------------------------------------------------------------------------------
Money Market Fund 68,174 56,455 45,111
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* The Emerging Growth Fund commenced operations on May 1, 1997.
In 1998, the administration fees paid by the Emerging Growth Fund is after
a voluntary fee waiver of $8,603. In 1997, the administration fees paid by the
Emerging Growth Fund is after a voluntary fee waiver of $9,862.
- --------------------------------------------------------------------------------
Accounting Services
PFPC Inc. ("PFPC") serves as the accounting services agent to Penn Series.
PFPC provides certain accounting and related services to Penn Series, including:
(a) the maintenance for each Fund of a daily trial balance, general ledger,
subsidiary records, capital stock accounts (other than those maintained by the
transfer agent for Penn Series), investment ledger and all other books, accounts
and other documents which Penn Series is required to maintain and keep current
pursuant to Rule 31a-1(a) and (b) under the 1940 Act (other than those documents
listed in subparagraph (4) of Rule 31a-1(b)); (b) the daily valuation of the
securities held by, and the net asset value per share of, each Fund; (c) the
preparation of such financial information as may reasonably be necessary for
reports to shareholders, the Board of Directors and officers, the Securities and
Exchange Commission and other federal and state regulatory agencies; and (d) the
maintenance for each Fund of all records that may reasonably be required in
connection with the audits of such Fund. The fee for the accounting services is
based on a predetermined percentage of daily average net assets of each Fund.
32
<PAGE>
For fiscal years 1998, 1997, and 1996, the accounting fees paid by each of
the Funds then in existence were as follows:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Equity Fund $103,118 $ 87,177 $ 74,103
- -------------------------------------------------------------------------------------------------------------------
Value Equity Fund 183,900 152,928 105,040
- -------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund* 26,161 6,127 N/A
- -------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 248,193 223,627 182,975
- -------------------------------------------------------------------------------------------------------------------
International Equity Fund 110,710 97,981 73,307
- -------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 34,344 28,211 29,335
- -------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 48,940 38,169 29,453
- -------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund 31,608 27,518 27,268
- -------------------------------------------------------------------------------------------------------------------
Money Market Fund 34,073 28,227 22,555
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Emerging Growth Fund commenced operations on May 1, 1997.
- --------------------------------------------------------------------------------
Limitation on Fund Expenses
See "EXPENSES AND LIMITATIONS" in the prospectus for information on
limitations on expenses of the Funds.
- --------------------------------------------------------------------------------
Portfolio Transactions
Decisions with respect to the purchase and sale of portfolio securities on
behalf of each Fund that makes up Penn Series are made by the respective
investment adviser or sub-adviser of that Fund. Each Fund's adviser or
sub-adviser is responsible for implementing these decisions, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage. Most purchases and sales of portfolio debt securities are
transacted with the issuer or with a primary market maker acting as principal
for the securities on a net basis, with no brokerage commission being paid by a
Fund. Transactions placed through dealers serving as primary market makers
reflect the spread between the bid and the asked prices. Occasionally, a Fund
may make purchases of underwritten debt issues at prices which include
underwriting fees.
In purchasing and selling portfolio securities, the policies of the
investment advisers and sub-adviser are to seek quality execution at the most
favorable prices through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates. In selecting broker-dealers to
execute a Fund's portfolio transactions, the investment advisers will consider
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services they provide to the adviser, sub-adviser or
the Fund.
Any of the investment advisers or sub-advisers may effect principal
transactions on behalf of a Fund with a broker-dealer who furnishes brokerage
and/or research services, designate any such broker-dealer to receive selling
concessions, discounts or other allowances, or otherwise deal with any such
broker-dealer in connection with the acquisition of securities in underwritings.
Additionally, purchases and sales of fixed income securities may be transacted
with the issuer, the issuer's underwriter, or with a primary market maker acting
as principal or agent. A Fund does not usually pay brokerage commissions for
these purchases and sales, although the price of the securities generally
includes compensation which is not disclosed separately. The prices the Fund
pays to underwriters of newly-issued securities usually include a commission
paid by the issuer to the underwriter. Transactions placed through dealers who
are serving as primary market makers reflect the spread between the bid and
asked prices.
The investment advisers and sub-advisers may receive a wide range of
research services from broker-dealers, including information on securities
markets, the economy, individual companies, statistical information, accounting
and tax law interpretations, technical market action, pricing and appraisal
services, and credit analyses. Research services are received primarily in the
form of written reports, telephone contacts, personal meetings with security
analysts, corporate and industry spokespersons, economists, academicians, and
government representatives, and access to various computer-generated data.
Research services received from broker-dealers are supplemental to each
33
<PAGE>
investment adviser's and sub-adviser's own research efforts and, when utilized,
are subject to internal analysis before being incorporated into the investment
process.
With regard to payment of brokerage commissions, the investment advisers
and sub-advisers have adopted brokerage allocation policies embodying the
concepts of Section 28(e) of the Securities Exchange Act of 1934, as amended,
which permit investment advisers to cause a fund or portfolio to pay a
commission in excess of the rate another broker or dealer would have charged for
the same transaction, if the adviser determines in good faith that the
commission paid is reasonable in relation to the value of the brokerage and
research services provided. The determination to pay commissions may be made in
terms of either the particular transaction involved or the overall
responsibilities of the adviser or sub-adviser with respect to the accounts over
which it exercises investment discretion. In some cases, research services are
generated by third parties, but are provided to the advisers by or through
brokers and dealers. The advisers and sub-advisers may receive research service
in connection with selling concessions and designations in fixed price offerings
in which the Fund participates.
In allocating to brokers purchase and sale orders for portfolio securities,
the investment advisers and sub-advisers may take into account the sale of Penn
Mutual variable annuity contracts and variable life insurance policies that
invest in those Funds. Before brokerage business may be allocated on the basis
of those sales, the investment adviser or sub-adviser must be satisfied that the
quality of the transaction and commission payable are comparable to what they
would have been had other qualified brokers been selected to execute the
transaction.
In allocating brokerage business the advisers and sub-advisers annually
assesses the contribution of the brokerage and research services provided by
broker-dealers, and allocate a portion of the brokerage business of their
clients on the basis of these assessments. The advisers and sub-advisers seek to
evaluate the brokerage and research services they receive from broker/dealers
and make judgements as to the level of business which would recognize such
services. In addition, broker-dealers sometimes suggest a level of business they
would like to receive in return for the various brokerage and research services
they provide. Actual brokerage received by any firm may be less than the
suggested allocations, but can (and often does) exceed the suggestions because
total brokerage is allocated on the basis of all the considerations described
above. In no instance is a broker-dealer excluded from receiving business
because it has not been identified as providing research services. The advisers
and sub-advisers cannot readily determine the extent to which net prices or
commission rates charged by broker-dealers reflect the value of their research
services. However, commission rates are periodically reviewed to determine
whether they are reasonable in relation to the services provided. In some
instances, the advisers and sub-advisers receive research services they might
otherwise have had to perform for themselves. The research services provided by
broker-dealers can be useful to the advisers and sub-advisers in serving the
Funds, as well as its other clients.
For fiscal years 1998, 1997, and 1996, the total brokerage commissions paid
by the Growth Equity Fund, including the discounts received by securities
dealers in connection with underwritings, were $731,672, $595,881 and $641,514,
respectively. During 1998, the adviser directed transactions of $671,796,308
(with related commissions of $658,505) to brokers who provided research
services.
For fiscal years 1998, 1997, and 1996, the total brokerage commissions paid
by the Value Equity Fund, including discounts received by securities dealers in
connection with underwritings, were $195,772, $111,699 and $119,775,
respectively. During 1998, the adviser directed transactions of $24,300,574
(with related commissions of $31,446) to brokers who provided research services.
For fiscal years 1998, 1997, and 1996, the total brokerage commissions paid
by the Flexibly Managed Fund, including the discounts received by securities
dealers in connection with underwritings, were $1,259,520, $368,415 and
$323,511, respectively. During 1998, the adviser directed transactions of
$18,279,768 (with related commissions of $25,451) to brokers who provided
research services.
For fiscal years 1998, 1997, and 1996, the total brokerage commissions paid
by the International Equity Fund, including the discounts received by the
securities dealers in connection with underwritings, were $305,099, $248,517 and
$282,591, respectively. During 1998, the adviser allocated transactions of
$56,873,016 (with related commissions of $121,013) to brokers who provided
research services.
For fiscal years 1998, 1997 and 1996, the total brokerage commissions paid
by the Small Capitalization Fund, including the discounts received by the
Securities division in connection with underwritings, were $107,030, $82,820,
and $28,271, respectively. During 1998, the adviser directed transactions of
$5,515,799 (with related commissions of $15,805) to brokers who provided
research services.
34
<PAGE>
For fiscal year 1998 and the period May 1, 1997 (commencement of
operations) through December 31, 1997, the total brokerage commissions paid by
the Emerging Growth Fund, including the discounts received by the Securities
division in connection with underwritings were $112,916 and $32,800. During
1998, the adviser directed transactions of $6,313,210 (with related
commissions of $10,746) to brokers who provide research services.
For fiscal years 1998, 1997, and 1996, the Quality Bond Fund engaged in
portfolio transactions involving broker-dealers totaling $1,548,170,055,
$1,504,902,144 and $838,148,194, respectively. For fiscal years 1998, 1997, and
1996, the High Yield Bond Fund engaged in portfolio transactions involving
broker-dealers totaling $737,865, $362,910,185 and $263,291,031, respectively,
and the Money Market Fund engaged in portfolio transactions involving
broker-dealers totaling $479,932,894, $337,784,744 and $329,947,899,
respectively. The entire amounts for each of these years represented principal
transactions as to which the Funds have no knowledge of the profits or losses
realized by the respective broker-dealers. Of all such portfolio transactions,
none were placed with firms which provided research, statistical, or other
services to the Funds or its adviser.
Some of the investment advisers' and sub-advisers' other clients have
investment objectives and programs similar to those of the Funds. An investment
adviser or sub-adviser may occasionally make recommendations to other clients
which result in their purchasing or selling securities simultaneously with a
Fund. As a result, the demand for securities being purchased or the supply of
securities being sold may increase, and this could have an adverse effect on the
price of those securities. It is each of the investment adviser's and
sub-adviser's policy not to favor one client over another in making
recommendations or in placing orders. If two or more of an investment adviser's
or sub-adviser's clients are purchasing a given security at the same time from
the same broker-dealer, the investment adviser or sub-adviser will average the
price of the transactions and allocate the average among the clients
participating in the transaction. In addition, the advisers and sub-advisers in
general follow the policy that they will ordinarily not make additional
purchases of a common stock for its clients (including the Penn Series) if, as a
result of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.
35
<PAGE>
- --------------------------------------------------------------------------------
Directors and Officers
The directors and principal officers of Penn Series, their business
addresses and principal occupations during the past five years are set forth in
the following table.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address Penn Series During Past Five Years
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eugene Bay Director Senior Pastor, Bryn Mawr Presbyterian Church, Bryn Mawr, PA.
121 Fishers Road
Bryn Mawr, PA 19010
- ----------------------------------------------------------------------------------------------------------------------------------
James S. Greene Director Retired; Vice President and Director, International Raw Materials, Inc.,
P.O. Box 3761 Philadelphia, PA (commodities trading), prior to September 1990.
Vero Beach, FL 32964-3761
- ----------------------------------------------------------------------------------------------------------------------------------
Robert E. Chappell* Director Chairman of the Board and Chief Executive Officer (since December 1996), President
600 Dresher Road and Chief Executive Officer (April 1995 - December 1996), President and Chief
Horsham, PA 19044 Operating Officer prior thereto, The Penn Mutual Life Insurance Company.
- ----------------------------------------------------------------------------------------------------------------------------------
Larry L. Mast* Director Executive Vice President, The Penn Mutual Life Insurance Company, May 1997 to
The Penn Mutual Life present. Formerly Senior Vice President, Lafayette Life Insurance Company,
Insurance Company September 1994 to May 1997; Vice President, Security Benefit Insurance Company,
600 Dresher Road May 1993 to September 1994; Vice President, Home Life Insurance Company, July 1990
Horsham, PA 19044 to May 1993; Agency Manager, The Equitable Life Insurance Company, August 1978 to
July 1990.
- ----------------------------------------------------------------------------------------------------------------------------------
Daniel J. Toran* Director President and Chief Operating Officer, (January 1997 to present), Executive Vice
The Penn Mutual Life President, Sales and Marketing (May 1996 to January 1997), The Penn Mutual Life
Insurance Company Insurance Company; Executive Vice President, The New England Mutual Life Insurance
600 Dresher Road Company, prior thereto.
Horsham, PA 19044
- ----------------------------------------------------------------------------------------------------------------------------------
William H. Loesche, Jr. Director Retired; Adviser (since April 1988); Director (prior thereto), Keystone Insurance
100 Gray's Lane Company and Keystone Automobile Club, Philadelphia, PA.
Apt. 101
Haverford, PA 19041
- ----------------------------------------------------------------------------------------------------------------------------------
M. Donald Wright Director President, M. Donald Wright Professional Corporation, Bryn Mawr, PA (financial
100 Chetwynd Drive planning and consulting); Director, Graduate School of Financial Services, The
Rosemont, PA 19010 American College, since April 1991.
- ----------------------------------------------------------------------------------------------------------------------------------
James B. McElwain President Assistant Vice President, Investment Marketing and Operations (since August 1995);
600 Dresher Road Assistant Vice President, Retirement and Investment Sales Operation, The Penn Mutual
Horsham, PA 19044 Life Insurance Company, prior thereto.
- ----------------------------------------------------------------------------------------------------------------------------------
Richard F. Plush Vice President Assistant Vice President and Senior Actuary, The Penn Mutual Life Insurance Company
600 Dresher Road (1973 to present).
Horsham, PA 19044
- ----------------------------------------------------------------------------------------------------------------------------------
C. Ronald Rubley Secretary Attorney, Morgan, Lewis & Bockius LLP, Philadelphia, PA (since January 1996);
1701 Market Street Associate General Counsel, The Penn Mutual Life Insurance Company, prior thereto.
Philadelphia, PA 19103
- ----------------------------------------------------------------------------------------------------------------------------------
Steven M. Herzberg Treasurer Assistant Vice President and Treasurer, The Penn Mutual Life Insurance Company
600 Dresher Road (December 1997 to present); Director of Financial Planning and Treasurer (November
Horsham, PA 19044 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 January 1996), Assistant Vice President,
600 Dresher Road Financial and Management Accounting (since 1994), Director of Financial
Horsham, PA 19044 Accounting (prior thereto), The Penn Mutual Life Insurance Company.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Director is an "interested person" of Penn Series, as defined in the
Investment Company Act of 1940, as amended.
Directors and officers of Penn Series who are employed by Penn Mutual will
not receive any special compensation for serving in such capacities. Penn Series
has made no provision for the payment of retirement or pension benefits to any
director or officer. In 1998, Penn Series paid directors' fees in the aggregate
amount of $28,144 to directors who are not "interested persons" of Penn
Series.
36
<PAGE>
The Board of Directors has an Executive Committee currently consisting of
Messrs. Chappell, Toran and Greene. Subject to limits under applicable law,
during intervals between meetings of the Board, the Committee may exercise the
powers of the Board.
- --------------------------------------------------------------------------------
Custodial Services
PNC Bank, Broad & Chestnut Streets, Philadelphia, PA 19107 is custodian of
the assets of the Funds of Penn Series. The custodial services performed by PNC
Bank are those customarily performed for registered investment companies by
qualified financial institutions. Penn Series has authorized the Bank to deposit
certain portfolio securities in a central depository system as allowed by
federal law.
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP serves as the independent auditors of Penn Series Funds,
Inc. Their offices are located at 2001 Market Street, Suite 4000, Philadelphia,
PA 19103. Ernst & Young LLP is also the independent auditors of The Penn Mutual
Life Insurance Company.
- --------------------------------------------------------------------------------
Legal Matters
Morgan, Lewis & Bockius LLP of Philadelphia, Pennsylvania, has provided
advice on certain matters relative to the federal securities laws and the
offering of shares of Penn Series Funds, Inc.
- --------------------------------------------------------------------------------
Net Asset Value of Shares
The following information supplements the information on net asset value of
shares set forth in "Account Policies" in the Prospectus.
The purchase and redemption price of each Fund's shares is equal to that
Fund's net asset value per share. Each Fund determines its net asset value per
share by subtracting the Fund's liabilities (including accrued expenses and
dividends payable) from its total assets (the market value of the securities the
Fund holds plus cash and other assets, including income accrued but not yet
received) and dividing the result by the total number of shares outstanding. The
net asset value per share of each Fund is calculated every day the New York
Stock Exchange ("Exchange") is open for trading. The Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Presidential Election Day, Thanksgiving Day, and Christmas Day.
Debt securities held in the Funds may be valued on the basis of valuations
provided by a pricing service when such prices are believed to reflect the fair
value of such securities. Use of the pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institution-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data.
The Money Market Fund uses the amortized cost method of valuation. Under
the amortized cost method of valuing portfolio securities, the security is
valued at cost on the date of purchase and thereafter a proportionate
amortization of any discount or premium until maturity of the security is
assumed. The value of the security for purposes of determining net asset value
normally does not change in response to fluctuating interest rates. While the
amortized cost method is believed to provide certainty in portfolio valuation,
it may result in periods during which values are higher or lower than the amount
the Money Market Fund would receive if the security was sold.
In accordance with Rule 2a-7 under the Investment Company Act of 1940, the
Penn Series Board of Directors has established procedures reasonably designed,
taking into account current conditions and the Money Market Fund's objectives,
to stabilize the net asset value per share of the Fund, as computed for purposes
of distribution and redemption, at $1.00. Penn Series will maintain a dollar
weighted average portfolio maturity in the Money Market Fund appropriate to the
objective of maintaining a stable net asset value per share, and to that end the
Fund will neither purchase any instrument with a remaining maturity of more than
397 days nor maintain a dollar weighted average portfolio maturity which exceeds
90 days. The Board of Directors will review, at such intervals as it determines
appropriate, the extent, if any, to which the net asset value per share
calculated by using available market quotations deviates from the $1.00 per
share. In the event such deviation exceeds 1/2 of 1%, the Board will promptly
37
<PAGE>
consider what action, if any, should be initiated. If the Board believes that
the extent of any deviation from the Money Market Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to
prospective or existing shareholders or contract holders, it has agreed to take
such steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include redeeming shares in kind; selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity of the Money Market Fund; reducing or withholding dividends; utilizing
a net asset value per share as determined by using available market quotations;
or reducing the number of shares outstanding by requesting shareholders to
contribute to capital shares of the Money Market Fund.
- --------------------------------------------------------------------------------
Ownership of Shares
The outstanding shares of each of the Funds of Penn Series are owned by The
Penn Mutual Life Insurance Company ("Penn Mutual") and its subsidiary, The Penn
Insurance and Annuity Company ("PIA") and are held in their Separate Accounts
pursuant to variable annuity contracts and variable life insurance policies.
On January 31, 1999, the outstanding shares of Penn Series were owned as
follows:*
<TABLE>
<CAPTION>
Growth Value Emerging Flexibly Quality Small Money
Equity Equity Growth Managed International Bond High Yield Capitalization Market
Fund Fund Fund Fund Equity 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 85% 76% 68% 74% 74% 69% 71% 55% 54%
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Shares Owned by PIA and
Held in a Separate Account
Pursuant to Variable Annuity
Contracts 7% 13% 17% 16% 11% 19% 17% 25% 23%
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Shares Owned by Penn
Mutual and Held in a Separate
Account Pursuant to Variable
Life Insurance Contracts 8% 11% 15% 10% 15% 12% 12% 20% 23%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unaudited.
- --------------------------------------------------------------------------------
Tax Status
The following is only a summary of certain federal tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' prospectus. No attempt is made to present a detailed explanation of
the tax treatment of Funds or their shareholders and the discussion here and in
the Funds' prospectus is not intended as a substitute for careful tax planning.
Shareholders are urged to consult their tax advisers with specific reference to
their own tax situations, including their state and local tax liabilities.
The following general discussion of certain Federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, certain administrative changes, or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
It is the policy of each of the Funds to continue to qualify for the
favorable tax treatment accorded regulated investment companies under Subchapter
M of the Code. By following such policy, each of the Funds expect to be relieved
of the Federal income taxes on net investment company taxable income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to shareholders.
38
<PAGE>
In order to continue to qualify as a regulated investment company each Fund
must, among other things, (1) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in stock,
securities or currencies; and (2) diversify its holdings so that at the end of
each quarter of each taxable year (i) at least 50% of the market value of the
Fund's total assets is represented by cash or cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities or securities of any other regulated investment company) or of two or
more issuers that the Fund controls and that are engaged in the same, similar,
or related trades or businesses. These requirements may restrict the degree to
which the Funds may engage in short-term trading and in certain hedging
transactions and may limit the range of the Fund's investments. If a Fund
qualifies as a regulated investment company, it will not be subject to Federal
income tax on the part of it's net investment income and net realized capital
gains, if any, which it distributes each year to the shareholders, provided the
Fund distributes at least (a) 90% of its "investment company taxable income"
(generally, net investment income plus the excess, if any, of net short-term
capital gain over net long-term capital losses) and (b) 90% of its net exempt
interest income (the excess of (i) its tax-exempt interest income over (ii)
certain deductions attributable to that income).
If for any taxable year, a Fund does not qualify as a regulated investment
company under Subchapter M of the Code, all of its taxable income will be
subject to tax at regular corporate tax rates without any deduction for
distributions to shareholders and all such distributions will be taxable to
shareholders as ordinary dividends to the extent of the fund's current or
accumulated earnings and profits. Such distributions will generally qualify for
the corporate dividends received deduction for corporate shareholders.
If a Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its net realized gains (the excess of short and
long term capital gain over short and long term capital losses) for the one-year
period ending October 31 of that year (and any retained amount from the prior
calendar year), the Fund will be subject to a nondeductible 4% Federal excise
tax on the undistributed amounts. The Fund intends to make sufficient
distributions to avoid imposition of this tax.
Distributions declared in October, November, or December to shareholders of
record during those months and paid during the following January are treated as
if they were received by each shareholder on December 31 of the prior year for
tax purposes.
A Fund's transactions in certain futures contracts, options, forward
contracts, foreign currencies, foreign debt securities, and certain other
investment and hedging activities will be subject to special tax rules. In a
given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's assets, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing, and character of distributions to shareholders. Each Fund will endeavor
to make any available elections pertaining to such transactions in a manner
believed to be in the best interest of the Fund.
39
<PAGE>
- --------------------------------------------------------------------------------
RATINGS OF COMMERCIAL PAPER
- --------------------------------------------------------------------------------
Moody's Investor Services, Inc. Commercial paper ratings:
PRIME-1 Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Board margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
- --------------------------------------------------------------------------------
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
- --------------------------------------------------------------------------------
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and
may require relatively high financial leverage. Adequate alternate
liquidity is maintained.
- --------------------------------------------------------------------------------
Standard & Poor's Rating Group commercial paper ratings:
A-1 This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety characteristics
are denoted with a plus sign (+) designation.
- --------------------------------------------------------------------------------
A-2 Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.
- --------------------------------------------------------------------------------
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
- --------------------------------------------------------------------------------
B Issues rated B are regarded as having significant speculative
characteristics for timely payment.
- --------------------------------------------------------------------------------
C This rating is assigned to short-term debt obligations that is
currently vulnerable to nonpayment.
- --------------------------------------------------------------------------------
D Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments
on an obligation are jeopardized.
- --------------------------------------------------------------------------------
Fitch Investors Service, Inc.:
Fitch 1--Highest grade. Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment. Fitch 2--Very good
grade. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
40
<PAGE>
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT SECURITIES
- --------------------------------------------------------------------------------
The quality of a bond is measured by credit risk--the continuing ability of
the issuer to meet interest and principal payments. Issuers who are believed to
be good credit risks receive high quality ratings, and those believed to be poor
credit risks receive low quality ratings. As a result of the greater credit risk
involved, medium and low quality bonds typically offer a higher yield than bonds
of high quality.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
- --------------------------------------------------------------------------------
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than Aaa
securities.
- --------------------------------------------------------------------------------
A Bonds which are rated A possess many favorable investment
attributes and are generally considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
- --------------------------------------------------------------------------------
Baa Bonds which are rated Baa are considered medium-grade obligations
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
- --------------------------------------------------------------------------------
Ba Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
- --------------------------------------------------------------------------------
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or maintenance of other terms of the contract over any long period
of time may be small.
- --------------------------------------------------------------------------------
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
- --------------------------------------------------------------------------------
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked short-comings.
- --------------------------------------------------------------------------------
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
- --------------------------------------------------------------------------------
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a rating in the lower end of
the generic rating category.
41
<PAGE>
- --------------------------------------------------------------------------------
Standard & Poor's Ratings Group
AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay
principal and interest.
- --------------------------------------------------------------------------------
AA Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only to a small
degree.
- --------------------------------------------------------------------------------
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
- --------------------------------------------------------------------------------
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
- --------------------------------------------------------------------------------
Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major risk exposures to adverse conditions.
The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing of
a bankruptcy petition of the taking of a similar action if payments on a
obligation are jeopardized.
42
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF PENN SERIES
- --------------------------------------------------------------------------------
The following pages include audited financial statements and financial
highlights as of December 31, 1998 for the 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 and Money
Market Fund.
43
<PAGE>
<TABLE>
<CAPTION>
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE MONEY MARKET FUND
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (41.4%)
Carolina Power and Light
5.13%............................................ 02/03/99 A-1 1,700 $1,692,006
5.45%............................................ 01/28/99 A-1 750 746,934
Caterpillar Inc.
5.05%............................................ 01/08/99 A-1 1,000 999,018
Dekalb County For
Emory University
5.25%............................................ 01/21/99 A-1 1,500 1,500,000
Ford Motor Credit Corp.
5.01%............................................ 01/28/99 A-1 2,300 2,291,358
5.05%............................................ 02/05/99 A-1 700 696,563
General Electric
Capital Corp.
5.16%............................................ 03/09/99 A-1 2,000 1,980,793
General Electric Capital
Mortgage Services
5.01%............................................ 02/19/99 A-1 250 248,295
General Motors
Acceptance Corp.
5.16%............................................ 01/14/99 A-2 2,500 2,495,342
GTE Corp.
5.20%............................................ 02/22/99 A-2 1,000 992,489
5.30%............................................ 02/09/99 A-2 1,500 1,491,388
Merrill Lynch
5.47%............................................ 01/22/99 A-1 1,000 996,809
Monsanto Co.
5.47%............................................ 01/11/99 A-1 1,500 1,497,721
5.10%............................................ 02/01/99 A-1 300 298,683
New York, New York
5.40%............................................ 01/14/99 A-1 1,600 1,600,000
Walt Disney Co.
5.05%............................................ 01/15/99 A-1 2,500 2,495,090
5.10%............................................ 02/16/99 A-1 103 102,329
----------
TOTAL COMMERCIAL PAPER
(Cost $22,124,818) 22,124,818
==========
CORPORATE BONDS (24.0%)
Associates Corporation
North America
7.25%............................................ 09/01/99 AA- 150 151,533
6.68%............................................ 09/17/99 AA- 1,650 1,661,120
Caterpillar Financial
Service Corp.
6.77%............................................ 02/02/99 A+ 1,000 1,001,308
Chase Manhattan Corp.
7.58%............................................ 07/23/99 A 2,000 2,020,849
Coca-Cola Enterprises
7.00%............................................ 11/15/99 A+ 1,000 1,016,379
Florida Power and Light
5.50%............................................ 07/01/99 AA- 250 249,805
General Motors
Acceptance Corp.
7.75%............................................ 01/15/99 A-2 325 325,228
GTE Northwest Inc.
6.125%........................................... 02/15/99 A-1 375 375,114
Mobil Corp.
7.25%............................................ 03/15/99 AA 115 115,351
Norwest Financial Inc.
6.68%............................................ 09/15/99 A+ 1,000 1,007,240
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Sears Roebuck Co.
8.00%............................................ 02/16/99 A- 2,500 $2,507,990
Southern California Edison
7.50%............................................ 04/15/99 A- 500 502,382
Texas Instruments Inc.
6.75%............................................ 07/15/99 A 1,550 1,558,224
Wachovia Bank
North America
6.00%............................................ 03/15/99 AA+ 350 350,169
----------
TOTAL CORPORATE BONDS
(Cost $12,842,692)............................... 12,842,692
==========
VARIABLE RATE DEMAND NOTES (21.6%)+
Alabama State
Development Authority
6.00%............................................ 01/07/99 A-1 500 500,000
Barton Healthcare
5.70%............................................ 01/06/99 A-1 430 430,000
Baylis Group Partnership
6.00%............................................ 01/06/99 A-1 700 700,000
Berks County Industrial
Development Authority
6.05%............................................ 01/07/99 A-1 535 535,000
Bloomfield, New Mexico
5.70%............................................ 01/07/99 A-1 600 600,000
Columbia County Georgia
Development Authority
5.70%............................................ 01/07/99 A-1 1,390 1,390,000
Community Health
Systems, Inc.
6.05%............................................ 01/07/99 A-1 1,065 1,065,000
Community Health
Systems, Inc.
6.05%............................................ 01/07/99 A-1 365 365,000
Durham Risk
Management Co.
5.17%............................................ 01/07/99 A-1 500 500,000
Fairview Hospital and
Healthcare Services
5.65%............................................ 01/07/99 AAA 500 500,000
GMG Warehouse
American National
5.70%............................................ 01/06/99 A-1 875 875,000
Health Insurance Plan of
Greater NY
5.65%............................................ 01/07/99 A-1 500 500,000
Illinois Development
Finance Authority
5.70%............................................ 01/07/99 A-1 600 600,000
Liliha Partners LP
6.05%............................................ 01/06/99 A-1 1,155 1,155,000
Montgomery County PA
Industrial Development
Authority
6.05%............................................ 01/07/99 A-1 775 775,000
Saint Francis Health
6.05%............................................ 01/07/99 A-2 490 490,000
Silver City New Mexico
5.70%............................................ 01/07/99 A-1 600 600,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(Cost $11,580,000)............................... 11,580,000
-----------
</TABLE>
1
<PAGE>
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE MONEY MARKET FUND
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
MEDIUM TERM NOTES (5.4%)
Associates Corporation
North America
6.125%............................................ 11/12/99 AA- 1,000 $1,009,113
Bank One Wisconsin
5.74%............................................ 05/11/99 AA 350 349,938
Caterpillar Financial
Service Corp.
6.78%............................................ 08/05/99 A+ 250 251,600
NYNEX Capital Funding
7.60%............................................ 07/19/99 A 1,000 1,012,377
Xerox Corp.
7.01%............................................ 04/30/99 A 250 250,980
---------
TOTAL MEDIUM TERM NOTES
(Cost $2,874,008)................................ 2,874,008
=========
Number
of Shares
---------
SHORT-TERM INVESTMENTS (7.6%)
Janus Money Market
Fund............................................. 2,666,715 2,666,715
Temporary Investment
Fund Class B .................................... 1,416,465 1,416,465
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,083,180)................................ 4,083,180
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $53,504,698)(a............................. $53,504,698
===========
</TABLE>
(a) Cost for Federal income tax purposes.
+ The rate shown is the rate as of December 31, 1998, and the maturity is the
next interest readjustment date.
The Standard & Poor's Corporation, Moody's Investors Service, Fitch Investors
Service and Duff & Phelps Credit Rating Co. ratings are the most recent ratings
available at December 31, 1998. Ratings are unaudited.
Percentage of Portfolio
Maturity Amount -----------------------
Schedule Par (cum)
-------- ------ -----
1- 7 days $11,580,000 23.4% 23.4%
8- 14 days 6,600,000 13.4% 36.8%
15- 30 days 8,375,000 17.0% 53.8%
31- 60 days 9,428,000 19.1% 72.9%
61- 90 days 2,465,000 5.0% 77.9%
91-120 days 750,000 1.5% 79.4%
121-150 days 350,000 0.7% 80.1%
Over 150 days 9,850,000 19.9% 100.0%
----------- -----
$49,398,000 100.0%
=========== =====
Average Weighted Maturity -- 69 days
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE QUALITY BOND FUND
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (10.5%)
Canadian Gov't Agency (2.2%)
Hydro-Quebec 8.05%............................... 07/07/06 A+ 1,150 $1,398,687
-----------
Financial (1.7%)
Associates Corp. N.A.
7.75%............................................ 02/15/05 AA- 500 555,625
General Electric Capital
Corp. 8.125%..................................... 02/01/99 AAA 500 501,028
-----------
1,056,653
General Obligation Bonds (1.6%)
General Electric Capital
Corp. 6.66%...................................... 05/01/00 AAA 1,000 1,017,500
-----------
Industrial (1.7%)
IBM Corp. 6.22%................................... 08/01/27 A+ 1,000 1,061,250
-----------
Retail (0.3%)
Penney (J.C.) Inc.
Note 9.45%....................................... 07/15/02 A+ 175 185,500
-----------
Services-Equipment Renting & Leasing (0.2%)
Service Corporation
International 7.00%.............................. 06/01/15 BBB+ 100 103,875
-----------
Transportation (1.1%)
CSX Corp. 7.05%................................... 05/01/02 BBB 660 685,575
-----------
Utility (1.7%)
Calenergy Co. Inc.
8.48%............................................ 09/15/28 BB+ 975 1,084,688
-----------
TOTAL CORPORATE BONDS
(Cost $6,099,819)................................ 6,593,728
-----------
U.S. TREASURY OBLIGATIONS (34.9%)
Treasury Bonds (3.2%)
7.50%............................................ 11/15/16 NR 700 869,831
6.125%............................................ 11/15/27 NR 1,025 1,145,938
-----------
2,015,769
-----------
Treasury Notes (31.7%)
6.25%............................................ 08/31/02 NR 3,750 3,946,545
5.75%............................................ 04/30/03 NR 6,625 6,896,268
5.75%............................................ 08/15/03 NR 1,900 1,984,987
6.50%............................................ 05/15/05 NR 5,625 6,166,091
5.625%........................................... 05/15/08 NR 900 961,005
-----------
19,954,896
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $21,961,438)............................... 21,970,665
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
AGENCY OBLIGATIONS (40.5%)
Federal National Mortgage Association Bonds
4.50%............................................ 01/04/99 NR 6,400 $6,397,600
5.625%........................................... 03/15/01 NR 3,100 3,150,555
6.00%............................................ 11/30/28 NR 5,000 4,935,950
6.45%............................................ 12/01/03 NR 1,207 1,241,677
6.50%............................................ 12/01/26 NR 1,500 1,510,320
6.67%............................................ 12/01/04 NR 1,759 1,831,648
6.825%........................................... 09/01/07 NR 2,702 2,819,497
7.00%............................................ 01/01/29 NR 2,000 2,041,260
7.50%............................................ 12/01/26 NR 1,500 1,540,320
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $25,218,011)............................... 25,468,827
-----------
COMMERCIAL ASSET BACKED SECURITIES (6.5%)
Comed Transitional
Funding Trust
5.44%............................................ 03/25/07 AAA 2,000 1,997,500
Morgan Stanley 6.95%.............................. 12/10/07 AA 464 494,689
Railcar Leasing, LLC
7.125%........................................... 01/15/13 AAA 1,000 1,098,750
Sasco 96- CFl Class B
6.303%........................................... 02/25/28 AA 500 508,642
-----------
TOTAL COMMERCIAL ASSET BACKED SECURITIES
(Cost $4,013,482).............................. 4,099,581
-----------
Shares
------
SHORT-TERM INVESTMENTS (7.6%)
Janus Money Market Fund.......................... 2,644,429 2,644,429
Temporary Investment Fund Class B................ 2,161,869 2,161,869
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,806,298)................................ 4,806,298
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $62,099,048) (a)........................... $62,939,099
===========
</TABLE>
(a) At December 31, 1998, the cost for Federal income tax purposes was
$62,136,407. Net unrealized appreciation was $802,692. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $982,439 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $179,747.
The Standard & Poor's corporation ratings are the most recent ratings
available at December 31, 1998. Ratings are unaudited.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
CORPORATE BONDS (87.9%)
- -----------------------
<S> <C> <C> <C> <C>
Advertising (0.2%)
American Business
Information
Inc. 9.50% ........................................... 06/15/08 B 175 $ 140,000
----------
Aerospace & Defense (2.3%)
Communication & Power
Industries 12.00% .................................... 08/01/05 B 750 778,125
Dyncorp, Inc.
9.50% ................................................ 03/01/07 B 425 420,750
L-3 Communications
Corp. 10.375% ........................................ 05/01/07 B 325 357,500
----------
1,556,375
----------
Automobiles & Related (1.4%)
Advance Stores Co.
10.25% ............................................... 04/15/08 B- 300 304,500
Federal Mogul, Inc.
7.75% ................................................ 07/01/06 BB+ 400 405,912
Trident Automotive
10.00% ............................................... 12/15/05 B- 250 252,500
----------
962,912
----------
Broadcasting (3.8%)
CBS Radio, Inc.
11.375% .............................................. 01/15/09 NR 263 307,827
Chancellor Media
Corporation 9.375% ................................... 10/01/04 B 500 518,750
Citadel Broadcasting
Co. 9.25% ............................................ 11/15/08 B- 150 156,000
Jacor Communications
Co. 8.00% ............................................ 02/15/10 B 375 393,750
Lin Holdings, Corp.
9.319%++ ............................................. 03/01/08 B- 150 105,375
Muzak Limited Partners
10.00% ............................................... 10/01/03 B+ 500 520,000
Radio Unica Corp.
14.99%++ ............................................. 08/01/06 NR 250 135,000
Sinclair Broadcast Group
8.75% ................................................ 12/15/07 B 250 253,125
TV Azteca SA DE CV
10.50% ............................................... 02/15/07 B+ 200 163,000
----------
2,552,827
----------
Building Products (2.7%)
American Builders
and Contractors
10.625% .............................................. 05/15/07 B 500 465,000
Associated Materials, Inc.
9.25% ................................................ 03/01/08 B 600 612,000
Building Materials Corp.
7.75% ................................................ 07/15/05 BB 250 246,250
ISG Resources, Inc.
10.00% ............................................... 04/15/08 B- 500 495,000
----------
1,818,250
----------
Cable Operators (3.5%)
Adelphia
Communications
Corp. 9.875% ......................................... 03/01/07 B+ 250 276,875
CSC Holdings, Inc.
7.625% ............................................... 07/15/18 BB+ 425 433,041
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Falcon Holding Group
9.246%++ ............................................. 04/15/10 B 200 $ 136,000
Frontiervision L.P.
11.00% ............................................... 10/15/06 B 400 444,000
Frontiervision Holdings
L.P. 9.9%++ .......................................... 09/15/07 B 400 335,000
Fundy Cable Ltd.
11.00% ............................................... 11/15/05 BB 300 318,000
Marcus Cable Co.
11.162%++ ............................................ 12/15/05 B 450 432,000
----------
2,374,916
----------
Chemicals (1.3%)
International Specialty
Products, Inc.
9.75% ................................................ 02/15/02 BB- 500 531,250
Sovereign Specialty
Chemicals 9.50% ...................................... 08/01/07 B- 350 355,250
----------
886,500
----------
Conglomerates (0.6%)
ICF Kaiser International,
Inc. 13.00% .......................................... 12/31/03 NR 400 396,000
----------
Consumer Products (1.6%)
Purina Mills, Inc.
9.00% ................................................ 03/15/10 B 600 597,000
Revlon Consumer
Products 8.125% ...................................... 02/01/06 B 150 142,500
8.625% ............................................... 02/01/08 B- 350 322,000
----------
1,061,500
----------
Container (3.8%)
Anchor Advanced
Products 11.75% ...................................... 04/01/04 BB- 600 654,000
BWAY Corp.
10.25% ............................................... 04/15/07 B 500 525,000
Plastic Containers, Inc.
10.00% ............................................... 12/15/06 B+ 1,000 1,050,000
U.S. Can Corp.
10.125% .............................................. 10/15/06 B 350 368,375
----------
2,597,375
----------
Diversified Chemicals (0.7%)
Koppers Industry, Inc.
9.875% ............................................... 12/01/07 B- 500 490,000
----------
Electric Utilities (0.8%)
Niagara Mohawk
Power Corp.
7.281%++ ............................................. 07/01/10 BB+ 400 309,052
7.75% ................................................ 10/01/08 BB+ 200 217,620
----------
526,672
----------
Electronic Components (0.5%)
Fairchild Semiconductor
10.125% .............................................. 03/15/07 B 125 123,750
Viasystems, Inc.
9.75% 06/01/07 B- 250 232,500
----------
356,250
----------
Energy Services (4.3%)
Amerigas Partners LP
10.125% .............................................. 04/15/07 BB+ 400 408,000
Canadian Forest Oil
Ltd. 8.75% ........................................... 09/15/07 B 150 137,250
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Energy Corporation of
America 9.50% ........................................ 05/15/07 B 600 $555,000
Flores & Rucks
9.75% ................................................ 10/01/06 BB- 275 280,500
Kelley Oil & Gas
Corporation
10.375% .............................................. 10/15/06 B- 150 111,000
Lomak Petroleum
8.75% ................................................ 01/15/07 B 300 276,000
Plains Resources, Inc.
10.25% ............................................... 03/15/06 B- 550 555,500
Pride Petroleum Services
9.375% ............................................... 05/01/07 BB 425 395,250
Rutherford-Moran Oil
10.75% ............................................... 10/01/04 CC 175 199,500
----------
2,918,000
----------
Entertainment & Leisure (3.5%)
Bally Total Fitness
Holdings 9.875% ...................................... 10/15/07 B- 400 392,000
IMAX Corp.
7.875% ............................................... 12/01/05 BB- 250 250,625
Loews Cineplex
Entertainment
8.875% ............................................... 08/01/08 B 75 77,438
Park Place Entertainment
7.875% ............................................... 12/15/05 BB+ 400 400,500
Premier Parks, Inc.
9.68%++ .............................................. 04/01/08 B- 125 84,687
Six Flags Theme Parks
12.25% ............................................... 06/15/05 B- 600 666,000
Speedway Motorsports,
Inc. 8.50% ........................................... 08/15/07 B+ 500 527,500
----------
2,398,750
----------
Financial Services (0.2%)
Ocwen Capital Trust I
10.875% .............................................. 08/01/27 B- 150 120,000
----------
Food Processing (1.9%)
B&G Foods, Inc.
9.625% ............................................... 08/01/07 B- 600 585,000
Mrs. Fields Original
10.125% .............................................. 12/01/04 B+ 250 241,250
Shoppers Food Warehouse
9.75% ................................................ 06/15/04 B+ 400 431,000
----------
1,257,250
----------
Food/Tobacco (3.5%)
Archibald Candy Corp.
10.25% ............................................... 07/01/04 B 100 101,500
Del Monte Foods Co.
11.131%++ ............................................ 12/15/07 B- 75 51,375
Eagle Family Foods
8.75% ................................................ 01/15/08 B- 250 235,625
International Home
Foods, Inc. Senior
Subordinated Notes
10.375% .............................................. 11/01/06 B- 600 649,500
Keebler Corporation
10.75% ............................................... 07/01/06 BB+ 600 678,000
Smithfield Foods, Inc.
7.625% ............................................... 02/15/08 BB+ 125 125,625
Southern Foods, Inc.
9.875% ............................................... 09/01/07 B 500 522,500
----------
2,364,125
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Healthcare (3.4%)
Genesis Healthcare
9.25% ................................................ 10/01/06 B- 100 $94,000
Genesis Health Ventures,
Inc. 9.75% ........................................... 06/15/05 B- 100 97,000
Hudson Respiratory Care
9.125% ............................................... 04/15/08 B- 100 81,000
Integrated Health
Services, Inc.
9.25% ................................................ 01/15/08 B- 300 279,000
Kinetic Concepts, Inc.
9.625% ............................................... 11/01/07 B- 250 237,500
Mariner Post-Acute
Network 9.50% ........................................ 11/01/07 B- 250 192,500
Owens & Minor, Inc.
10.875% .............................................. 06/01/06 B+ 500 537,500
Quest Diagnostic, Inc.
10.75% ............................................... 12/15/06 B+ 250 277,500
Tenet Healthcare Corp.
8.125% ............................................... 12/01/08 BB- 500 516,250
----------
2,312,250
----------
Hotels & Gaming (7.4%)
Argosy Gaming
12.00% ............................................... 06/01/01 NR 150 147,563
Casino America, Inc.
12.50% ............................................... 08/01/03 B+ 250 275,625
Courtyards By Marriott
10.75% ............................................... 02/01/08 B- 600 618,000
Grand Casinos, Inc.
10.125% .............................................. 12/01/03 BB 500 545,135
9.00% ................................................ 10/15/04 B+ 300 336,000
Host Marriott Travel
Plaza 9.50% .......................................... 05/15/05 BB- 600 624,000
HMH Properties
7.875% ............................................... 08/01/08 BB 600 582,000
ITT Corp.
7.375% ............................................... 11/15/15 BB 300 253,740
Players International,
Inc. 10.875% ......................................... 04/15/05 BB- 300 321,000
Red Roof Inns
9.625% ............................................... 12/15/03 B 500 508,750
Rio Hotel & Casino,
Inc. 10.625% ......................................... 07/15/05 B+ 350 381,500
9.50% ................................................ 04/15/07 B+ 50 55,562
Venetian Casino LV
Sands 12.25% ......................................... 11/15/04 B- 400 374,000
----------
5,022,875
----------
Manufacturing (3.3%)
Grove Worldwide
L.L.C. 9.25% ......................................... 05/01/08 B 500 455,000
Goss Graphic Systems,
Inc. 12.00% .......................................... 10/15/06 CCC+ 25 13,750
Hawk Corp.
10.25% ............................................... 12/01/03 B+ 500 525,000
HCC Industries, Inc.
10.75% ............................................... 05/15/07 B- 500 480,000
International Wire
Group 11.75% ......................................... 06/01/05 B- 500 526,250
Paragon Corp.
Holdings 9.625% ...................................... 04/01/08 B+ 250 207,500
----------
2,207,500
----------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Media and Communications (1.4%)
Mediacom L.L.C.
8.50% ............................................... 04/15/08 B+ 175 $ 178,938
Northland Cable
Television 10.25% ................................... 11/15/07 B- 500 526,250
Transwestern Holdings
11.431%++ ........................................... 11/15/08 B- 250 165,625
Transwestern Publishing
9.625% .............................................. 11/15/07 B- 100 104,500
----------
975,313
----------
Mining (0.3%)
P&L Coal Holdings
Corp. 8.875% ........................................ 05/15/08 B+ 200 203,500
----------
Metals & Steels (0.3%)
Republic Engineered
Steel 9.875% ........................................ 12/15/01 CCC+ 200 202,000
----------
Miscellaneous Consumer Products (4.9%)
American Safety Razor
Co. 9.875% .......................................... 08/01/05 BB- 500 500,000
Chattem, Inc.
12.75% .............................................. 06/15/04 B- 500 562,500
Doane Products Co.
9.75% ............................................... 05/15/07 B- 1,266 1,303,980
Hedstrom Holdings, Inc.
17.274%++ ........................................... 06/01/09 B- 50 22,437
Herff Jones, Inc.
11.00% .............................................. 08/15/05 B 500 542,500
Holmes Products Corp.
9.875% .............................................. 11/15/07 B- 400 376,000
----------
3,307,417
----------
Paper & Paper Products (1.4%)
Repap New Brunswick
9.00% ............................................... 06/01/04 B- 200 182,000
10.625% ............................................. 04/15/05 CCC+ 650 442,000
Riverwood International
10.25% .............................................. 04/01/06 B- 150 147,000
10.625% ............................................. 08/01/07 B- 200 198,000
----------
969,000
----------
Printing and Publishing (2.3%)
American Lawyer
Media Holdings
12.246%++ ........................................... 12/15/08 CCC+ 175 109,375
Hollinger International
Publishing 9.25% .................................... 03/15/07 BB- 400 422,000
Liberty Group Publishing
9.375% .............................................. 02/01/08 CCC+ 250 240,625
Mail-Well Corp.
8.75% ............................................... 12/15/08 B+ 500 500,000
Sun Media Corp.
9.50% ............................................... 02/15/07 B- 275 305,250
----------
1,577,250
----------
Retail (2.4%)
Eye Care Centers of
America 9.125% ...................................... 05/01/08 B- 350 325,500
MTS, Inc.
9.375% .............................................. 05/01/05 B 100 97,500
Pantry, Inc.
10.25% .............................................. 10/15/07 B- 500 522,500
Safelite Glass Corp.
9.875% .............................................. 12/15/06 B 300 276,750
9.875% .............................................. 12/15/06 B- 100 92,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Specialty Retailers, Inc.
8.50% ............................................... 07/15/05 BB- 325 $ 279,500
----------
1,594,000
----------
Savings & Loan Associations (0.8%)
First Federal Financial
Corp. 11.75% ........................................ 10/01/04 B+ 500 515,625
----------
Service (5.1%)
Alliance Imaging
9.625% .............................................. 12/15/05 B- 450 445,500
AP Holdings, Inc.
13.283%++ ........................................... 03/15/08 B- 200 108,000
APCOA, Inc.
9.249% .............................................. 03/15/08 B- 600 552,000
Coinmach Corp.
11.75% .............................................. 11/15/05 B+ 307 338,468
Intertek Finance PLC
10.25% .............................................. 11/01/06 B 500 465,000
Iron Mountain, Inc.
8.75% ............................................... 09/30/09 B- 500 515,000
MSX International, Inc.
11.375% ............................................. 01/15/08 B- 400 381,000
Protection One Alarm
7.375% .............................................. 08/15/05 BBB- 250 251,760
13.625% ............................................. 06/30/05 BB+ 260 295,100
8.125% .............................................. 01/15/09 BB+ 150 149,600
----------
3,501,428
----------
Specialty Chemicals (0.9%)
Furon Co.
8.125% .............................................. 03/01/08 B+ 325 321,750
Octel Developments
PLC. 10.00% ......................................... 05/01/06 B+ 250 260,000
----------
581,750
----------
Supermarkets (0.8%)
Jitney-Jungle Stores
10.375% ............................................. 09/15/07 B- 325 329,875
12.00% .............................................. 03/01/06 B+ 200 223,000
----------
552,875
----------
Telecommunications (13.8%)
Centennial Cellular
10.75% .............................................. 12/15/08 CCC+ 200 201,000
Clearnet
Communications
12.358%++ ........................................... 12/15/05 NR 200 172,000
Colt Telecom Group
PLC 9.579%++ ........................................ 12/15/06 B 750 622,500
Comcast Cellular
Holdings 9.50% ...................................... 05/01/07 BB+ 200 213,500
E. Spire
Communications
13.75% .............................................. 07/15/07 NR 100 98,000
14.157%++ ........................................... 07/01/08 NR 200 82,000
ICG Holdings, Inc.
13.106%++ ........................................... 09/15/05 NR 500 408,355
Intercel, Inc.
13.056%++ ........................................... 02/01/06 B 250 184,807
Intermedia
Communication, Inc.
8.50% ............................................... 01/15/08 B 100 95,500
11.021%++ ........................................... 07/15/07 B 275 189,750
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Mastec, Inc.
7.75% ............................................... 02/01/08 BB- 200 $193,000
Metrocall, Inc.
9.75% ............................................... 11/01/07 CCC+ 500 480,000
Metromedia Fiber
Network 10.00% ...................................... 11/15/08 B 200 205,500
Metronet
Communications,
Corp. 11.146%++ ..................................... 11/01/07 B 300 195,000
12.00% .............................................. 08/15/07 B 150 163,125
10.661%++ ........................................... 06/15/08 B 150 91,875
Microcell
Telecommunications,
Inc. 12.445%++ ...................................... 06/01/06 NR 500 370,000
Nextel Communications,
Inc. 11.477%++ ...................................... 10/31/07 CCC+ 450 274,500
10.31%++ ............................................ 08/15/04 CCC+ 500 485,000
NEXTLINK
Communications, Inc.
12.50% .............................................. 04/15/06 B 500 535,000
Pegasus Communications
9.625% .............................................. 10/15/05 B- 200 200,000
Pegasus Communications,
Inc. 9.75% .......................................... 12/01/06 B- 100 100,250
Price Communications
9.125% .............................................. 12/15/06 B 600 606,000
PSINet, Inc.
10.00% .............................................. 02/15/05 B- 150 148,500
11.50% .............................................. 11/01/08 B- 450 465,750
Qwest Communications
Intl., Inc. 7.50% ................................... 11/01/08 BB+ 125 130,625
8.120%++ ............................................ 10/15/07 BB+ 600 468,000
RSL Communications
PLC 12.00% .......................................... 11/01/08 B- 300 310,500
Satelites Mexicanos SA
10.125% ............................................. 11/01/04 B- 250 207,500
Sitel Corporation
9.25% ............................................... 03/15/06 B+ 200 180,000
Teligent, Inc.
11.50% .............................................. 12/01/07 CCC 50 46,000
14.769%++ ........................................... 03/01/08 CCC 450 220,500
United International
Holdings
13.167%++ ........................................... 02/15/08 B 525 283,500
Verio, Inc.
10.375% ............................................. 04/01/05 B- 150 147,000
11.25% .............................................. 12/01/08 B- 300 303,000
Viatel, Inc.
11.25% .............................................. 04/15/08 NR 100 100,000
13.165%++ ........................................... 04/15/08 NR 200 113,000
21st Century Telecom
Group 17.351%++ ..................................... 02/15/08 NR 150 63,000
----------
9,353,537
-----------
Textiles & Apparel (1.2%)
Delta Mills, Inc.
9.625% .............................................. 09/01/07 B+ 400 387,000
Dyersburg Corp.
9.75% ............................................... 09/01/07 B+ 300 268,500
Glenoit Corp.
11.00% .............................................. 04/15/07 B- 150 139,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Par
Maturity Rating (000) Value
-------- ------ ----- -----
<S> <C> <C> <C> <C>
+@#Plaid Clothing Corp.
11.00% .............................................. 08/01/03 D 375 $ 0
----------
795,000
----------
Transportation (1.6%)
Greyhound Lines, Inc.
11.50% .............................................. 04/15/07 B- 500 567,500
Travelcenters of
America 10.25% ...................................... 04/01/07 B 500 497,500
----------
1,065,000
----------
TOTAL CORPORATE BONDS
(Cost $60,146,842) $59,514,022
-----------
COMMERCIAL PAPER (5.5%)
- -----------------------
Ciesco L.P.
5.20% ............................................... 01/13/99 A-1+ 1,340 1,337,677
General Electric Capital
5.09% ............................................... 03/10/99 A-1+ 1,135 1,123,927
@ Sysco Corp.
5.10% ............................................... 01/04/99 A-1+ 1,243 1,242,472
----------
TOTAL COMMERCIAL PAPER
(Cost $3,704,237) 3,704,076
----------
Number
of Shares
---------
Common Stock (0.9%)
- -------------------
@+#Capital Gaming Intl., Inc ............................ 34 0
+ Dr. Pepper Bottling Holdings, Inc.,
Class A ............................................. 14,800 444,000
+ Gaylord Containers Corp., Class A .................... 7,500 45,937
+ Hedstrom Holdings .................................... 6,065 6,065
+ Isle of Capri Casinos ................................ 3,600 14,288
+ Nextel Communications Inc. ........................... 232 5,481
+ Protection One, Inc. ................................. 8,400 71,925
----------
TOTAL COMMON STOCK
(Cost $242,187) 587,696
----------
PREFERRED STOCK (5.2%)
- ----------------------
@ Anvil Holdings, Inc. ................................. 4,545 45,450
Bank United Capital Trust ............................ 250 250,000
Capstar Broadcasting Partners ........................ 3,588 430,572
Citadel Broadcasting Co. ............................. 1,819 207,368
Clarke USA, Inc. ..................................... 2,792 223,344
Concentric Network Corp. ............................. 2 1,710
CSC Holdings, Inc. Series H .......................... 1,783 205,477
CSC Holdings, Inc. Series M .......................... 9,125 1,021,991
Cumulus Media, Inc. .................................. 160 172,352
E. Spire Communication, Inc. ......................... 1,682 82,404
+ Global Crossing Holdings, Ltd. ....................... 1,500 147,375
Intermedia Communications, Inc. ...................... 6,167 66,293
+ International Utility Structures ..................... 150 132,000
Nextel Communications, Inc. .......................... 1,063 109,804
Pegasus Communications Corp. ......................... 109 104,640
Rural Cellular Corp. ................................. 310 285,200
Viatel, Inc. ......................................... 154 5,390
----------
TOTAL PREFERRED STOCK
(Cost $3,650,612) .................................... 3,491,370
----------
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE HIGH YIELD BOND FUND
Number
of Shares Value
--------- -----
WARRANTS (0.5%)
- ---------------
+Allegiance Telecom, Inc. .......................... 250 $ 438
+Colt Telecom ...................................... 700 299,005
@+Globalstar, Inc. .................................. 350 21,000
@+ICF Kaiser International Inc. ..................... 1,575 1
+Intermedia Communication .......................... 50 2,137
+Metronet Communications ........................... 150 6,324
@+Microcell Telecom ................................. 800 10,272
@+President Casinos, Inc. ........................... 4,415 221
+UIH Australia Exp. ................................ 175 583
+Wireless One, Inc. ................................ 450 5
@+Wright Medical Technology, Inc. ................... 2,676 2
-----------
TOTAL WARRANTS
(Cost $44,111) ............................................. 339,988
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $67,787,989)(a) ...................................... $67,637,152
===========
@ Restricted Security
+ Non-Income Producing
++ Effective Yield
# Securities in default
(a) At December 31, 1998, the cost for Federal income tax purposes was
$67,822,003. Net unrealized depreciation was $184,851. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $2,079,571 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $2,264,422.
The Standard & Poor's Corporation, Moody's Investors Service, Fitch
Investors Service and Duff & Phelps Credit Rating Co. ratings are the most
recent ratings available at December 31, 1998. Ratings are unaudited.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE GROWTH EQUITY FUND
Number
of Shares Value
--------- -----
COMMON STOCK (95.6 %)
- ---------------------
Computer Software & Services (11.0%)
America Online, Inc. ...................... 20,000 $ 2,895,000
+ Cisco Systems, Inc. ....................... 90,000 8,355,937
+ Microsoft Corp. ........................... 70,000 9,697,188
------------
20,948,125
------------
Computer Systems (7.6%)
Compaq Computer Corp. ..................... 70,000 2,935,625
+ Compuware Corp. ........................... 75,000 5,857,031
+ Dell Computer Corp. ....................... 80,000 5,857,500
-----------
14,650,156
------------
Diversified Operations (3.5%)
General Electric Co. ...................... 65,000 6,634,063
------------
Electronics-Semiconductors (6.2%)
Intel Corp. ............................... 50,000 5,926,563
Texas Instruments, Inc. ................... 70,000 5,989,375
------------
11,915,938
------------
Financial Services (13.5%)
Chase Manhattan Corp. ..................... 60,000 4,083,750
Federal National Mortgage
Association .............................. 90,000 6,660,000
First Union Corp. ......................... 125,000 7,601,562
MBNA Corp. ................................ 300,000 7,481,250
------------
25,826,562
------------
Insurance (2.0%)
American International Group, Inc. ........ 40,000 3,865,000
------------
Medical Supplies (2.3%)
Guidant Corp. ............................. 40,000 4,410,000
------------
Pharmaceuticals (15.0%)
Eli Lilly and Co. ......................... 60,000 5,332,500
Johnson & Johnson ......................... 30,000 2,516,250
Merck & Co., Inc. ......................... 50,000 7,384,375
Pfizer, Inc. .............................. 40,000 5,017,500
Schering-Plough Corp. ..................... 85,000 4,696,250
Warner-Lambert Co. ........................ 50,000 3,759,375
------------
28,706,250
------------
Retail Stores (19.5%)
CVS Corporation ........................... 140,000 7,700,000
+ Safeway, Inc. ............................. 150,000 9,140,625
+ Staples, Inc. ............................. 175,000 7,650,781
Wal Mart Stores, Inc. ..................... 90,000 7,329,375
The Home Depot, Inc. ...................... 90,000 5,506,875
------------
37,327,656
------------
Telecommunications (15.0%)
Lucent Technologies, Inc. ................. 60,000 6,600,000
+ MCI WorldCom, Inc. ........................ 100,000 7,178,125
SBC Communications, Inc. .................. 120,000 6,435,000
Time Warner, Inc. ......................... 135,000 8,378,438
------------
28,591,563
------------
Total Common Stock
(Cost $113,072,390) ....................... 182,875,313
------------
<PAGE>
Number
of Shares Value
--------- -----
SHORT TERM INVESTMENTS (4.4%)
- -----------------------------
Temporary Investment Fund - Temp Cash ..... 4,211,143 $ 4,211,143
Temporary Investment Fund, Inc. ........... 4,211,142 4,211,142
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $8,422,285) ......................... 8,422,285
------------
TOTAL INVESTMENTS (100.0%)
(Cost $121,494,675) (a) ................... $191,297,598
============
- -----------------
+ Non-Income Producing
(a) At December 31, 1998, the cost for Federal income tax purposes was
$121,546,835. Net appreciation was $69,750,763 this consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $69,966,415 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $215,652.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE VALUE EQUITY FUND
Number
of Shares Value
--------- -----
COMMON STOCK (90.7%)
- --------------------
Advertising (1.7%)
Omnicom Group, Inc. ......................... 100,000 $ 5,800,000
-----------
Aerospace & Defense (4.8%)
Allied-Signal, Inc. ......................... 160,000 7,090,000
Lockheed Martin Corp. ....................... 104,000 8,814,000
-----------
15,904,000
-----------
Airlines (2.3%)
+ AMR Corp. ................................... 129,000 7,659,375
-----------
Automotive Parts-Equipment (1.8%)
Lucas Varity PLC ............................ 178,520 5,980,420
-----------
Building Products (0.6%)
Armstrong World Industries, Inc. ............ 32,000 1,930,000
-----------
Communications (0.2%)
+ Sprint PCS .................................. 36,125 835,391
-----------
Chemicals (1.7%)
Dupont (E.I.) de Nemours & Co. .............. 80,000 4,245,000
Hercules, Inc. .............................. 50,000 1,368,750
-----------
5,613,750
-----------
Consumer Non-Durable (3.7%)
Philip Morris Companies ..................... 230,000 12,305,000
-----------
Cosmetics-Toiletry (1.1%)
International Flavors &
Fragrances, Inc. ........................... 80,000 3,535,000
-----------
Diversified Operations (6.8%)
Canadian Pacific, Ltd. ...................... 150,000 2,831,250
Minnesota Mining &
Manufacturing Co. .......................... 115,000 8,179,375
Textron, Inc. ............................... 155,000 11,770,313
-----------
22,780,938
-----------
Entertainment & Leisure (2.0%)
Carnival Corp. - Class A .................... 140,000 6,720,000
-----------
Electronic Components (0.7%)
+ Conexant Systems, Inc. ...................... 2,000 33,438
Motorola, Inc. .............................. 40,000 2,442,500
-----------
2,475,938
-----------
Electronic Systems (2.7%)
Rockwell International Corp. ................ 224,000 9,005,500
-----------
Electronics (2.2%)
+ Arrow Electronics, Inc. ..................... 96,000 2,562,000
Avnet, Inc. ................................. 81,000 4,900,500
-----------
7,462,500
-----------
<PAGE>
Number
of Shares Value
--------- -----
Financial Services (14.9%)
Bank Boston Corp. ........................... 127,000 $ 4,945,063
Citigroup Inc. .............................. 137,500 6,806,250
Conseco Inc. ................................ 311,610 9,523,581
Countrywide Credit Industries, Inc. ......... 190,000 9,535,625
Freddie Mac ................................. 169,000 10,889,938
Wells Fargo & CO ............................ 203,330 8,120,492
-----------
49,820,949
-----------
Healthcare (2.2%)
+ Tenet Healthcare Corp. ...................... 282,500 7,415,625
-----------
Insurance (20.7%)
Ace Limited ................................. 505,000 17,390,938
AFLAC, Inc. ................................. 164,750 7,249,000
American International Group, Inc. .......... 45,375 4,384,359
Everest Reinsurance Holdings, Inc. .......... 250,000 9,734,375
EXEL Limited ................................ 283,196 21,239,700
Berkshire Hathaway Class B .................. 3,885 9,129,750
-----------
69,128,122
-----------
Machinery (Diversified) (4.7%)
Caterpillar, Inc. ........................... 137,000 6,302,000
Dover Corp. ................................. 256,000 9,376,000
-----------
15,678,000
-----------
Medical Supplies (2.2%)
Becton, Dickinson & Co. ..................... 168,000 7,171,500
-----------
Office Supplies (2.2%)
+ Avery Dennison Corp. ........................ 160,000 7,210,000
-----------
Paper & Paper Products (1.2%)
Champion International Corp. ................ 100,000 4,050,000
-----------
Photographic Equipment (0.6%)
Polaroid Corp. .............................. 115,000 2,149,062
-----------
Restaurants (3.1%)
McDonald's Corporation ...................... 136,000 10,421,000
-----------
Retail (2.5%)
The May Department Stores Co. ............... 138,000 8,331,750
-----------
Telecommunications (1.8%)
Sprint Corp. ................................ 72,250 6,078,031
-----------
Toys (0.6%)
Mattel, Inc. ................................ 89,531 2,042,426
-----------
Travel Services (1.7%)
+ The Sabre Group Holdings, Inc. .............. 125,000 5,562,500
-----------
TOTAL COMMON STOCK
(Cost $216,288,658) ......................... 303,066,778
-----------
10
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE VALUE EQUITY FUND
Par
Maturity (000) Value
-------- ----- -----
COMMERCIAL PAPER (8.7%)
- -----------------------
American Express Credit Corp.
5.05% ............................. 01/06/99 10,687 $ 10,679,504
Ford Motor Credit Corp.
5.01% ............................. 01/20/99 9,005 8,981,189
General Motors Acceptance
Corp. 5.32% ....................... 01/13/99 9,501 9,484,152
------------
TOTAL COMMERCIAL PAPER
(Cost $29,144,845).......................................... 29,144,845
------------
Number
of Shares
---------
SHORT TERM INVESTMENTS (0.6%)
- -----------------------------
Temporary Cash Investment
Fund, Inc. ........................ 978,115 978,115
Temporary Investment Fund, Inc. .... 980,841 980,841
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,958,956) .......................................... 1,958,956
------------
TOTAL INVESTMENTS (100.0%)
(Cost $247,392,459) (a) .................................... $334,170,576
============
- -------------
+ Non-Income Producing
(a) At December 31, 1998, the cost for Federal income tax purposes was
$247,423,512. At December 31, 1998, net unrealized appreciation was
$86,747,067. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$99,737,759 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $12,990,692.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE FLEXIBLY MANAGED FUND
Number
of Shares Value
--------- -----------
COMMON STOCK (50.9%)
Automotive Parts-Equipment (0.1%)
Exide Corp. ................................. 35,000 $ 568,750
-----------
Banks (0.2%)
Bank Fuer International Zahlungs ............ 150 955,602
-----------
Chemicals (3.2%)
English China Clays PLC ..................... 112,000 308,404
Great Lakes Chemical Corp. .................. 190,000 7,600,000
+ Imperial Chemical Industries PLC (ADR) ...... 107,000 3,738,313
+ Octel Corp. ................................. 410,000 5,688,750
-----------
17,335,467
-----------
Construction (0.5%)
Johns Manville Corp. ........................ 153,000 2,514,938
-----------
Consumer Non-Durable (0.5%)
+ Nine West Group Inc. ........................ 7,500 116,719
+ Reebok International, Ltd. .................. 173,500 2,580,812
-----------
2,697,531
-----------
Electric Utilities (7.2%)
First Energy Corp. .......................... 390,500 12,715,656
Kansas City Power & Light Co. ............... 226,000 6,695,250
+ Nevada Power Co. ............................ 29,000 754,000
+ Niagara Mohawk Power Corp. .................. 873,000 14,077,125
Unicom Corp. ................................ 118,500 4,569,656
38,811,687
-----------
Exploration & Production (1.3%)
+ Mitchell Energy & Development Corp.,
Class A .................................... 10,000 114,375
Mitchell Energy & Development Corp.,
Class B .................................... 434,000 5,045,250
+ Oryx Energy Co. ............................. 140,600 1,889,312
-----------
7,048,937
-----------
Financial Services (0.9%)
Fund American Enterprises
Holdings, Inc. ............................ 35,000 4,902,188
-----------
Food Processing (0.6%)
McCormick & Co., Inc. ....................... 94,000 3,175,438
-----------
Forest Products (0.8%)
Georgia-Pacific Corp. (Timber Group) ........ 40,000 952,500
Weyerhaeuser Co. ............................ 64,000 3,252,000
-----------
4,204,500
-----------
Holdings Company Diversified (5.5%)
BTR PLC ..................................... 124,313 256,472
Hanson PLC (ADR) ............................ 74,125 2,890,875
Loews Corp. ................................. 244,500 24,022,125
Lonrho Africa PLC ........................... 305,000 281,641
Lonrho PLC .................................. 428,000 2,278,755
-----------
29,729,868
-----------
Hotels & Gaming (0.6%)
+ Circus Circus Enterprises,Inc ............... 274,000 3,133,875
-----------
Insurance (2.1%)
Aetna Inc. .................................. 29,000 2,280,125
+ Leucadia National Corp. ..................... 172,000 5,418,000
Unitrin, Inc. ............................... 49,500 3,533,062
-----------
11,231,187
-----------
<PAGE>
- --------------------------------------------------------------------------------
Number
of Shares Value
--------- -----------
Media and Communications (2.4%)
+ Chris-Craft Industries, Inc. ................ 206,000 $ 9,926,625
Meredith Corp. .............................. 80,000 3,030,000
-----------
12,956,625
-----------
Medical (0.8%)
Smith and Nephew PLC ........................ 1,530,000 4,722,144
-----------
Mining (2.2%)
Homestake Mining Co. ........................ 461,500 4,240,031
Newmont Mining Corp. ........................ 418,000 7,550,125
-----------
11,790,156
-----------
Miscellaneous Consumer Durables (1.0%)
Corning, Inc. ............................... 115,000 5,175,000
-----------
Miscellaneous Consumer Products (1.8%)
Cross (A.T.) Co., Class A ................... 38,000 204,250
Philip Morris Co., Inc. ..................... 182,000 9,737,000
-----------
9,941,250
-----------
Oil & Gas (8.3%)
Amerada Hess Corp. .......................... 443,000 22,039,250
Atlantic Richfield Co. ...................... 58,500 3,817,125
Kerr-McGee Corp. ............................ 34,100 1,304,325
Murphy Oil Corp. ............................ 196,000 8,085,000
Texaco, Inc. ................................ 144,500 7,640,437
Unocal Corp. ................................ 75,000 2,189,063
-----------
45,075,200
-----------
Paper & Forest Products (2.3%)
Domtar, Inc. (ADR) .......................... 652,000 3,830,500
MacMillian Bloedel, Ltd. (ADR) .............. 858,000 8,472,750
-----------
12,303,250
-----------
Pharmaceuticals (0.2%)
Schering-Plough Corp. ....................... 21,000 1,160,250
-----------
Photographic Equipment (0.4%)
Polaroid Corp. .............................. 113,000 2,111,688
-----------
Publishing (5.3%)
New York Times Co., Class A ................. 287,000 9,955,313
Reader's Digest Assoc., Inc., Class A ....... 65,000 1,637,188
Reader's Digest Assoc., Inc., Class B ....... 52,000 1,254,500
The Washington Post Co., Class B ............ 27,800 16,066,662
-----------
28,913,663
-----------
Railroads (0.5%)
+ Canadian Pacific, Ltd. (ADR) ................ 160,000 3,020,000
-----------
Retail (0.5%)
+ Hills Stores Co. ............................ 93,000 133,687
+ J.C. Penney Co., Inc. ....................... 54,000 2,531,250
-----------
2,664,937
-----------
Specialty Merchandisers (1.2%)
+ Petrie Stores Corp. ......................... 1,372,500 3,045,234
+ Toys `R' Us, Inc. ........................... 193,000 3,256,875
-----------
6,302,109
-----------
Transportation Services (0.5%)
Overseas Shipholding Group, Inc. ............ 182,000 2,923,375
-----------
Total Common Stock
(Cost ....................................... $242,890,127) 275,369,615
-----------
12
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE FLEXIBLY MANAGED FUND
Number
of Shares Value
--------- -----------
PREFERRED STOCK (6.4%)
Cleveland Electric Illum. Series
L 7.00% ...................................... 29,550 $ 2,980,856
Cleveland Electric Illum. Series
R 8.80% ...................................... 350 372,750
Cleveland Electric Illum. Series
S 9.00% ...................................... 2,100 2,236,500
Entergy Gulf States Utilities Inc. Series
B 7.20% ...................................... 14,414 724,304
Kemper Corp. Series E 144A 5.75% .............. 100,000 5,287,500
Niagara Mohawk Power Corp. Series
A 6.50% ...................................... 16,000 408,500
Niagara Mohawk Power Corp. Series
B 7.50% ...................................... 6,800 172,975
Niagara Mohawk Power Corp. Series
C 7.20% ...................................... 5,500 139,734
Reckson Assoc. Realty Corp. Series
A 7.625% ..................................... 21,000 443,625
Rouse Co. Series B $3 ......................... 278,500 12,079,938
Sealed Air Corp. Series A $2 .................. 40,300 2,090,563
Union Pacific Cap Trust 6.25% ................. 93,000 4,324,500
Union Pacific Cap Trust 6.25% 144A ............ 66,000 3,069,000
Unocal Corp. 6.25% ............................ 7,300 356,787
-----------
TOTAL PREFERRED STOCK
(Cost $33,451,743) ............................ 34,687,532
-----------
Number of
Contracts
---------
PUT OPTIONS (0.1%)
+ Clear Channel Communications
$55, 1/16/99 ................................. 126 35,831
+ Clear Channel Communications
$60, 1/16/99 ................................. 30 19,125
+ IBM $130, 1/16/99 ............................. 125 391
+ MCI WorldCom $55, 1/16/99 ..................... 130 812
+ Pharmacia & Upjohn, Inc. ......................
$50, 1/16/99 ................................. 120 3,000
+ Reebok International, Ltd. ....................
$35, 1/16/99 ................................. 130 263,250
+ Schering-Plough Corp. .........................
$52.50, 2/20/99 .............................. 260 42,250
+ Time Warner, Inc. $50, 3/20/99 ................ 360 24,750
-----------
TOTAL OPTIONS
(Cost $937,970) ............................... 389,409
-----------
Par
Maturity Rating (000)
-------- ------ ------
U.S. TREASURY OBLIGATIONS (5.9%)
- --------------------------------
U.S. Treasury Notes
5.50% ............... 02/28/99 NR 10,000 10,010,900
6.75% ............... 05/31/99 NR 2,000 2,016,240
5.875%............... 02/15/00 NR 12,900 13,067,313
6.125%............... 07/31/00 NR 1,250 1,277,538
6.25% ............... 04/30/01 NR 2,500 2,587,900
6.25% ............... 10/31/01 NR 2,500 2,604,675
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $31,343,445) ............................................ 31,564,566
----------
<PAGE>
- --------------------------------------------------------------------------------
Par
Maturity Rating (000) Value
-------- ------ ------ -----------
AGENCY OBLIGATIONS (7.9%)
FNMA-Global Bond
6.375% ............... 01/16/02 AAA 3,200 $ 3,321,437
California State
5.25% ................ 10/01/11 A+ 2,925 3,133,348
Tennessee Valley
Authority
5.88% ................ 04/01/36 AAA 17,000 17,844,883
5.98% ................ 04/01/36 AAA 4,600 4,830,621
6.235% ............... 07/15/45 AAA 9,950 10,440,366
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $38,610,204) ........................................... 39,570,655
-----------
MEDIUM TERM NOTES (0.3%)
FNMA Medium Term
Note 5.37%
(Cost $1,576,000) .......... 02/07/01 AAA 1,600 1,615,020
-----------
CORPORATE BONDS (0.7%)
BellSouth Telecommunications
Debentures 5.85%
(Cost $3,776,250) .......... 11/15/45 AAA 3,800 3,848,222
-----------
CONVERTIBLE BONDS (14.9%)
Centor, Inc. 4.75% ......... 02/15/05 NR 1,165 1,233,444
Chiron Corp.1.90% .......... 11/17/00 BB+ 7,775 7,940,219
Clear Channel 2.625% ....... 04/01/03 BBB- 1,050 1,124,813
Exide Corp. 144A 2.90% ..... 12/15/05 B 1,363 805,874
France Telecom Euro
Bond 2.00% ................ 01/01/04 AA+ 5,870 5,865,891
George Weston, Ltd. ........
3.00% ..................... 06/30/23 NR 1,500 899,449
Hilton Hotels Corp. ........
5.00% ..................... 05/15/06 BBB- 4,400 3,987,500
Homestake Mining Co. .......
5.50% ..................... 06/23/00 B+ 7,190 6,794,550
Homestake Mining Co. .......
Euro Bond 5.50% ........... 06/23/00 NR 1,890 1,786,050
Inco, Ltd. 7.75% ........... 03/15/16 BBB- 1,950 1,755,000
Inco, Ltd. 5.75% ........... 07/01/04 BBB- 10,100 8,711,250
Loews Corp. 3.125% ......... 09/15/07 A+ 7,975 6,380,000
Lonhro 6.00% ............... 02/27/04 NR 4,260 6,077,816
Mckesson Corp. .............
4.50% ..................... 03/01/04 BBB+ 1,500 1,357,500
National Semiconductor
Corp. 6.50% ............... 10/01/02 NR 4,015 3,513,125
Nedlloyd Group
4.25% ..................... 03/15/01 NR 497 287,341
Nine West Group Inc. .......
5.50% ..................... 07/15/03 B+ 3,050 2,405,687
Ogden Corp. 5.75% .......... 10/20/02 BBB 250 239,063
Oryx Energy Co. ............
7.50% ..................... 05/15/14 BB- 425 418,625
Peninsular & Oriental
7.25% ..................... 05/19/03 NR 580 1,066,336
Pep Boys 4.00% ............. 09/01/99 BB+ 2,650 2,610,250
Phycor, Inc. 4.50% ......... 02/15/03 B+ 3,500 2,117,500
Potomac Electric Power
Co. 5.00% ................. 09/01/02 A 4,050 3,908,250
13
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE FLEXIBLY MANAGED FUND
Par
Maturity Rating (000) Value
-------- ------ ------ -----------
Rouse Co. Euro Bond
5.75% ................ 07/23/02 BBB- 4,380 $ 4,588,400
Teck Corp.
3.75% ................ 07/15/06 BBB- 5,200 3,393,000
Thomas Nelson
5.75% ................ 11/30/99 NR 1,050 1,060,50
-----------
TOTAL CONVERTIBLE BONDS
(Cost $80,676,906) ............................................ 80,327,433
-----------
ZERO COUPON BONDS (6.2%)
Marriott International
3.9978%++ ........... 03/25/11 BBB 5,330 3,513,483
Motorola, Inc.
2.2453%++ ........... 09/27/13 A+ 2,600 1,937,000
News American Holdings
Lyons 5.3533%++ ..... 03/11/13 BBB- 2,515 1,450,627
Pep Boys 4.6148%++ ... 09/20/11 BB+ 2,680 1,393,600
Roche Holdings, Inc.
144A 6.3750%++ ...... 05/06/12 NR 6,395 3,421,325
Times Mirror Co.
4.4492%++ ........... 04/15/17 A 27,150 12,387,187
U.S. Cellular
5.8820%++ ........... 06/15/15 BBB- 22,600 9,352,332
-----------
TOTAL ZERO COUPON BONDS
(Cost $31,413,869) .......................................... 33,455,554
-----------
COMMERCIAL PAPER (6.4%)
Aluminum Company of
America 5.25% ....... 02/04/99 A-1 3,265 3,248,811
Ciesco L.P.
5.20% ............... 01/13/99 A-1+ 1,420 1,417,539
5.17% ............... 01/13/99 A-1+ 11,245 11,225,621
Duke Energy 5.15% .... 01/14/99 A-1 14,500 14,473,034
Equilon Enterprises
5.00% ............... 01/04/99 A-1+ 3,613 3,611,494
Falcon Asset Sec.
6.75% ............... 01/05/99 A-1+ 500 499,625
Federal Home Loan Bank
4.50% ............... 01/04/99 AAA 3,387 3,385,730
-----------
TOTAL COMMERCIAL PAPER
(Cost $37,861,854) .......................................... 37,861,854
-----------
Number
of Shares Value
--------- ------------
Short Term Investments (0.3%)
Temporary Investment Fund, Inc.
(Cost $1,745,433) ............................. 1,745,433 $ 1,745,433
TOTAL INVESTMENTS (100.0%)
(Cost $504,283,801) (a) ...................................... $540,435,293
============
- ---------------
+ Non-Income Producing
++ Effective Yield.
(a) At December 31, 1998, the cost for Federal income tax purposes was
$504,473,403. Net unrealized appreciation was $35,961,890. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $66,274,133 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $30,312,243.
ADR--American Depository Receipt
The Standard & Poor's Corporation, Moody's Investors Service, Fitch
Investors Service and Duff & Phelps Credit Rating Co. ratings are the most
recent ratings available at December 31, 1998. Ratings are unaudited.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE INTERNATIONAL EQUITY FUND
Number
of Shares Value
----------- -----------
COMMON STOCK (93.7%)
- --------------------
Belgium (1.1%)
Barco N.V. ................................... 6,000 $ 1,694,192
-----------
Denmark (0.6%)
Bang & Olufsen Holding-B ..................... 14,000 853,504
-----------
Finland (0.8%)
+ Nokia Corp. (ADR) ............................ 9,000 1,083,938
+ Pohjola Insurance ............................ 4,000 219,621
-----------
1,303,559
-----------
France (11.9%)
AXA-AUP ...................................... 25,500 3,697,638
Compagnie Generale D'Industrie
Et de Participations ....................... 30,000 1,654,136
Dassault Systemes SA ......................... 39,000 1,834,103
L'OREAL ...................................... 3,300 2,386,682
LVMH (Louis Vuitton
Moet Hennessy) ............................. 9,300 1,841,354
Scor SA ...................................... 40,000 2,645,901
Societe BIC SA ............................... 14,566 808,353
Societe Generale Paris ....................... 12,000 1,944,146
Total SA-B ................................... 14,185 1,437,292
-----------
18,249,605
-----------
Germany (4.9%)
Allianz AG ................................... 4,508 1,678,105
AXA Colonia Konzern AG ....................... 7,500 851,072
Bayerische Motoren Werke
(BMW) AG ................................... 1,000 785,328
+ Bayerische Motoren Werke (BMW)
AG-NEW ..................................... 600 460,390
Mannesmann AG ................................ 18,500 2,140,965
Muenchener Rueckversicherungs
Gesellschaft AG ............................ 3,204 1,567,810
-----------
7,483,670
-----------
Greece (0.5%)
+ Alpha Credit Bank ............................ 8,000 834,733
-----------
Hong Kong (1.0%)
Dah Sing Financial Group ..................... 172,100 422,085
Sun Hung Kai Properties Limited .............. 150,000 1,093,969
-----------
1,516,054
-----------
Ireland (5.6%)
Allied Irish Banks PLC ....................... 193,290 3,441,098
+ Bank of Ireland .............................. 65,000 1,448,916
CRH PLC ...................................... 49,021 834,376
+ Elan Corp. PLC (ADR) ......................... 25,000 1,739,063
Greencore Group PLC .......................... 112,027 506,985
Viridian Group PLC ........................... 56,000 678,768
-----------
8,649,206
-----------
Japan (17.7%)
The Bank of Tokyo-Mitsubishi,
Limited .................................... 85,000 881,675
Bridgestone Corp. ............................ 105,000 2,387,705
Credit Saison Co. Limited .................... 80,000 1,975,237
Fuji Photo Film Co. Limited .................. 69,000 2,569,226
Hoya Corp .................................... 33,000 1,609,091
Ito-Yokado Co. Limited ....................... 30,000 2,101,127
Murata Manufacturing Co. Limited ............. 25,000 1,039,482
Nintendo Co. Limited ......................... 22,000 2,135,702
NTT Data Corp. ............................... 260,000 1,293,124
<PAGE>
Number
of Shares Value
----------- -----------
Rohm Co. Limited ............................. 34,000 $ 3,101,689
Sony Corp. ................................... 22,000 1,605,190
Takeda Chemical Industries ................... 103,000 3,972,194
Tokyo Broadcasting System, Inc. .............. 30,000 335,914
Tokyo Electron Limited ....................... 40,000 1,521,322
Yasuda Fire & Marine Insurance
Co. Limited ................................ 145,000 699,312
-----------
27,227,990
-----------
Malaysia (0.1%)
Malayan Banking Berhad ....................... 160,000 226,893
-----------
Netherlands (10.7%)
AEGON N.V. (ADR) ............................. 27,000 3,300,750
AEGON N.V. ................................... 32,840 4,035,362
+ ASM Lithography Holding ...................... 47,000 1,437,573
+ Getronics N.V. ............................... 19,000 941,579
+ Heineken N.V. ................................ 26,000 1,565,568
ING Groep N.V. ............................... 33,000 2,013,444
Philips Electronics N.V. ..................... 21,500 1,443,541
+ Vedior N.V. .................................. 39,189 772,656
Vendex N.V. (Non Food) ....................... 39,933 970,324
-----------
16,480,797
-----------
Portugal (0.6%)
+ Telecel-Comunicacaoes Pessoais SA ............ 4,200 858,566
-----------
Singapore (1.4%)
+ Jardine Strategic Holdings Ltd. .............. 575,000 833,750
+ Singapore Press Holdings ..................... 125,000 1,363,669
-----------
2,197,419
-----------
Spain (0.9%)
Banco Popular Espanol SA ..................... 18,000 1,359,296
-----------
Sweden (5.9%)
ABB AB B Shares .............................. 145,000 1,538,454
ASSA Abloy AB-B .............................. 62,700 2,397,990
Astra AB-B ................................... 70,000 1,424,951
Hennes & Mauritz AB-B ........................ 28,000 2,286,831
+ Investment AB Bure ........................... 60,000 851,270
Om Gruppen AB ................................ 47,100 592,706
-----------
9,092,202
-----------
Switzerland (11.8%)
Credit Suisse Group .......................... 23,000 3,600,344
Nestle SA .................................... 1,250 2,721,190
Novartis Limited ............................. 550 1,081,195
+ Pharma Vision 2000 AG ........................ 1,000 706,235
Roche Holding AG ............................. 70 1,267,765
Roche Holding AG -Genusshein ................. 370 4,514,955
Swiss Reinsurance ............................ 900 2,346,521
+ Zurich Allied AG ............................. 2,650 1,962,206
-----------
18,200,411
-----------
United Kingdom (18.2%)
Barclays PLC ................................. 1 22
British Petroleum Co. PLC (ADR) .............. 13,467 1,206,980
Capita Group PLC ............................. 100,000 924,247
CGU PLC ...................................... 94,941 1,486,440
Compass Group PLC ............................ 328,000 3,757,350
Dixons Group PLC ............................. 128,000 1,800,642
Hays PLC ..................................... 150,000 1,316,490
HSBC Holdings PLC ............................ 71,000 1,925,528
Lloyds TSB Group PLC ......................... 140,000 1,991,581
Misys PLC .................................... 257,640 1,894,695
Provident Financial PLC ...................... 81,334 1,174,615
15
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE INTERNATIONAL EQUITY FUND
Number
of Shares Value
----------- -----------
Rentokil Initial PLC ......................... 570,000 $4,296,125
+ Schroders PLC ................................ 43,000 784,836
Siebe PLC .................................... 296,360 1,168,616
Vodafone Group PLC ........................... 88,000 1,429,014
WPP Group PLC ................................ 200,000 1,217,077
Zeneca Group PLC ............................. 36,500 1,589,280
-----------
27,963,538
-----------
TOTAL COMMON STOCK
(Cost $106,126,061) ......................................... 144,191,635
-----------
PREFERRED STOCK (2.3%)
- ----------------------
Germany
SAP AG Prf ................................. 7,350 3,528,168
-----------
TOTAL PREFERRED STOCK
(Cost $1,874,933) ........................................... 3,528,168
-----------
WARRANTS (0.3%)
- ---------------
+ Credit Suisse ................................ 280,000 452,573
+ Muenchener Reuckversicherungs ................ 104 4,870
-----------
TOTAL WARRANTS
(Cost $1,409,378) ........................................... 457,443
-----------
SHORT TERM INVESTMENTS (3.7%)
- -----------------------------
Temporary Cash Investment
Fund, Inc. ................................. 2,890,887 2,890,887
Temporary Investment Fund, Inc. .............. 2,890,887 2,890,887
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $5,781,774) ........................................... 5,781,774
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $115,192,146) (a) ..................................... $153,959,020
===========
- --------------
+ Non-Income Producing
(a) At December 31, 1998, the cost for Federal income tax purposes was
$115,192,146. Net unrealized appreciation was $38,766,874. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $43,273,642 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $4,506,768.
ADR--American Depository Receipt.
<PAGE>
% of
Market Value
Value (000's)
------ -------
COMMON AND PREFERRED STOCK SECTOR
DIVERSIFICATION
- ---------------------------------
Financial Services ................................ 18.5% $ 27,269
Insurance ......................................... 16.6% 24,491
Pharmaceuticals ................................... 10.6% 15,590
Electronics ....................................... 10.1% 14,939
Diversified Operations ............................ 3.7% 5,538
Computer Software ................................. 3.6% 5,362
Retail Diversified ................................ 3.6% 5,358
Telecommunication Equipment ....................... 3.2% 4,665
Diversified Commercial Services ................... 2.9% 4,296
Metal Processors & Fabricators .................... 2.7% 4,052
Catering Services ................................. 2.6% 3,757
Diversified Food Products ......................... 2.2% 3,228
Human Resources ................................... 2.0% 3,013
Computer Services ................................. 1.9% 2,836
Oil ............................................... 1.8% 2,644
Photographic Equipment ............................ 1.7% 2,569
Automotive Parts & Equipment ...................... 1.6% 2,388
Cosmetics ......................................... 1.6% 2,387
Electrical Services ............................... 1.5% 2,217
Machinery - General Industry ...................... 1.4% 2,141
Optical Equipment ................................. 1.1% 1,609
Beverages ......................................... 1.1% 1,566
Publishing ........................................ 1.0% 1,364
Automobile Manufacturing .......................... 0.8% 1,246
Advertising ....................................... 0.8% 1,217
Building Materials ................................ 0.6% 834
Office Supplies & Forms ........................... 0.6% 808
Media Communications .............................. 0.2% 336
------ -------
100.0% 147,720
====== =======
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE SMALL CAPITALIZATION FUND
Number
of Shares Value
----------- -----------
COMMON STOCK (90.0%)
- --------------------
Agricultural Products (1.1%)
+ Agribrands International, Inc. ............... 15,600 $468,000
-----------
Audio & Video Equipment (2.1%)
Harman International Industries, Inc. ........ 23,300 888,312
-----------
Auto-Parts/Equipment (2.5%)
Borg-Warner Automotive, Inc. ................. 19,100 1,066,019
-----------
Chemicals (5.0%)
+ Lawter International, Inc. ................... 5,200 60,450
+ McWhorter Technologies, Inc. ................. 16,000 366,000
Schulman, A. Inc. ............................ 47,800 1,079,981
+ TETRA Technologies, Inc. ..................... 62,400 682,500
-----------
2,188,931
-----------
Chemicals-Diversified (1.2%)
M.A. Hanna Co. ............................... 43,100 530,669
-----------
Commercial Services (2.3%)
+ Volt Information Sciences, Inc. .............. 43,300 976,956
-----------
Computers (1.3%)
+ Artesyn Technologies, Inc. ................... 40,000 571,250
-----------
Computer Services & Software (5.8%)
+ BANCTEC, Inc. ................................ 50,200 630,638
+ Wang Laboratories, Inc. ...................... 67,500 1,868,906
-----------
2,499,544
-----------
Computer Systems (0.7%)
+ Adaptec, Inc. ................................ 17,000 298,031
-----------
Diversified Operations (6.2%)
+ GP Strategies Corp. .......................... 54,600 819,000
+ Lydall, Inc. ................................. 53,700 637,687
+ Triarc Companies, Inc. ....................... 65,400 1,046,400
U.S. Industries, Inc. ........................ 8,400 156,450
-----------
2,659,537
-----------
Electronic Components (8.6%)
CTS Corp. .................................... 23,900 1,039,650
+ Exar Corp. ................................... 47,000 757,875
+ General Semiconductor, Inc. .................. 63,700 521,544
+ Oak Industries, Inc. ......................... 4,200 147,000
+ Unitrode Corp. ............................... 42,600 745,500
Technitrol, Inc. ............................. 15,900 506,812
-----------
3,718,381
-----------
Financial Services (2.3%)
Enhance Financial Services
Group, Inc. ................................ 33,400 1,002,000
-----------
Healthcare (2.7%)
+ Corvel Corp. ................................. 18,100 641,419
+ Trigon Healthcare, Inc. ...................... 13,900 518,644
-----------
1,160,063
-----------
Insurance (11.4%)
Chartwell Re Corp. ........................... 35,900 852,625
CNA Surety Corp. ............................. 47,600 749,700
E.W. Blanch Holdings, Inc. ................... 20,300 962,981
Horace Mann Educators Corp. .................. 7,900 225,150
RenaissanceRe Holdings Ltd. .................. 34,600 1,267,225
Terra Nova (Bermuda) Holdings Ltd. ........... 33,700 850,925
-----------
4,908,606
-----------
<PAGE>
Number
of Shares Value
----------- -----------
Insurance (Life)(7.4%)
+ American Medical Security Group, Inc. ........ 69,800 $999,013
Annuity and Life Re (Holdings), Ltd. ......... 44,900 1,201,075
+ Delphi Financial Group, Inc. ................. 18,967 994,582
-----------
3,194,670
-----------
Machinery (1.4%)
+ Albany International Corp. ................... 31,306 592,854
-----------
Machine Tools (0.9%)
+ Baldwin Technology Company,Inc. .............. 72,500 407,813
-----------
Manufacturing (4.1%)
Flowserve Corp. .............................. 44,600 738,688
+ Paxar Corp. .................................. 116,650 1,042,559
-----------
1,781,247
-----------
Medical-Hosp Mgt+Svc (2.6%)
+ Magellan Health Services, Inc. ............... 66,200 554,425
United Wisconsin Services, Inc. .............. 64,300 558,606
-----------
1,113,031
-----------
Medical Supplies (1.1%)
DENTSPLY International, Inc. ................. 8,700 222,937
Vital Signs, Inc. ............................ 15,400 270,944
-----------
493,881
-----------
Metals (0.6%)
+ Precision Castparts Corp. .................... 5,700 252,225
-----------
Office Equipment & Supplies (2.9%)
+ Wallace Computer Services, Inc. .............. 47,200 1,244,900
-----------
Oil/Gas-Exploration (0.5%)
KCS Energy, Inc. ............................. 72,200 221,113
-----------
Oil & Gas (4.7%)
+ Basin Exploration, Inc. ...................... 30,900 391,078
Cabot Oil & Gas Corp. ........................ 40,500 607,500
+ Nuevo Energy Co. ............................. 30,000 345,000
St. Mary Land & Exploration Co. .............. 37,200 695,175
-----------
2,038,753
-----------
Packaging & Paper Products (0.2%)
+ AEP Industries, Inc. ......................... 3,800 82,413
-----------
Publishing (3.1%)
Hollinger International, Inc. ................ 96,000 1,338,000
-----------
Textiles (3.3%)
Guilford Mills, Inc. ......................... 59,100 986,231
+ WestPoint Stevens, Inc. ...................... 14,500 457,203
-----------
1,443,434
-----------
Transportation (1.8%)
Interpool, Inc. .............................. 45,700 765,475
-----------
Transportation Services (2.2%)
Air Express International Corp. .............. 43,600 961,925
-----------
TOTAL COMMON STOCK
(Cost $39,983,304) ........................................... 38,868,033
-----------
17
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE SMALL CAPITALIZATION FUND
Par
Maturity (000) Value
-------- ----- -----
AGENCY OBLIGATIONS (7.3%)
- -------------------------
Federal Home Loan Bank
5.00% ............................ 01/22/99 1,000 $997,083
Federal Home Loan Mortgage
Corporation 5.11% ................ 01/04/99 2,185 2,184,070
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $3,181,153) ........................................... 3,181,153
-----------
Number
of Shares
---------
SHORT TERM INVESTMENTS (2.7%)
- -----------------------------
Temporary Investment Fund, Inc.
(Cost $1,160,677) ............................. 1,160,677 1,160,677
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $44,325,134) (a) ...................................... $43,209,863
===========
- --------------
+ Non-Income Producing
(a) At December 31, 1998, the cost for federal income tax purposes was
$44,325,134. Net unrealized depreciation was $1,115,271. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $4,810,700 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $5,925,971.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
THE EMERGING GROWTH FUND
Number
of Shares Value
----------- -----------
COMMON STOCK (94.6%)
- --------------------
Advertising (2.7%)
+ Lamar Advertising Co. ........................ 9,700 $ 363,750
+ TMP Worldwide, Inc. .......................... 15,800 672,487
-----------
1,036,237
-----------
Airlines (1.1%)
+ Atlantic Coast Airlines, Inc. ................ 800 20,200
SkyWest, Inc. ................................ 13,000 424,937
-----------
445,137
-----------
Broadcasting (2.0%)
+ CD Radio, Inc. ............................... 3,600 123,525
+ Emmis Broadcasting Corp. ..................... 7,400 320,975
+ Infinity Broadcasting Corp. .................. 1,100 30,112
+ Jacor Communications, Inc. ................... 4,800 310,500
-----------
785,112
-----------
Building Products (0.5%)
+ Comfort Systems USA, Inc. .................... 10,000 178,750
-----------
Business Services (4.5%)
+ NCO Group, Inc. .............................. 15,100 679,972
+ Professional Detailing, Inc. ................. 8,200 233,700
+ Ritchie Bros. Auctioneers, Inc. .............. 12,000 323,250
USweb Corp. .................................. 20,000 526,250
-----------
1,763,172
-----------
Cable Operators (0.8%)
+ Univision Communications, Inc. ............... 8,800 318,450
-----------
Computer Services & Software (35.2%)
+ Abovenet Communications, Inc. ................ 1,100 23,031
+ Brightstar Information
Technology Group, Inc. ..................... 4,700 36,719
+ CMGI, Inc. ................................... 5,500 585,922
+ Cognizant Technology Solutions Corp. ......... 19,300 582,016
+ Concord Communications, Inc. ................. 1,300 74,425
+ Concur Technologies, Inc. .................... 400 12,088
+ Earthlink Network, Inc. ...................... 5,600 318,675
+ Ecsoft Group, PLC (ADR) ...................... 24,700 867,587
+ Electronic Processing, Inc. .................. 8,500 82,875
+ Imrglobal Corp. .............................. 4,300 126,716
+ Inso Corp. ................................... 13,200 330,825
+ International Network Services ............... 3,300 219,450
+ ISS Group, Inc. .............................. 8,400 464,625
+ Keane, Inc. .................................. 3,200 127,800
+ Lycos, Inc. .................................. 11,200 621,950
+ Macromedia, Inc. ............................. 28,300 952,472
+ Mapics, Inc. ................................. 7,700 128,494
+ Mastech Corp. ................................ 10,500 298,594
+ Maxtor Corp. ................................. 10,000 140,625
+ Micromuse, Inc. .............................. 13,400 260,462
+ Mindspring Enterprises, Inc. ................. 2,000 122,188
+ Network Appliance, Inc. ...................... 14,800 662,300
+ Network Solutions, Inc. ...................... 8,600 1,121,762
+ New Era of Networks, Inc. .................... 10,200 447,525
+ Pervasive Software, Inc. ..................... 21,700 408,231
+ PSINet, Inc. ................................. 20,000 420,000
+ Quantum Corp. ................................ 10,000 212,187
+ Sapient Corp. ................................ 5,000 279,688
+ Seagate Technology, Inc. ..................... 10,000 302,500
+ Timberline Software Corp. .................... 3,600 49,387
<PAGE>
Number
of Shares Value
----------- -----------
+ TSI International Software Ltd. .............. 26,000 $ 1,257,750
+ VeriSign, Inc ................................ 10,400 615,550
+ VISTA Information Solutions, Inc ............. 5,300 41,406
+ Visual Networks, Inc. ........................ 15,400 577,019
+ Wind River Systems, Inc. ..................... 6,100 286,319
+ Xoom.Com, Inc. ............................... 1,700 55,569
+ 24/7 Media, Inc. ............................. 21,900 615,937
-----------
13,730,669
-----------
Drugs And Cosmetics (0.2%)
+ USANA, Inc. .................................. 7,800 78,487
-----------
Education (2.2%)
+ Bright Horizons Family Solutions, Inc. ....... 3,360 91,140
+ Education Management Corp. ................... 20,200 475,331
+ ITT Educational Services, Inc. ............... 9,000 306,000
-----------
872,471
-----------
Entertainment & Leisure (2.9%)
+ Championship Auto Racing Teams, Inc. ......... 17,300 512,512
+ Steiner Leisure Ltd. ......................... 19,925 636,977
-----------
1,149,489
-----------
Electronic Components (8.9%)
+ Applied Micro Circuits Corp. ................. 9,700 329,800
+ Artisan Components, Inc. ..................... 11,500 60,734
+ Broadcom Corp. ............................... 5,300 639,313
+ Cree Research, Inc. .......................... 5,000 239,063
+ E-Tek Dynamics, Inc. ......................... 2,700 71,550
+ Gemstar International Group Ltd. ............. 15,300 875,447
+ InTEST Corp. ................................. 6,400 53,000
+ Macrovision Corp. ............................ 7,900 332,294
+ Power Intergrations, Inc. .................... 8,000 201,250
+ TranSwitch Corp. ............................. 17,400 677,513
-----------
3,479,964
-----------
Electronics (2.0%)
+ Jabil Circuit, Inc. .......................... 5,300 395,512
+ Sanmina Corp. ................................ 6,100 380,488
-----------
776,000
-----------
Finance (2.1%)
+ Knight/Trimark Group, Inc. ................... 34,300 822,128
-----------
Financial Services (2.8%)
+ Ameritrade Holding Corp. ..................... 14,700 462,591
+ Financial Federal Corp. ...................... 20,800 514,800
+ International Telecommunications
Data Systems, Inc. ......................... 3,800 54,981
+ TeleBanc Financial Corp. ..................... 1,300 44,444
-----------
1,076,816
-----------
Home Furnishings/Housewares (0.3%)
+ Select Comfort Corp. ......................... 4,300 114,756
-----------
Hotels (1.2%)
Four Seasons Hotels, Inc. .................... 15,800 462,150
-----------
Human Resources (2.7%)
+ Data Processing Resources Corp. .............. 12,100 353,925
+ Labor Ready, Inc. ............................ 17,200 338,625
+ On Assignment, Inc. .......................... 4,400 150,287
+ Select Appointments Holdings, PLC
(ADR) ...................................... 5,300 113,288
+ Vincam Group, Inc. ........................... 6,700 117,459
-----------
1,073,584
-----------
19
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998 (CONTINUED)
THE EMERGING GROWTH FUND
Number
of Shares Value
----------- -----------
Insurance (0.8%)
+ ARM Financial Group, Inc. .................... 13,200 $ 292,875
-----------
Medical Information Systems (0.7%)
+ Incyte Pharmaceuticals, Inc. ................. 7,500 279,844
-----------
Medical-Hospitals (0.6%)
+ Province Healthcare Co. ...................... 6,200 220,487
-----------
Medical Supplies (1.9%)
+ Biomatrix, Inc. .............................. 700 40,775
+ Cytyc Corp. .................................. 13,400 345,888
+ Ocular Sciences, Inc. ........................ 11,900 322,788
+ Xomed Surgical Products, Inc. ................ 1,500 48,000
-----------
757,451
-----------
Office Equipment (0.8%)
+ Knoll, Inc. .................................. 10,000 296,250
-----------
Pharmaceuticals (0.1%)
+ Geltex Pharmaceuticals, Inc. ................. 2,300 52,038
-----------
Printing & Publishing (1.4%)
+ American Bank Note
Holographics, Inc. ........................... 1,500 26,250
+ Consolidated Graphics, Inc. .................. 7,500 506,719
-----------
532,969
-----------
Real Estate (0.8%)
+ CB Commercial Real Estate
Services Group, Inc. ....................... 11,000 199,375
Intrawest Corp. .............................. 7,400 124,875
-----------
324,250
-----------
Recreational (0.5%)
+ Global Vacation Group, Inc. .................. 11,700 100,913
+ Resort Quest International, Inc. ............. 6,400 93,600
-----------
194,513
-----------
Restaurants (0.2%)
+ PJ America, Inc. ............................. 3,800 68,638
-----------
Retail (3.9%)
+ Abercrombie & Fitch Co. ...................... 7,800 551,850
+ bebe stores, Inc. ............................ 15,000 529,219
Beyond.Com Corp. ............................. 20,600 426,162
-----------
1,507,231
-----------
Specialty Retailer (2.1%)
+ DM Management Co. ............................ 27,200 526,150
+ Tropical Sportswear International Corp. ...... 8,700 308,306
-----------
834,456
-----------
Telecommunications (8.0%)
+ Allegiance Telecom, Inc. ..................... 31,200 380,250
+ Carrier Access Corp. ......................... 500 17,141
+ COM21, Inc. .................................. 23,600 498,550
+ DSET Corp. ................................... 20,000 221,875
+ Echostar Communications Corp. ................ 13,100 635,759
+ Electric Lightwave, Inc. ..................... 48,900 398,841
+ ICG Communications, Inc. ..................... 14,600 314,812
+ Primus Telecommunications
Group, Inc. ................................ 21,100 346,172
+ RF Micro Devices, Inc. ....................... 6,900 317,184
-----------
3,130,584
-----------
<PAGE>
Number
of Shares Value
---------- -----------
Waste Management (0.7%)
+ US Liquids, Inc. ............................. 12,100 $ 272,250
-----------
TOTAL COMMON STOCK
(Cost $25,489,040) ........................................... 36,927,208
-----------
SHORT TERM INVESTMENTS (5.4%)
- -----------------------------
Temporary Investment Fund
- Temp Cash ................................ 1,060,277 1,060,277
Temporary Investment Fund
Class B .................................... 1,060,277 1,060,277
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,120,554) ............................................ 2,120,554
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $27,609,594) (a) ....................................... $39,047,762
-----------
- ----------------
+ Non-income producing
(a) At December 31, 1998, the cost for Federal income tax purposes was
$27,935,119. Net unrealized appreciation was $11,112,643. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $12,126,724 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $1,014,081.
ADR - American Depository Receipt
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
THIS PAGE LEFT INTENTIONALLY BLANK
21
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Money Quality High Yield Growth Equity Value Equity
Market Fund Bond Fund Bond Fund Fund Fund
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments at value (1) ..................... $ 53,504,698 $ 62,939,099 $ 67,637,152 $ 191,297,598 $ 334,170,576
Cash ......................................... 500 500 980 -- --
Interest, dividends and reclaims receivable .. 390,187 555,763 1,188,421 97,191 348,765
Receivable for investment securities sold .... -- 6,674,677 -- 6,914,211 1,617,790
Receivable for capital stock sold ............ -- 206,367 281,364 72,223 56,830
Net unrealized appreciation on forward foreign
currency contracts ......................... -- -- -- -- --
Other assets ................................. 680 677 989 2,389 4,960
------------- ------------- ------------- ------------- -------------
Total Assets ............................. 53,896,065 70,377,083 69,108,906 198,383,612 336,198,921
------------- ------------- ------------- ------------- -------------
Liabilities:
Payable for investment securities purchased .. -- 16,705,259 -- 2,262,093 --
Payable for capital stock redeemed ........... -- 115,591 35,783 266,610 416,826
Dividends payable ............................ 216,179 -- -- -- --
Payable to the investment advisor ............ 18,732 20,135 29,310 74,931 140,103
Payable to The Penn Mutual Life Insurance Co . 21,643 19,458 25,297 63,005 122,309
Other liabilities ............................ 13,089 11,534 15,282 25,084 41,153
------------- ------------- ------------- ------------- -------------
Total Liabilities ........................ 269,643 16,871,977 105,672 2,691,723 720,391
------------- ------------- ------------- ------------- -------------
Net Assets ...................................... $ 53,626,422 $ 53,505,106 $ 69,003,234 $ 195,691,889 $ 335,478,530
============= ============= ============= ============= =============
Shares of $.10 par value capital stock issued
and outstanding .............................. 53,629,171 5,142,854 7,509,507 6,337,061 14,980,843
Net asset value, offering and redemption price
per share .................................... $1.00 $10.40 $9.19 $30.88 $22.39
Net assets consist of:
Capital paid in .............................. $ 53,629,171 $ 52,702,414 $ 70,781,166 $ 125,941,128 $ 248,731,465
Undistributed net investment loss ............ -- -- -- -- --
Accumulated net realized gain (loss) on
investment transactions and foreign exchange (2,749) (37,359) (1,627,095) (52,162) (31,052)
Net unrealized appreciation (depreciation) in
value of investments, futures contracts and
foreign currency related items ............. -- 840,051 (150,837) 69,802,923 86,778,117
------------- ------------- ------------- ------------- -------------
Total net assets ......................... $ 53,626,422 $ 53,505,106 $ 69,003,234 $ 195,691,889 $ 335,478,530
============= ============= ============= ============= =============
(1) Investments at cost ......................... $ 53,504,698 $ 62,099,048 $ 67,787,989 $ 121,494,675 $ 247,392,459
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
22
<PAGE>
- --------------------------------------------------------------------------------
[RESTUBBED]
<TABLE>
<CAPTION>
Flexibly Small Emerging
Managed International Capitalization Growth
Fund Equity Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value (1) ..................... $ 540,435,293 $ 153,959,020 $ 43,209,863 $ 39,047,762
Cash ......................................... -- -- 191,286 44,651
Interest, dividends and reclaims receivable .. 3,512,006 326,439 22,931 10,494
Receivable for investment securities sold .... 1,739,146 -- 75,472 --
Receivable for capital stock sold ............ 1,428,523 -- 275,192 13,681
Net unrealized appreciation on forward foreign
currency contracts ......................... 250 -- -- --
Other assets ................................. 8,226 12,953 611 391
------------- ------------- ------------- -------------
Total Assets .............................. 547,123,444 154,298,412 43,775,355 39,116,979
============= ============= ============= =============
Liabilities:
Payable for investment securities purchased .. 793,421 9,031 89,221 5,800
Payable for capital stock redeemed ........... 336,488 281,470 8,632 406,924
Dividends payable ............................ -- -- -- --
Payable to the investment advisor ............ 230,603 93,868 17,870 21,821
Payable to The Penn Mutual Life Insurance Co . 204,095 53,297 15,383 6,757
Other liabilities ............................ 73,265 38,538 9,409 11,995
------------- ------------- ------------- -------------
Total Liabilities ......................... 1,637,872 476,204 140,515 453,297
------------- ------------- ------------- -------------
Net Assets ...................................... $ 545,485,572 $ 153,822,208 $ 43,634,840 $ 38,663,682
============= ============= ============= =============
Shares of $.10 par value capital stock issued
and outstanding .............................. 29,790,433 8,371,341 3,407,397 2,218,181
Net asset value, offering and redemption price
per share .................................... $18.31 $18.37 $12.81 $17.43
Net assets consist of:
Capital paid in .............................. $ 509,598,717 $ 116,420,636 $ 44,758,954 $ 29,697,547
Undistributed net investment loss ............ -- (1,681,574) -- (229,925)
Accumulated net realized gain (loss) on
investment transactions and foreign exchange (264,986) 304,342 (8,843) (2,242,108)
Net unrealized appreciation (depreciation) in
value of investments, futures contracts and
foreign currency related items ............. 36,151,841 38,778,804 (1,115,271) 11,438,168
------------- ------------- ------------- -------------
Total net assets ......................... $ 545,485,572 $ 153,822,208 $ 43,634,840 $ 38,663,682
============= ============= ============= =============
(1) Investments at cost ......................... $ 504,283,801 $ 115,192,146 $ 44,325,134 $ 27,609,594
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
23
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Money Quality High Yield Growth Equity Value Equity
Market Fund Bond Fund Bond Fund Fund Fund
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends ......................................... $ -- $ -- $ 356,617 $ 1,045,730 $ 4,099,205
Interest .......................................... 2,543,263 2,759,686 5,589,119 270,930 2,650,627
Foreign tax withheld .............................. -- -- -- -- (50,492)
---------- ---------- ---------- ----------- ------------
Total investment income ........................... 2,543,263 2,759,686 5,945,736 1,316,660 6,699,340
---------- ---------- ---------- ----------- ------------
Expenses:
Investment advisory fees .......................... 181,722 206,065 326,267 753,060 1,651,501
Administration fees ............................... 68,174 68,688 97,880 234,353 495,450
Accounting fees ................................... 34,073 34,344 48,940 103,118 183,900
Custodian fees and expenses ....................... 18,792 21,939 27,349 31,014 45,479
Other expenses .................................... 24,459 21,393 31,842 63,826 136,117
---------- ---------- ---------- ----------- ------------
Total expenses ................................. 327,220 352,429 532,278 1,185,371 2,512,447
Less: Expense waivers .......................... -- -- -- -- --
---------- ---------- ---------- ----------- ------------
Net expenses ................................... 327,220 352,429 532,278 1,185,371 2,512,447
---------- ---------- ---------- ----------- ------------
Net investment income (loss) ......................... 2,216,043 $2,407,257 $5,413,458 131,289 4,186,893
---------- ---------- ---------- ----------- ------------
Net Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) on investment
transactions .................................... (992) 1,533,022 (34,795) 20,481,154 27,331,911
Net realized foreign exchange gain (loss) ......... -- -- -- -- --
Change in net unrealized appreciation/depreciation
of investments, futures contracts and foreign
currency related items .......................... -- 487,720 (2,434,085) 36,064,087 (3,543,595)
---------- ---------- ---------- ----------- ------------
Net realized and unrealized gain (loss) on investments (992) 2,020,742 (2,468,880) 56,545,241 23,788,316
---------- ---------- ---------- ----------- ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations .................................... $2,215,051 $4,427,999 $2,944,578 $56,676,530 $ 27,975,209
========== ========== ========== =========== ============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
24
<PAGE>
- --------------------------------------------------------------------------------
[RESTUBBED]
<TABLE>
<CAPTION>
Flexibly Small Emerging
Managed International Capitalization Growth
Fund Equity Fund Fund Fund
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends ......................................... $ 6,988,321 $ 1,960,357 $ 303,081 $ 12,143
Interest .......................................... 12,385,014 395,839 315,503 115,098
Foreign tax withheld .............................. (142,793) (171,001) -- (490)
------------ ------------ ------------ -----------
Total investment income ........................ 19,230,542 2,185,195 618,584 126,751
------------ ------------ ------------ -----------
Expenses:
Investment advisory fees .......................... 2,719,881 1,071,377 210,456 208,963
Administration fees ............................... 815,964 214,275 63,137 39,416
Accounting fees ................................... 248,193 110,710 31,608 26,161
Custodian fees and expenses ....................... 98,787 69,865 18,160 28,264
Other expenses .................................... 239,953 71,524 20,712 15,895
------------ ------------ ------------ -----------
Total expenses ................................. 4,122,778 1,537,751 344,073 318,699
Less: Expense waivers .......................... -- -- -- (17,207)
------------ ------------ ------------ -----------
Net expenses ................................... 4,122,778 1,537,751 344,073 301,492
------------ ------------ ------------ -----------
Net investment income (loss) ......................... 15,107,764 647,444 274,511 (174,741)
------------ ------------ ------------ -----------
Net Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) on investment
transactions .................................... 55,261,526 5,177,853 712,102 (2,191,288)
Net realized foreign exchange gain (loss) ......... (7,284) 114,386 -- --
Change in net unrealized appreciation/depreciation
of investments, futures contracts and foreign
currency related items .......................... (39,212,128) 18,456,661 (5,286,799) 10,934,484
------------ ------------ ------------ -----------
Net realized and unrealized gain (loss) on investments 16,042,114 23,748,900 (4,574,697) 8,743,196
------------ ------------ ------------ -----------
Net Increase (Decrease) in Net Assets Resulting
from Operations .................................... $ 31,149,878 $ 24,396,344 ($ 4,300,186) $ 8,568,455
============ ============ ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
25
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Money Market Fund Quality Bond Fund
------------------------ ---------------------
Year Year Year Year
ended ended ended ended
12/31/98 12/31/97 12/31/98 12/31/97
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss)....................................... $ 2,216,043 $ 1,896,676 $ 2,407,257 $ 2,207,510
Net realized gain (loss) on investment transactions ............... (992) (225) 1,533,022 912,980
Net realized foreign exchange gain (loss) ......................... -- -- -- --
Net change in unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items ............. -- -- 487,720 (208,702)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations ........................................................ 2,215,051 1,896,451 4,427,999 2,911,788
----------- ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income ............................................. (2,216,043) (1,896,676) (2,407,257) (2,207,510)
Net realized capital gains ........................................ -- -- (1,568,759) (16,338)
In excess of net investment income ................................ -- -- (1,623) (16,277)
----------- ----------- ----------- -----------
Total distributions ............................................. (2,216,043) (1,896,676) (3,977,639) (2,240,125)
----------- ----------- ----------- -----------
Capital Share Transactions:
Net increase in net assets from capital share transactions ........ 16,151,030 2,975,990 12,977,718 1,794,024
----------- ----------- ----------- -----------
Total Increase in Net Assets .................................... 16,150,038 2,975,765 13,428,078 2,465,687
Net Assets, beginning of period ...................................... 37,476,384 34,500,619 40,077,028 37,611,341
----------- ----------- ----------- -----------
Net Assets, end of period ............................................ $53,626,422 $37,476,384 $53,505,106 $40,077,028
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Value Equity Fund Flexibly Managed Fund
------------------------ ---------------------
Year Year Year Year
ended ended ended ended
12/31/98 12/31/97 12/31/98 12/31/97
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss)....................................... $ 4,186,893 $ 3,663,616 $ 15,107,764 $14,346,115
Net realized gain (loss) on investment transactions ............... 27,331,911 16,381,602 55,261,526 29,490,467
Net realized foreign exchange gain (loss) ......................... -- -- (7,284) 80,506
Net change in unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items ............. (3,543,595) 36,751,125 (39,212,128) 23,598,612
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations ....................................................... 27,975,209 56,796,343 31,149,878 67,515,700
----------- ----------- ----------- -----------
Disributions to Shareholders from:
Net investment income ............................................. (4,186,893) (3,663,616) (15,107,764) (14,346,115)
Net realized capital gains ........................................ (27,362,963) (16,381,602) (55,129,786) (29,491,615)
In excess of net investment income ................................ -- -- (363,128) (99,694)
----------- ----------- ----------- -----------
Total distributions ............................................. (31,549,856) (20,045,218) (70,600,678) (43,937,424)
----------- ----------- ----------- -----------
Capital Share Transactions:
Net increase in net assets from capital share transactions ....... 36,092,709 65,535,450 68,797,648 94,016,309
----------- ----------- ----------- -----------
Total Increase in Net Assets ................................... 32,518,062 102,286,575 29,346,848 117,594,585
Net Assets, beginning of period ..................................... 302,960,468 200,673,893 516,138,724 398,544,139
----------- ----------- ----------- -----------
Net Assets, end of period ........................................... $335,478,530 $302,960,468 $545,485,572 $516,138,724
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE>
<TABLE>
<CAPTION>
High Yield Bond Fund Growth Equity Fund
------------------------ ---------------------
Year Year Year Year
12/31/98 12/31/97 12/31/98 12/31/97
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss) ...................................... $ 5,413,458 $ 4,560,298 $ 131,289 $ 482,003
Net realized gain (loss) on investment transactions ............... (34,795) 2,964,765 20,481,154 13,834,988
Net realized foreign exchange gain (loss) ......................... -- -- -- --
Net change in unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items ............ (2,434,085) (118,203) 36,064,087 14,267,440
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations ........................................................ 2,944,578 7,406,860 56,676,530 28,584,431
------------ ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income ............................................. (5,413,458) (4,560,298) (131,289) (482,003)
Net realized capital gains ....................................... -- -- (20,497,332) (13,678,856)
In excess of net investment income ................................ (6,598) (10,576) -- --
------------ ----------- ----------- -----------
Total distributions ............................................. (5,420,056) (4,570,874) (20,628,621) (14,160,859)
------------ ----------- ----------- -----------
Capital Share Transactions:
Net increase in net assets from capital share transactions ........ 12,341,048 12,260,119 23,585,734 15,595,214
------------ ----------- ----------- -----------
Total Increase in Net Assets .................................... 9,865,570 15,096,105 59,633,643 30,018,786
Net Assets, beginning of period ..................................... 59,137,664 44,041,559 136,058,246 106,039,460
------------ ----------- ----------- -----------
Net Assets, end of period ........................................... $69,003,234 $59,137,664 $195,691,889 $136,058,246
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
International Equity Fund Small Capitalization Fund
------------------------- -------------------------
Year Year Year Year
ended ended ended ended
12/31/98 12/31/97 12/31/98 12/31/97
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss) ...................................... $ 647,444 $ 754,837 $ 274,511 $ 181,451
Net realized gain (loss) on investment transactions ............... 5,177,853 4,305,835 712,102 2,278,532
Net realized foreign exchange gain (loss) ......................... 114,386 2,563,120 -- --
Net change in unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items ............ 18,456,661 3,833,566 (5,286,799) 2,875,385
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations ........................................................ 24,396,344 11,457,358 (4,300,186) 5,335,368
----------- ----------- ----------- -----------
Distributions to Shareholders from:
Net investment income ............................................. (647,444) (754,837) (274,511) (181,451)
Net realized capital gains ....................................... (4,938,505) (4,305,835) (711,962) (2,286,865)
In excess of net investment income ................................ (769,506) (3,230,284) -- --
----------- ----------- ----------- -----------
Total distributions ............................................. (6,355,455) (8,290,956) (986,473) (2,468,316)
----------- ----------- ----------- -----------
Capital Share Transactions:
Net increase in net assets from capital share transactions ........ 6,143,763 22,053,566 10,195,405 19,725,010
----------- ----------- ----------- -----------
Total Increase in Net Assets .................................... 24,184,652 25,219,968 4,908,746 22,592,062
Net Assets, beginning of period ..................................... 129,637,556 104,417,588 38,726,094 16,134,032
----------- ----------- ----------- -----------
Net Assets, end of period ........................................... $153,822,208 $129,637,556 $43,634,840 $38,726,094
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Emerging Growth Fund
-------------------------
Year Year
ended ended
12/31/98 12/31/97*
---------- --------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss) ...................................... $ (174,741) $ (56,325)
Net realized gain (loss) on investment transactions ............... (2,191,288) 1,331,710
Net realized foreign exchange gain (loss) ......................... -- --
Net change in unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items ............ 10,934,484 504,824
------------ ----------
Net increase (decrease) in net assets resulting from
operations ........................................................ 8,568,455 1,780,209
------------ ----------
Distributions to Shareholders from:
Net investment income ............................................. -- --
Net realized capital gains ....................................... (8,966) (1,373,564)
In excess of net investment income ................................ -- --
------------ ----------
Total distributions ............................................. (8,966) (1,373,564)
------------ ----------
Net increase in net assets from capital share transactions ........ 12,162,475 17,535,073
------------ ----------
Total Increase in Net Assets .................................... 20,721,964 17,941,718
Net Assets, beginning of period ..................................... 17,941,718 --
------------ ----------
Net Assets, end of period ........................................... $38,663,682 $17,941,718
============ ==========
</TABLE>
* For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
The accompanying notes are an integral part of these financial statements
27
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE MONEY MARKET FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income. .................................... 0.0489 0.0503 0.0489 0.0538 0.0365
------- ------- ------- ------- -------
Total from investment operations ....................... 0.0489 0.0503 0.0489 0.0538 0.0365
------- ------- ------- ------- -------
Less dividends:
Dividends from net investment income ...................... (0.0489) (0.0503) (0.0489) (0.0538) (0.0365)
------- ------- ------- ------- -------
Total dividends ........................................ (0.0489) (0.0503) (0.0489) (0.0538) (0.0365)
------- ------- ------- ------- -------
Net asset value, end of year .............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return ........................................... 5.00% 5.15% 5.00% 5.51% 3.71%
Ratios/Supplemental data:
Net assets, end of year (in thousands) .................... $53,626 $37,476 $34,501 $24,726 $16,531
------- ------- ------- ------- -------
Ratio of expenses to average net assets ................... 0.72% 0.70% 0.73%(a) 0.69%(a) 0.73%(a)
------- ------- ------- ------- -------
Ratio of net investment income to average net assets ...... 4.88% 5.04% 4.88%(a) 5.37%(a) 3.74%(a)
------- ------- ------- ------- -------
</TABLE>
- ------
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been .74%,
.74%, and .79%, and the ratios of net investmentincome to average net assets
would have been 4.87%, 5.32%, and 3.68% for the years ended December 31,
1996, 1995, and 1994, respectively.
<PAGE>
- --------------------------------------------------------------------------------
THE QUALITY BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $ 10.20 $ 10.00 $ 10.24 $ 9.04 $ 10.19
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ..................................... 0.51 0.60 0.66 0.61 0.61
Net realized and unrealized gain (loss) on investment
transactions ........................................... 0.53 0.20 (0.24) 1.21 (1.15)
------- ------- ------- ------- -------
Total from investment operations ....................... 1.04 0.80 0.42 1.82 (0.54)
------- ------- ------- ------- -------
Less distributions:
Dividend from net investment income ....................... (0.51) (0.60) (0.66) (0.61) (0.61)
Distribution from net investment income ................... (0.33) 0.00 0.00 0.00 0.00
Distribution in excess of net investment income ........... 0.00 0.00 0.00 (0.01) 0.00
------- ------- ------- ------- -------
Total distributions .................................... (0.84) (0.60) (0.66) (0.62) (0.61)
------- ------- ------- ------- -------
Net asset value, end of year .............................. $ 10.40 $ 10.20 $ 10.00 $ 10.24 $ 9.04
======= ======= ======= ======= =======
Total return ........................................... 10.17% 8.03% 4.14% 20.14% (5.29)%
Ratios/Supplemental data:
Net assets, end of year (in thousands) .................... $53,505 $40,077 $37,611 $38,048 $31,338
------- ------- ------- ------- -------
Ratio of expenses to average net assets ................... 0.77% 0.75% 0.77%(a) 0.73%(a) 0.78%(a)
------- ------- ------- ------- -------
Ratio of net investment income to average net assets ...... 5.26% 5.87% 6.03%(a) 6.20%(a) 6.14%(a)
------- ------- ------- ------- -------
Portfolio turnover rate ................................... 477.2% 317.3% 107.6% 449.2% 380.9%
------- ------- ------- ------- -------
</TABLE>
- ----------
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratio of expenses to average net assets would have been .78%,
.78%, and .83%, and the ratio of net investment income to average net assets
would have been 6.02%, 6.15%, and 6.09% for the years ended December 31,
1996, 1995, and 1994, respectively.
28
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $ 9.52 $ 8.91 $ 8.44 $ 7.94 $ 9.55
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ..................................... 0.79 0.80 0.70 0.80 0.90
Net realized and unrealized gain (loss) on investment
transactions ............................................ (0.33) 0.61 0.47 0.50 (1.60)
------- ------- ------- ------- -------
Total from investment operations ....................... 0.46 1.41 1.17 1.30 (0.70)
------- ------- ------- ------- -------
Less distributions:
Dividend from net investment income ....................... (0.79) (0.80) (0.70) (0.80) (0.90)
Distribution in excess of net investment income ........... 0.00 0.00 0.00 0.00 (0.01)
------- ------- ------- ------- -------
Total distributions .................................... (0.79) (0.80) (0.70) (0.80) (0.91)
------- ------- ------- ------- -------
Net asset value, end of year .............................. $ 9.19 $ 9.52 $ 8.91 $ 8.44 $ 7.94
======= ======= ======= ======= =======
Total return ........................................... 4.79% 15.78% 13.87% 16.41% 7.33%
Ratios/Supplemental data:
Net assets, end of year (in thousands) .................... $69,003 $59,138 $44,042 $36,442 $32,081
------- ------- ------- ------- -------
Ratio of expenses to average net assets ................... 0.82% 0.81% 0.84% 0.87% 0.86%
------- ------- ------- ------- -------
Ratio of net investment income to average net assets ...... 8.30% 8.96% 8.14% 9.20% 9.18%
------- ------- ------- ------- -------
Portfolio turnover rate ................................... 82.7% 111.3% 118.5% 84.3% 90.7%
------- ------- ------- ------- -------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE GROWTH EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $ 24.37 $ 21.46 $ 20.00 $ 18.30 $ 20.49
-------- -------- -------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) .............................. 0.02 0.10 0.11 0.09 0.13
Net realized and unrealized gain (loss) on investment
transactions ............................................ 10.12 5.64 3.85 4.75 (1.80)
-------- -------- -------- ------- -------
Total from investment operations ....................... 10.14 5.74 3.96 4.84 (1.67)
-------- -------- -------- ------- -------
Less distributions:
Dividend from net investment income ....................... (0.02) (0.10) (0.11) (0.09) (0.13)
Distribution from net realized gains ...................... (3.61) (2.73) (2.39) (3.05) (0.39)
-------- -------- -------- ------- -------
Total distributions .................................... (3.63) (2.83) (2.50) (3.14) (0.52)
-------- -------- -------- ------- -------
Net asset value, end of year .............................. $ 30.88 $ 24.37 $ 21.46 $ 20.00 $ 18.30
======== ======== ======== ======= =======
Total return ........................................... 41.67% 26.74% 19.76% 26.45% (8.12)%
Ratios/Supplemental data:
Net assets, end of year (in thousands) .................... $195,692 $136,058 $106,039 $95,593 $80,078
-------- -------- -------- ------- -------
Ratio of expenses to average net assets ................... 0.76% 0.77% 0.80%(a) 0.77%(a) 0.79%(a)
-------- -------- -------- ------- -------
Ratio of net investment income to average net assets ...... 0.08% 0.39% 0.48%(a) 0.43%(a) 0.70%(a)
-------- -------- -------- ------- -------
Portfolio turnover rate ................................... 161.3% 169.1% 177.1% 169.8% 156.2%
-------- -------- -------- ------- -------
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratio of expenses to average net assets would have been .81%,
.82%, and .84%, and the ratio of net investment income to average net assets
would have been .47%, .38%, and .65% for the years ended December 31, 1996,
1995, and 1994, respectively.
29
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE VALUE EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $ 22.55 $ 19.32 $ 16.28 $ 12.67 $ 12.68
--------- --------- --------- --------- --------
Income from investment operations:
Net investment income .............................. 0.31 0.29 0.22 0.25 0.20
Net realized and unrealized gain
on investment transactions ...................... 1.85 4.53 3.88 4.50 0.17
--------- --------- --------- --------- --------
Total from investment operations ................ 2.16 4.82 4.10 4.75 0.37
--------- --------- --------- --------- --------
Less distributions:
Dividend from net investment income ................ (0.31) (0.29) (0.22) (0.25) (0.20)
Distribution from net realized gains ............... (2.01) (1.30) (0.84) (0.89) (0.18)
--------- --------- --------- --------- --------
Total distributions ............................. (2.32) (1.59) (1.06) (1.14) (0.38)
--------- --------- --------- --------- --------
Net asset value, end of year ....................... $ 22.39 $ 22.55 $ 19.32 $ 16.28 $ 12.67
========= ========= ========= ========= ========
Total return .................................... 9.59% 24.98% 25.19% 37.48% 2.92%
Ratios/Supplemental data:
Net assets, end of year (in thousands) ............. $ 335,479 $ 302,960 $ 200,674 $ 127,260 $ 79,021
--------- --------- --------- --------- --------
Ratio of expenses to average net assets ............ 0.76% 0.76% 0.78% 0.80% 0.82%
--------- --------- --------- --------- --------
Ratio of net investment income to average net assets 1.27% 1.43% 1.38% 1.71% 1.59%
--------- --------- --------- --------- --------
Portfolio turnover rate ............................ 24.0% 18.7% 25.0% 34.3% 30.6%
--------- --------- --------- --------- --------
</TABLE>
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............................... $ 19.83 $ 18.74 $ 17.40 $ 15.19 $ 15.70
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ............................................ 0.60 0.61 0.65 0.53 0.43
Net realized and unrealized gain (loss) on investment transactions 0.61 2.33 2.19 2.86 0.22
--------- --------- --------- --------- ---------
Total from investment operations .............................. 1.21 2.94 2.84 3.39 0.65
--------- --------- --------- --------- ---------
Less distributions:
Dividend from net investment income .............................. (0.60) (0.61) (0.65) (0.53) (0.43)
Distribution in excess of net investment income .................. (0.00) 0.00 0.00 (0.01) (0.02)
Distribution from net realized gains ............................. (2.13) (1.24) (0.85) (0.64) (0.71)
--------- --------- --------- --------- ---------
Total distributions ........................................... (2.73) (1.85) (1.50) (1.18) (1.16)
--------- --------- --------- --------- ---------
Net asset value, end of year ..................................... $ 18.31 $ 19.83 $ 18.74 $ 17.40 $ 15.19
========= ========= ========= ========= =========
Total return .................................................. 6.09% 15.65% 16.37% 22.28% 4.14%
Ratios/Supplemental data:
Net assets, end of year (in thousands) ........................... $ 545,486 $ 516,139 $ 398,544 $ 266,556 $ 169,847
--------- --------- --------- --------- ---------
Ratio of expenses to average net assets .......................... 0.76% 0.76% 0.77% 0.79% 0.82%
--------- --------- --------- --------- ---------
Ratio of net investment income to average net assets ............. 2.78% 3.10% 3.90% 3.45% 3.14%
--------- --------- --------- --------- ---------
Portfolio turnover rate .......................................... 48.0% 37.1% 32.9% 37.2% 37.3%
--------- --------- --------- --------- ---------
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $ 16.13 $ 15.61 $ 14.47 $ 13.01 $ 13.94
--------- --------- --------- -------- --------
Income (loss) from investment operations:
Net investment income ................................ 0.10 0.58 0.63 0.13 0.09
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions ......... 2.93 1.04 1.81 1.67 (0.97)
--------- --------- --------- -------- --------
Total from investment operations .................. 3.03 1.62 2.44 1.80 (0.88)
--------- --------- --------- -------- --------
Less distributions:
Dividend from net investment income .................. (0.10) (0.53) (0.56) (0.12) (0.02)
Distribution in excess of net investment income ...... (0.08) 0.00 (0.74) (0.22) 0.00
Distribution from net realized gains ................. (0.61) (0.57) 0.00 0.00 0.00
Distribution from capital ............................ 0.00 0.00 0.00 0.00 (0.03)
--------- --------- --------- -------- --------
Total distributions ............................... (0.79) (1.10) (1.30) (0.34) (0.05)
--------- --------- --------- -------- --------
Net asset value, end of year ......................... $ 18.37 $ 16.13 $ 15.61 $ 14.47 $ 13.01
========= ========= ========= ======== ========
Total return ...................................... 18.85% 10.41% 16.87% 13.80% 6.31%
Ratios/Supplemental data:
Net assets, end of year (in thousands) ............... $ 153,822 $ 129,638 $ 104,418 $ 69,531 $ 59,393
--------- --------- --------- -------- --------
Ratio of expenses to average net assets .............. 1.08% 1.13% 1.17% 1.23% 1.22%
--------- --------- --------- -------- --------
Ratio of net investment income to average net assets . 0.45% 0.62% 0.66% 0.91% 0.82%
--------- --------- --------- -------- --------
Portfolio turnover rate .............................. 43.5% 35.7% 54.8% 62.5% 15.6%
--------- --------- --------- -------- --------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND
The following table includes selected data for a share outstanding throughout
each period or year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996 1995*
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period or year... $ 14.43 $ 12.53 $ 10.96 $ 10.00
-------- -------- -------- -------
Income (loss) from investment operations:
Net investment income ......................... 0.08 0.07 0.07 0.09
Net realized and unrealized gain (loss) on
investment transactions ...................... (1.41) 2.81 2.09 1.19
-------- -------- -------- -------
Total from investment operations .............. (1.33) 2.88 2.16 1.28
-------- -------- -------- -------
Less distributions:
Dividend from net investment income ........... (0.08) (0.07) (0.07) (0.09)
Distribution from net realized gains .......... (0.21) (0.91) (0.52) (0.23)
-------- -------- -------- -------
Total distributions ........................ (0.29) (0.98) (0.59) (0.32)
-------- -------- -------- -------
Net asset value, end of period or year ........ $ 12.81 $ 14.43 $ 12.53 $ 10.96
======== ======== ======== =======
Total return .................................. (9.16)% 23.02% 19.76% 12.76%(b)
Ratios/Supplemental data:
Net assets, end of period or year
(in thousands) ............................... $ 43,635 $ 38,726 $ 16,134 $ 4,828
-------- -------- -------- -------
Ratio of expenses to average net assets ....... 0.82% 0.85% 0.99%(a) 1.00%(a)(c)
-------- -------- -------- -------
Ratio of net investment income to
average net assets ........................... 0.65% 0.66% 0.85%(a) 1.53%(a)(c)
-------- -------- -------- -------
Portfolio turnover rate ....................... 61.9% 71.1% 39.2% 64.3%
-------- -------- -------- -------
</TABLE>
- -----------------
(a) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratios of expenses to average net assets would have been 1.06%
and 1.29%, and the ratios of net investment income to average net assets
would have been 0.78% and 1.24%, respectively, for the year ended December
31, 1996 and the period ended December 31, 1995.
(b) Not annualized.
(c) Annualized.
* For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
31
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE EMERGING GROWTH FUND
The following table includes selected data for a share outstanding throughout
each period or year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997*
------------ ------------
<S> <C> <C>
Net asset value, beginning of period or year .................. $ 12.85 $ 10.00
-------- --------
Income from investment operations:
Net investment income (loss) .................................. (0.06) 0.00
Net realized and unrealized gain on investment transactions ... 4.65 3.92
-------- --------
Total from investment operations ........................... 4.59 3.92
-------- --------
Less distributions:
Distribution from net realized gains .......................... (0.01) (1.07)
-------- --------
Total distributions ........................................ (0.01) (1.07)
-------- --------
Net asset value, end of period or year ........................ $17.43 $12.85
======== ========
Total return ............................................... 35.70% 39.22%(c)
Ratios/Supplemental data:
Net assets, end of period or year (in thousands) .............. $38,664 $17,942
-------- --------
Ratio of expenses to average net assets ....................... 1.15%(b) 1.15%(a)(b)
-------- --------
Ratio of net investment loss to average net assets ............ (0.66)%(b) (0.73)%(a)(b)
-------- --------
Portfolio turnover rate ....................................... 240.9% 392.3%
-------- --------
</TABLE>
- --------------
(a) Annualized.
(b) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been 1.21%
and 1.41%, and the ratios of net investment loss to average net assets
would have been (0.73)% and (0.99)%, respectively, for the periods ended
December 31, 1998 and December 31, 1997.
(c) Not annualized.
* For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
32
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1 - SIGNIFICANT ACCOUNTING POLICIES
Penn Series Funds, Inc. (Penn Series) was incorporated in Maryland on April
22, 1982. Penn Series is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company.
Penn Series is presently offering shares in its Money Market, Quality Bond,
High Yield Bond, Growth Equity, Value Equity, Flexibly Managed, International
Equity, Small Capitalization and Emerging Growth Funds (the Funds). It is
authorized under its Articles of Incorporation to issue a separate class of
shares in one additional fund. The Fund would have its own investment objective
and policy.
The following is a summary of significant accounting policies followed by
Penn Series in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
INVESTMENT VALUATION:
Money Market Fund - Investments in securities are valued under the amortized
cost method, which approximates current market value. Under this method,
securities are valued at cost on the date of purchase and thereafter a
proportionate amortization of any discount or premium until maturity is assumed.
Penn Series maintains a dollar weighted average portfolio maturity appropriate
to the objective of maintaining a stable net asset value per share. The Penn
Series Board of Directors (The Board) has established procedures reasonably
designed to stabilize the net asset value per share for purposes of sales and
redemptions at $1.00. The Board performs regular review and monitoring of the
valuation in an attempt to avoid dilution or unfair results to shareholders.
Quality Bond, High Yield Bond, Growth Equity, Value Equity, Flexibly Managed,
International Equity, Small Capitalization and Emerging Growth Funds - Portfolio
securities listed on a national securities exchange are valued at the last sale
price on the securities exchange or securities market on which such securities
primarily are traded or, if there has been no sale on that day, at the mean
between the current closing bid and asked prices. All other securities for which
over-the-counter market quotations are readily available are valued on the basis
of the mean between the last current bid and asked prices. When market
quotations are not readily available, or when restricted or other assets are
being valued, the securities or assets are valued at fair value as determined by
The Board.
The high yield securities in which the High Yield Bond Fund may invest are
predominantly speculative as to the issuer's continuing ability to meet
principal and interest payments. The value of the lower quality securities in
which the High Yield Bond Fund may invest will be affected by the credit
worthiness of individual issuers, general economic and specific industry
conditions, and will fluctuate inversely with changes in interest rates. In
addition, the secondary trading market for lower quality bonds may be less
active and less liquid than the trading market for higher quality bonds.
Foreign Currency Translation - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis: market value of investment securities, assets
and liabilities at the current rate of exchange, purchases and sales of
investment securities, income and expenses at the relevant rates of exchange
prevailing on the respective dates of such transactions.
The Funds do not isolate the portion of realized and unrealized gains and
losses on investments which is due to changes in the foreign exchange rate from
that which is due to changes in market prices of equity securities. Such
fluctuations are included with net realized and unrealized gain or loss from
investments.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the level of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
<PAGE>
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is accrued as earned. The cost of investment securities
sold is determined by using the specific identification method for both
financial reporting and income tax purposes.
DIVIDENDS TO SHAREHOLDERS: Dividends of investment income and realized
capital gains of the Quality Bond, High Yield Bond, Growth Equity, Value Equity,
Flexibly Managed, International Equity, Small Capitalization, and Emerging
Growth Funds will be declared and paid annually. Dividends of net investment
income of the Money Market Fund are declared daily and paid monthly. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
mortgage - backed securities, market discount and foreign currency transactions.
FEDERAL INCOME TAXES: The Funds intend to continue to qualify as regulated
investment companies under Subchapter M of the Internal Revenue code and to
distribute all of their taxable income, including realized gains, to their
shareholders. Therefore, no federal income tax provision is required.
Dividends from net investment income and distributions from net realized
gains are determined in accordance with federal income tax regulations which may
differ from net investment income and net realized capital gains recorded in
accordance with generally accepted accounting principles. To the extent these
differences are permanent, such amounts are reclassified within the capital
accounts based on their federal tax basis treatment; temporay differences do not
require such reclassification. Distributions from net realized gains for book
purposes may involve short-term capital gains, which are included as ordinary
income for tax purposes.
33
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
2 - DERIVATIVE FINANCIAL INSTRUMENTS
Off-Balance Sheet Risk
The Funds may trade financial instruments with off-balance sheet risk in the
normal course of investing activities and to assist in managing exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency exchange
contracts and futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Funds have in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transaction are considered.
Derivative Financial Instruments Held or Issued for Purposes Other Than Trading
Futures Contracts - Each of the Funds, other than Money Market, may enter
into financial futures contracts for the delayed delivery of securities,
currency or contracts based on financial indices on a future date. A Fund is
required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by a
Fund each day, dependent on daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by a Fund. A Fund's investment in financial futures contracts is
designed only to hedge against anticipated future changes in interest or
exchange rates. Should interest or exchange rates move unexpectedly, a Fund may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The Quality Bond Fund has entered into futures contracts during
the year ended December 31, 1998. There were no open futures contracts at
December 31, 1998.
Options - Each of the Funds, other than Money Market, may write covered
calls. Additionally, each of the Funds may buy put or call options for which
premiums are paid whether or not the option is exercised. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised the premium increases the cost basis of the
securities purchased by a Fund. As writer of an option, the Fund may have no
control over whether the underlying securities may be sold (call) and, as a
result, bears the market risk of an unfavorable change in the price of the
securities underlying the written option. The Flexibly Managed Fund has entered
into put options during the year ended December 31, 1998. Purchased put options
open and outstanding at December 31, 1998 are disclosed in the schedule of
investments.
Forward Foreign Currency Contracts - The Funds may enter into forward foreign
currency exchange contracts as a way of managing foreign exchange rate risk. A
Fund may enter into these contracts to fix the U.S. dollar value of a security
that it has agreed to buy or sell for the period between the date the trade was
entered into and the date the security is delivered and paid for. A Fund may
also use these contracts to hedge the U.S. dollar value of securities it already
owns denominated in foreign currencies.
Forward foreign currency contracts are valued at the forward rate, and are
marked-to-market daily. The change in market value is recorded by the Fund as an
unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain the might
result should the value of the currency increase. In addition, the Funds could
be exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts. The Flexibly Managed and International Equity
funds have entered into forward foreign currency contracts for the year ended
December 31, 1998. At December 31, 1998 there was one open contract in the
Flexibly Managed Fund and none in the International Equity Fund. Open forward
foreign currency contracts held by the Flexibly Managed Fund at December 31,
1998 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Unrealized
Foreign
Foreign Exchange
Forward Foreign Expiration Currency Forward Contract Contract Gain/
Currency Contract Date to be Sold Rate Amount Value Loss
- ------------------ ---------- ---------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
British Pound Sterling ............ 01/05/99 19,761 .597569 $33,069 $32,819 $250
</TABLE>
3 - INVESTMENT ADVISORY AND OTHER CORPORATE SERVICES
Investment Advisory Services
Effective May 1, 1998 Independence Capital Management, Inc. ("ICMI") serves
as investment advisor to each of the Funds. ICMI is a wholly-owned subsidiary of
The Penn Mutual Life Insurance Company.
T. Rowe Price Associates, Inc. ("Price Associates") is sub-advisor to the
Flexibly Managed and the High Yield Bond Funds pursuant to an investment
sub-advisory agreement entered into by ICMI and Price Associates on May 1, 1998.
As sub-advisor, Price Associates provides investment management services to the
Funds.
34
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
OpCap Advisors ("OpCap") is sub-advisor to Value Equity and Small
Capitalization Funds pursuant to an investment sub-advisor agreement entered
into by ICMI and OpCap on May 1, 1998. As sub-advisor, OpCap provides investment
management services to the Funds.
OpCap is a subsidiary of Oppenheimer Capital.
Vontobel USA Inc. ("Vontobel") is sub-advisor to the International Equity
Fund pursuant to an investment sub-advisor agreement entered into by ICMI and
Vontobel on May 1, 1998. As sub-advisor, Vontobel provides investment management
services to the Fund. Vontobel is a wholly owned subsidiary of Vontobel Holding
Ltd. an affiliate of Bank J. Vontobel & Co. Ltd.
RS Investment Management, Inc. (formerly Robertson Stephens Investment
Management, Inc. ) ("RS") is sub-advisor to the Emerging Growth Fund pursuant to
an investment sub-advisor agreement entered into by ICMI and RS on May 1, 1998.
As sub-advisor, RS provides investment management services to the Fund.
Each of the Funds pay ICMI, on a monthly basis, an advisory fee based on the
average daily net assets of each Fund, at the following rates pursuant to the
investment advisory agreements: Money Market Fund: 0.40% for first $100 million
and 0.35% thereafter; Quality Bond Fund: 0.45% for first $100 million and 0.40%
thereafter; Growth Equity Fund: 0.50% for the first $100 million and 0.45%
thereafter; Flexibly Managed Fund: 0.50%; High Yield Bond Fund: 0.50%;
International Equity Fund: 0.75%; Value Equity Fund: 0.50%; Small Capitalization
Fund: 0.50% and Emerging Growth Fund: .80% for the first $25 million, 0.75% for
next $25 million and 0.70% thereafter.
For providing investment management services to the Funds, ICMI pays the
sub-advisors, on a monthly basis, a sub-advisory fee.
Administrative and Corporate Services
Under an administrative and corporate services agreement, The Penn Mutual
Life Insurance Company ("Penn Mutual") serves as administrative and corporate
services agent for Penn Series. Each of the Funds pay Penn Mutual, on a
quarterly basis, an annual fee equal to 0.15% of each of the Fund's average
daily net assets.
Expenses and Limitations Thereon
Each Fund bears all expenses of its operations other than those incurred by
the investment advisors under their respective investment advisory agreements
and those incurred by Penn Mutual under its administrative and corporate
services agreement. The investment advisors and Penn Mutual have each
voluntarily agreed to waive fees or reimburse expenses to the extent each of the
Fund's expense ratio (excluding interest, taxes, brokerage, other capitalized
expenses, but including investment advisory and administrative and corporate
services fees) exceeds the applicable expense limitations for each Fund. The
expense limitations for the Funds are as follows: Money Market, 0.80%; Quality
Bond: 0.90%; High Yield Bond: 1.00%; Growth Equity: 1.00%; Value Equity: 1.00%;
Flexibly Managed: 1.00%; International Equity: 1.50%; Small Capitalization
1.00%; and Emerging Growth 1.15%.
Fees were paid to non-affiliated Directors of Penn Series for the year ended
December 31, 1998. However, no person received compensation from Penn Series who
is an officer, director, or employee of Penn Series, the investment advisors,
administrator, accounting agent or any parent or subsidiary thereof.
<PAGE>
4 - CAPITAL STOCK
At December 31, 1998, there were one billion shares of $.10 par value capital
stock authorized for Penn Series. The shares are divided into ten classes of 100
million shares of capital stock. Nine of the classes designated are Penn Series
Money Market Fund Common Stock, Penn Series Quality Bond Fund Common Stock, Penn
Series High Yield Bond Fund Common Stock, Penn Series Growth Equity Fund Common
Stock, Penn Series Value Equity Fund Common Stock, Penn Series Flexibly Managed
Fund Common Stock, Penn Series International Equity Fund Common Stock, Penn
Series Small Capitalization Fund Common Stock and Penn Series Emerging Growth
Fund Common Stock. One of the classes of common stock is presently designated
Class I, and no shares have been issued.
Transactions in capital stock of Penn Series Funds, Inc. were as follows:
<TABLE>
<CAPTION>
The Year Ended December 31, 1998:
------------------------------------------------------------------------------
Dividend
Shares Sold Reinvestment Shares Reacquired
------------------------ ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
---------- ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund ..................... 84,556,622 $84,556,622 2,176,407 $2,176,407 70,581,999 $70,581,999
Quality Bond Fund ..................... 1,642,975 $17,780,630 382,465 $3,977,639 811,620 $8,780,551
High Yield Bond Fund .................. 1,757,800 $17,292,747 589,778 $5,420,056 1,052,320 $10,371,757
Growth Equity Fund .................... 691,494 $19,801,255 669,396 $20,628,621 607,072 $16,844,142
Value Equity Fund ..................... 1,671,304 $40,295,090 1,409,105 $31,549,856 1,532,040 $35,752,237
Flexibly Managed Fund ................. 2,831,936 $58,177,184 3,855,202 $70,600,678 2,926,275 $59,980,214
International Equity Fund ............. 1,780,356 $31,336,651 345,781 $6,355,455 1,793,330 $31,548,343
Small Capitalization Fund ............. 1,065,490 $14,767,847 76,921 $986,473 418,401 $5,558,915
Emerging Growth Fund .................. 1,366,179 $20,129,936 638 $8,966 544,610 $7,976,427
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Transactions in capital stock of Penn Series Funds, Inc. were as follows:
<TABLE>
<CAPTION>
The Year Ended December 31, 1997:
-----------------------------------------------------------------------------
Dividend
Shares Sold Reinvestment Shares Reacquired
------------------------ ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
------------------------ ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund ..................... 52,596,243 $52,596,243 1,857,904 $1,857,904 51,478,157 $51,478,157
Quality Bond Fund ..................... 695,043 $7,228,270 219,620 $2,240,125 745,923 $7,674,394
High Yield Bond Fund .................. 1,621,677 $15,567,712 480,137 $4,570,874 829,328 $7,878,467
Growth Equity Fund .................... 560,843 $13,907,900 581,078 $14,160,857 500,698 $12,473,543
Value Equity Fund ..................... 2,867,800 $61,202,630 888,923 $20,045,218 712,142 $15,712,398
Flexibly Managed Fund ................. 4,061,684 $80,965,783 2,215,705 $43,937,424 1,513,715 $30,886,898
International Equity Fund ............. 1,665,223 $27,762,536 514,008 $8,290,956 829,261 $13,999,926
Small Capitalization Fund ............. 1,398,053 $19,734,987 171,055 $2,468,316 173,037 $2,478,293
Emerging Growth Fund* ................. 1,427,602 $18,230,138 106,892 $1,373,564 138,520 $2,069,490
</TABLE>
* For the period from May 1, 1997 (commencement of operations) through December
31, 1997.
5 - PURCHASES AND SALES OF INVESTMENTS
During the year ended December 31, 1998, the Funds made the following purchases
and sales of portfolio securities, excluding U.S. Government and Agency
obligations and short term securities:
Purchases Sales
--------- -----
Quality Bond Fund ..................... $108,643,907 $119,461,219
High Yield Bond Fund .................. $60,196,551 $48,652,828
Growth Equity Fund .................... $241,534,849 $243,891,278
Value Equity Fund ..................... $95,882,522 $67,620,213
Flexibly Managed Fund ................. $260,791,434 $230,954,970
International Equity Fund ............. $65,046,636 $58,985,257
Small Capitalization Fund ............. $31,338,551 $22,535,904
Emerging Growth Fund .................. $73,498,020 $59,063,803
6 - CAPITAL LOSS CARRYOVERS
Capital loss carryovers expire as follows:
Money High Yield Emerging
Market Bond Growth
Fund Fund Fund
------ ---------- -----------
2000 .................................. $ 61 $ 0 $ 0
2001 .................................. 183 0 0
2003 .................................. 416 1,052,436 0
2004 .................................. 0 525,647 0
2005 .................................. 225 0 0
2006 .................................. 992 14,558 1,908,042
------ ---------- ----------
Total .............................. $1,877 $1,592,641 $1,908,042
36
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
PENN SERIES FUNDS, INC.
We have audited the statements of assets and liabilities, including the
schedules of investments, of Penn Series Funds, Inc. (comprising, respectively,
the Money Market Fund, Quality Bond Fund, High Yield Bond Fund, Growth Equity
Fund, Value Equity Fund, Flexibly Managed Fund, International Equity Fund, Small
Cap Fund, and Emerging Growth Fund) as of December 31, 1998, and the related
statements of operations for the year then ended and the statements of changes
in net assets and financial highlights for each of the two years in the period
then ended. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial highlights of Penn Series Funds,
Inc. for the years and periods through December 31, 1996 included herein were
audited by other auditors whose report dated February 11, 1997, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial presentation. We
believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting Penn Series Funds, Inc. at December 31, 1998, the
results of their operations for the year then ended, the changes in their net
assets and their financial highlights for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 29, 1999
37
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation - Previously filed on April 26, 1983
as Exhibit 1 to Post-Effective Amendment No. 24 to this
Registration Statement, and incorporated by reference to
Exhibit 1 of Post-Effective Amendment No. 44 on Form N-1A
(File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(b) By-Laws - Previously filed on August 27, 1992 as Exhibit 2 to
Post-Effective Amendment No. 37 to this Registration
Statement, and incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(c) None (outstanding shares of common stock are recorded on the
books and records of the Registrant - Certificates of stock
are not issued).
(d) (1) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Growth Equity, Quality Bond and Money Market Funds -
Previously filed on August 27, 1992 as Exhibit 5(b) to
Post-Effective Amendment No. 37 to this Registration
Statement, and incorporated by reference to Exhibit 5(b)
of Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-97-
001341) on February 14, 1997.
(2) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Emerging Growth Fund - Incorporated by reference to
Exhibit 5(e) of Post-Effective Amendment No. 45 on Form
N-1A (File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0001036050-97-001076) on November 21, 1997.
(3) Sub-Advisory Agreement between Independence Capital
Management, Inc. and RS Investment Management, Inc. with
respect to the Emerging Growth Fund - Incorporated by
reference to Exhibit 5(c) of Post-Effective Amendment No.
46 on Form N-1A (File Nos. 2-77284 and 811-03459), as
filed with the Securities and Exchange Commission via
EDGAR (Accession #0001036050-98-000286) on February 27,
1998.
(4) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Value Equity, Small Capitalization, Flexibly Managed,
International Equity and High Yield Bond Funds - Filed
herewith.
C-1
<PAGE>
(5) Sub-Advisory Agreement between Independence Capital
Management, Inc. and OpCap Advisors with respect to the
Value Equity and Small Capitalization Funds - Filed
herewith.
(6) Sub-Advisory Agreement between Independence Capital
Management, Inc. and T. Rowe Price Associates, Inc. with
respect to the Flexibly Managed and High Yield Bond Funds
- Filed herewith.
(7) Sub-Advisory Agreement between Independence Capital
Management, Inc. and Vontobel USA Inc. with respect to the
International Equity Fund - Filed herewith.
(e) None. Common stock of the Registrant is sold only to The Penn
Mutual Life Insurance Company and its affiliated insurance
companies for their general or separate accounts.
(f) None.
(g) (1) Amended and Restated Custodian Agreement between the
Registrant and Provident National Bank - Previously filed
on April 26, 1993 as Exhibit 8(a) to Post-Effective
Amendment No. 38 to this Registration Statement, and
incorporated by reference to Exhibit 8(a) of Post-
Effective Amendment No. 44 on Form N-1A (File Nos. 2-77284
and 811-03459), as filed with the Securities and Exchange
Commission via EDGAR (Accession #0000950109-97-001341) on
February 14, 1997.
(2) Form of Foreign Custody Manager Agreement between the
Registrant and PNC Bank - Incorporated by reference to
Exhibit 8(b) of Post-Effective Amendment No. 46 on Form
N-1A (File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-000286) on February 27, 1998.
(h) (1) Administrative and Corporate Services Agreement between
the Registrant and The Penn Mutual Life Insurance Company
- Incorporated by reference to Exhibit 9(a) of
Post-Effective Amendment No. 45 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0001036050-97-001076) on November 21, 1997.
(2) Accounting Services Agreement between the Registrant and
Provident Financial Processing Corporation - Previously
filed on March 10, 1990 as Exhibit 9(b) to Post-Effective
Amendment No. 33 to this Registration Statement, and
incorporated by reference to Exhibit 9(b) of
Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-97-
001341) on February 14, 1997.
(3) Agreement between the Registrant and Provident Financial
Processing Corporation on fees for services under
Accounting
C-2
<PAGE>
Services Agreement - Previously filed on February 24, 1995
as Exhibit 9(c) to Post-Effective Amendment No. 43 to this
Registration Statement, and incorporated by reference to
Exhibit 9(c) of Post-Effective Amendment No. 44 on Form
N-1A (File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(i) Opinion and Consent of Morgan, Lewis & Bockius LLP -
Incorporated by reference to Exhibit 11(b) of
Post-Effective Amendment No. 43 on Form N-1A (File Nos.
2-77284 and 811-3459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0000950109-96-002456) on April 29, 1996.
(j) Consent of Ernst & Young LLP - Filed herewith.
(k) None.
(l) None.
(m) None.
(n) Financial Data Schedules - Filed herewith.
(o) None.
(p) Powers of Attorney of Directors - Filed herewith.
C-3
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
The Penn Mutual Life Insurance Company ("Penn Mutual") is the owner of
100% of the outstanding common stock of the Registrant. For further
information on the ownership of the outstanding common stock of the
Registrant, see "Voting Rights" in the Prospectus and "Ownership of
Shares" in the Statement of Additional Information, which are
incorporated hereunder by reference.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of The Penn Insurance and Annuity Company, a
Delaware corporation.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of Independence Capital Management., Inc., a
Pennsylvania corporation, and registered investment adviser.
Penn Mutual is the record and beneficiary owner of 100% of the
outstanding common stock of The Penn Janney Fund, Inc. Penn Janney
Fund, Inc. is a Pennsylvania corporation and invests in new business.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of The Pennsylvania Trust Company, a
Pennsylvania corporation.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of Independence Square Properties, Inc., a
holding corporation incorporated in Delaware.
Independence Square Properties, Inc. is the record and beneficial owner
of 100% of the outstanding common stock of the following corporations:
Penn Glenside Corp., Penn Wayne Corp., St. James Realty Corp.,
Investors' Mortgage Corp. and Christie Street Properties, Inc., all
Pennsylvania corporations; and Indepro Corp., Economic Resources
Associates, Inc. and WPI Investment Company, both Delaware
corporations.
Indepro Corp. is the record and beneficial owner of 100% of the
outstanding common stock of Indepro Property Fund I Corp., Indepro
Property Fund II Corp., Commons One Corp. and West Hazleton, Inc., all
Delaware corporations.
Independence Square Properties, Inc. is the record and beneficial owner
of 100% of the outstanding common stock of Janney Montgomery Scott
Inc., a Delaware corporation, and Hornor, Townsend & Kent, Inc., a
Pennsylvania corporation.
Janney Montgomery Scott Inc. is the record and beneficial owner of 100%
of the outstanding common stock of the following corporations: Addison
Capital Management, Inc., a Pennsylvania corporation; JMS Resources,
Inc., a Pennsylvania corporation; and JMS Investor Services, Inc., a
Delaware corporation.
Penn Mutual and Janney Montgomery Scott Inc. each is the record and
beneficial owner of a subscription agreement for 50% of the common
stock of Penn Janney Advisory, Inc., a Pennsylvania corporation.
Item 25. Indemnification
Article VII, Section (3) of the Articles of Incorporation of the
Registrant provides generally that directors and officers of the
Registrant shall be indemnified by the Registrant to the full extent
permitted by Maryland law and by the Investment Company Act of 1940,
now or hereinafter in force.
C-4
<PAGE>
Article VI, Section (2) of the By-laws of the Registrant provides: Any
person who was or is a party or is threatened to be made a defendant or
respondent in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that such person is or was a director or officer
of the Corporation, or is or was serving while a director or officer of
the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan,
shall be indemnified by the Corporation against judgments, penalties,
fines, settlements and reasonable expenses (including attorney's fees)
actually incurred by such person in connection with such action, suit
or proceeding to the full extent permissible under the General Laws of
the State of Maryland now or hereafter in force, except that such
indemnity shall not protect any such person against any liability to
the Corporation or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.
C-5
<PAGE>
Item 26. Business and Other Connections of Investment Advisers
T. Rowe Price Associates, Inc.
Listed below are the directors, executive officers and managing
directors of T. Rowe Price Associates, Inc. (the "Manager") who have
other substantial businesses, professions, vocations, or employment
aside from that of Director of the Manager.
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years Address
----------------- ------------------------------ -------
<S> <C> <C>
James E. Halbkat, Jr., President of U.S. Monitor P. O. Box 23109
Director of the Manager Corporation, a provider of Hilton Head Island, SC
public response systems. 29925
Richard L. Menschel, Limited partner of The 2nd Floor
Director of the Manager Goldman Sachs Group, L.P., 85 Broad Street
an investment banking firm. New York, NY 10004
Robert L. Strickland, Retired Chairman of Lowe's Suite 604
Director of the Manager Companies, Inc., a retailer of 2000 W. First Street
speciality home supplies, as of Winston-Salem, NC
January 31, 1998 and continues 27104
to serve as a Director. He is
also a Director of Hannaford
Bros., Co., a food retailer.
Philip C. Walsh Retired mining industry Pleasant Valley
Director of the Manager executive. Peapack, NJ 07977
Anne Marie Whittemore Partner of the law firm of One James Center
Director of the Manager McGuire, Woods, Battle & Richmond, VA 23219
Boothe L.L.P. and a Director
of Owens & Minor, Inc., Fort
James Corporation and
Albemarle Corporation.
</TABLE>
With the exception of Messrs. Halbkat, Menschel, Strickland and Walsh and Mrs.
Whittemore, all of the following directors of the Manager are employees of the
Manager.
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
---------------- ------------------------------
<S> <C>
Henry H. Hopkins, Director of T. Rowe Price Insurance Agency, Inc.; Vice
Director and Managing President and Director of T. Rowe Price (Canada), Inc., T.
Director of the Manager Rowe Price Investment Services, Inc., T. Rowe Price
Services, Inc., T. Rowe Price Threshold Fund Associates,
Inc., T. Rowe Price Trust Company, TRP Distribution, Inc.,
and TRPH Corporation; Director of T. Rowe Price Insurance
Agency, Inc.; Vice President of Price-Fleming, T. Rowe
Price Real Estate Group, Inc., T. Rowe Price Retirement
Plan Services, Inc., T. Rowe Price Stable Asset
Management, Inc., and T. Rowe Price Strategic Partners
Associates, Inc.
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
---------------- ------------------------------
<S> <C>
James A.C. Kennedy, III President and Director of T. Rowe Price Strategic Partners
Director and Managing Associates, Inc.; Director and Vice President of T. Rowe
Director of the Manager Price Threshold Fund Associates, Inc.
John H. Laporte, Jr.,
Director and Managing
Director of the Manager
William T. Reynolds, Chairman of the Board of T. Rowe Price Stable Asset
Director and Managing Management, Inc.; Director of TRP Finance, Inc.
Director of the Manager
James S. Riepe, Chairman of the Board and President of T. Rowe Price Trust
Vice Chairman of the Company; Chairman of the Board of T. Rowe Price
Board, Director, and (Canada), Inc., T. Rowe Price Investment Services, Inc., T.
Managing Director of the Rowe Price Investment Technologies, Inc., T. Rowe Price
Manager Retirement Plan Services, Inc., and T. Rowe Price Services,
Inc.; Director of Price-Fleming, T. Rowe Price Insurance
Agency, Inc. and TRPH Corporation; Director and President
of TRP Distribution, Inc., TRP Suburban Second, Inc., and
TRP Suburban, Inc.; and Director and Vice President of T.
Rowe Price Stable Asset Management, Inc.
George A. Roche, Chairman of the Board of TRP Finance, Inc.; Director of
Chairman of the Board, Price-Fleming, T. Rowe Price Retirement Plan Services,
President, and Managing Inc., and T. Rowe Price Strategic Partners, Inc.; and
Director of the Manager Director and Vice President of T. Rowe Price Threshold
Fund Associates, Inc., TRP Suburban Second, Inc., and TRP
Suburban, Inc.
Brian C. Rogers, Vice President of T. Rowe Price Trust Company
Director and Managing
Director of the Manager
M. David Testa, Chairman of the Board of Price-Fleming; President and
Vice Chairman of the Director of T. Rowe Price (Canada), Inc.; Director and Vice
Board, Chief Investment President of T. Rowe Price Trust Company; and Director of
Officer, and Managing TRPH Corporation
Director of the Manager
</TABLE>
Executive Officers:
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
---------------- ------------------------------
<S> <C>
Edward C. Bernard, Director and President of T. Rowe Price Insurance Agency,
Managing Director of the Inc. and T. Rowe Price Investment Services, Inc.; Director of
Manager T. Rowe Price Services, Inc.; Vice President of TRP
Distribution, Inc.
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
---------------- ------------------------------
<S> <C>
Michael A. Goff, Director and the President of T. Rowe Price Investment
Managing Director of the Technologies, Inc.
Manager
Charles E. Vieth, Director and President of T. Rowe Price Retirement Plan
Managing Director of the Services, Inc.; Director and Vice President of T. Rowe Price
Manager Investment Services, Inc. and T. Rowe Price Services, Inc.;
Vice President of T. Rowe Price (Canada), Inc., T. Rowe Price
Trust Company, and TRP Distribution, Inc.
Alvin M. Younger, Jr., Director, Vice President, Treasurer, and Secretary of TRP
Chief Financial Officer, Suburban Second, Inc. and TRP Suburban, Inc.; Director of
Managing Director, TRP Finance, Inc.; Secretary and Treasurer for Price-Fleming,
Secretary, and Treasurer T. Rowe Price (Canada), Inc., T. Rowe Price Insurance
of the Manager Agency, Inc., T. Rowe Price Investment Services, Inc., T.
Rowe Price Real Estate Group, Inc., T. Rowe Price Retirement
Plan Services, Inc., T. Rowe Price Services, Inc., T. Rowe
Price Stable Asset Management, Inc., T. Rowe Price Strategic
Partners Associates, Inc., T. Rowe Price Threshold Fund
Associates, Inc., T. Rowe Price Trust Company, TRP
Distribution, Inc., and TRPH Corporation; Treasurer and Clerk
of T. Rowe Price Insurance Agency of Massachusetts, Inc.
</TABLE>
Managing Directors:
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
---------------- ------------------------------
<S> <C>
Preston G. Athey,
Managing Director of the
Manager
Brian W.H. Berghuis,
Managing Director of the
Manager
Stephen W. Boesel, Vice President of T. Rowe Price Trust Company
Managing Director of the
Manager
Gregory A. McCrickard, Vice President of T. Rowe Price Trust Company
Managing Director of the
Manager
Mary J. Miller,
Managing Director of the
Manager
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
---------------- ------------------------------
<S> <C>
Charles A. Morris,
Managing Director of the
Manager
George A. Murnaghan, Executive Vice President of Price-Fleming; Vice President of
Managing Director of the T. Rowe Price Investment Services, Inc. and T. Rowe Price
Manager Trust Company
Edmund M. Notzon, III, Vice President of T. Rowe Price Trust Company
Managing Director of the
Manager
Wayne D. O'Melia, Director and President of T. Rowe Price Services, Inc.; Vice
Managing Director of the President of T. Rowe Price Trust Company
Manager
Larry J. Puglia, Vice President of T. Rowe Price (Canada), Inc.
Managing Director of the
Manager
John R. Rockwell, Director and Senior Vice President of T. Rowe Price
Managing Director of the Retirement Plan Services, Inc.; Director and Vice President
Manager of T. Rowe Price Stable Asset Management, Inc. and T.
Rowe Price Trust Company; Vice President of T. Rowe Price
Investment Services, Inc.
R. Todd Ruppert, President and Director of TRPH Corporation; Vice President
Managing Director of the of T. Rowe Price Retirement Plan Services, Inc. and T.
Manager Rowe Price Trust Company
Robert W. Smith, Vice President of Price-Fleming
Managing Director of the
Manager
William J. Stromberg,
Managing Director of the
Manager
Richard T. Whitney, Vice President of Price-Fleming and T. Rowe Price Trust
Managing Director of the Company
Manager
</TABLE>
C-9
<PAGE>
Independence Capital Management, Inc.
<TABLE>
<CAPTION>
Name and Current
Position with
Independence Capital Other Business and Connections
Management, Inc. During the Past Two Years
-------------------- ------------------------------
<S> <C>
Richardson T. Merriman, Senior Vice President of Independence Capital Management,
Senior Vice President and Inc., Radnor, PA; President, Chief Executive Officer and
Director Chief Investment Officer of The Pennsylvania Trust
Company, Radnor, PA
Nils L. Berglund, Vice President of Independence Capital Management, Inc.,
Vice President Radnor, PA; Senior Vice President and Portfolio Manager
of The Pennsylvania Trust Company, Radnor, PA;
Registered Representative of Hornor, Townsend & Kent,
Inc., Horsham, PA
Peter Moffit Sherman, Senior Vice President and Chief Investment Officer of The
President and Chief Penn Mutual Life Insurance Company, Horsham, PA;
Executive Officer Registered Representative of Hornor, Townsend & Kent,
Inc., Horsham, PA; President and Chief Executive Officer
of Independence Capital Management, Inc., Horsham, PA
Robert E. Chappell, Director of Independence Capital Management, Inc.,
Director Horsham, PA; Chairman and Chief Executive Officer of
The Penn Mutual Life Insurance Company, Horsham, PA
Barbara Sheldon Wood, Senior Vice President and Treasurer of Hornor, Townsend
Vice President, & Kent, Inc., Horsham, PA; Vice President, Controller and
Controller, Treasurer and Assistant Treasurer of Independence Capital Management,
Secretary Inc., Radnor, PA
</TABLE>
OpCap Advisors
<TABLE>
<CAPTION>
Name and Current Position with Other Business and Connections
OpCap Advisors* During the Past Two Years
------------------------------ -------------------------------
<S> <C>
Robert J. Bluestone, Managing Director of Oppenheimer
Vice President Capital; Director of Oppenheimer Capital
Trust Company.
Thomas E. Duggan, Managing Director & General Counsel of
General Counsel & Secretary Oppenheimer Capital.
Linda S. Ferrante, Managing Director of Oppenheimer
Portfolio Manager Capital.
Bernard H. Garil, Managing Director of Oppenheimer
President Captial; Director of Oppenheimer Capital
Trust Company.
John Giusio, Vice President of Oppenheimer Capital.
Vice President and Portfolio Manager
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Name and Current Position with Other Business and Connections
OpCap Advisors* During the Past Two Years
------------------------------ -------------------------------
<S> <C>
Richard J. Glasebrook, II, Managing Director of Oppenheimer
Vice President and Portfolio Manager Capital.
Colin Glinsman, Managing Director of Oppenheimer
Vice President and Portfolio Manager Capital.
Louis Goldstein, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.
Matthew Greenwald, Senior Vice President of Oppenheimer
Portfolio Manager Capital.
Alan Gutmann, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.
Benjamin Gutstein, Assistant Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.
Vikki Y. Hanges, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.
Richard Kent, Managing Director of Oppenheimer
Vice President Capital.
Francis A. LeCates, Jr., Managing Director of Oppenheimer
Director of Research Capital.
George A. Long, Chairman, Chief Executive Officer and
Chairman Chief Investment Officer of Oppenheimer
Capital.
Elisa A. Mazen, Vice President of Oppenheimer Capital
Vice Presidnet and Portfolio Manager International Division.
Timothy McCormack, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital; formerly, Assistant Vice
President of Oppenheimer Capital.
Susan Murphy, President of OCC Cash Management
President of an affiliate Services Division and Oppenheimer
Capital Trust Company; Managing
Director of Oppenheimer Capital.
Eric Retzlaff, Senior Vice President of Oppenheimer
Senior Vice President Capital.
Eileen Rominger, Managing Director of Oppenheimer
Vice President and Portfolio Manager Capital.
Lawrence K. Becker, Managing Director/Treasurer/Chief
Treasurer and Chief Financial Officer Financial Officer of Oppenheimer
Capital; Director of Oppenheimer Capital
Trust Company.
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Name and Current Position with Other Business and Connections
OpCap Advisors* During the Past Two Years
------------------------------ -------------------------------
<S> <C>
Elliot Weiss, Vice President of Oppenheimer Capital.
Vice President
Jeffrey Whittington, Senior Vice President of Oppenheimer
Portfolio Manager Capital.
</TABLE>
* The address of OpCap Advisors is 200 Liberty Street, New York,
New York, 10281
Vontobel USA Inc.
Since February 1997, Mr. Heinrich Schlegel has served as a director of:
Vontobel Funds, Inc.
Suite 223
1500 Forest Avenue
Richmond, VA 23229
Vontobel Funds, Inc. is a registered investment company, incorporated
under the laws of Maryland, comprising six fund series for which
Vontobel USA Inc. serves as investment adviser.
RS Investment Management, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
<S> <C>
Name and Current Position Other Business Connections during the Past Two Years
with RS Investment
Management, Inc.
- --------------------------------------------------------------------------------------
David James Evans III
Portfolio Manager
Secretary and Securities
Analyst
- --------------------------------------------------------------------------------------
George Randall Hecht Executive V.P., COO and Limited Partner of
Director and President Robertson, Stephens & Company, L.P.;
President and CEO of Robertson Stephens Investment
Trust; Trustee of Robertson Stephens Investment Trust.
- --------------------------------------------------------------------------------------
James Lawrence Callinan Portfolio Manager, Putnam Investments.
Portfolio Manager
- --------------------------------------------------------------------------------------
</TABLE>
Item 27. Principal Underwriters
Not Applicable.
Item 28. Location of Accounts and Records
Penn Series Funds, Inc.
600 Dresher Road
Horsham, PA 19044
PFPC Inc.
Bellevue Corporate Center
103 Bellevue Parkway
Wilmington, DE 19809
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
C-12
<PAGE>
Independence Capital Management, Inc.
600 Dresher Road
Horsham, PA 19044
OpCap Advisors
Oppenheimer Capital
One World Financial Center
New York, NY 10281
Vontobel USA Inc.
450 Park Avenue
New York, NY 10022
RS Investment Management, Inc.
555 California Street
San Francisco, CA 94104
Item 29. Management Services
Not applicable.
Item 30. Undertakings
The Registrant undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it has
duly caused this Post-Effective Amendment to Registrant's Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Horsham, Commonwealth of Pennsylvania on the 25th day of February, 1999.
PENN SERIES FUNDS, INC.
By: /s/ JAMES B. McELWAIN
James B. McElwain, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to this Registration Statement of the Registrant has been signed below
by the following persons in the capacities indicated on the 25th day of
February, 1999.
Signature Title
/s/ JAMES B. McELWAIN President (Principal Executive
- --------------------------- Officer)
James B. McElwain
/s/ STEVEN M. HERZBERG Treasurer (Principal
- --------------------------- Financial Officer)
Steven M. Herzberg
/s/ ANN M. STROOTMAN Controller (Principal
- --------------------------- Accounting Officer)
Ann M. Strootman
* EUGENE BAY Director
* JAMES S. GREENE Director
* ROBERT E. CHAPPELL Director
* WILLIAM H. LOESCHE, JR. Director
* M. DONALD WRIGHT Director
* LARRY L. MAST Director
* DANIEL J. TORAN Director
* By: /s/ ROBERT E. CHAPPELL
------------------------------------------
Robert E. Chappell, Attorney-In-Fact
C-14
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Description
- ------- ------------
(a) Articles of Incorporation -Previously filed on April 26, 1983
as Exhibit 1 to Post-Effective Amendment No. 24 to this
Registration Statement, and incorporated by reference to
Exhibit 1 of Post-Effective Amendment No. 44 on Form N-1A
(File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(b) By-Laws - Previously filed on August 27, 1992 as Exhibit 2 to
Post-Effective Amendment No. 37 to this Registration
Statement, and incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(c) None (outstanding shares of common stock are recorded on the
books and records of the Registrant - Certificates of stock
are not issued).
(d) (1) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Growth Equity, Quality Bond and Money Market Funds -
Previously filed on August 27, 1992 as Exhibit 5(b) to
Post-Effective Amendment No. 37 to this Registration
Statement, and incorporated by reference to Exhibit 5(b)
of Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-
97-001341) on February 14, 1997.
(2) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Emerging Growth Fund Incorporated by reference to Exhibit
5(e) of Post-Effective Amendment No. 45 on Form N-1A (File
Nos. 2-77284 and 811-03459), as filed with the Securities
and Exchange Commission via EDGAR (Accession #0001036050-
97-001076) on November 21, 1997.
(3) Sub-Advisory Agreement between Independence Capital
Management, Inc. and RS Investment Management, Inc. with
respect to the Emerging Growth Fund - Incorporated by
reference to Exhibit 5(c) of Post-Effective Amendment No.
46 on Form N-1A (File Nos. 2-77284 and 811-03459), as
filed with the Securities and Exchange Commission via
EDGAR (Accession #0001036050-98-000286) on February 27,
1998.
Ex. 99 (4) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Value Equity, Small Capitalization, Flexibly Managed,
International Equity and High Yield Bond Funds - Filed
herewith.
Ex. 99 (5) Sub-Advisory Agreement between Independence Capital
Management, Inc. and OpCap Advisors with respect to the
Value Equity and Small Capitalization Funds - Filed
herewith.
C-15
<PAGE>
Ex. 99 (6) Sub-Advisory Agreement between Independence Capital
Management, Inc. and T. Rowe Price Associates, Inc. with
respect to the Flexibly Managed and High Yield Bond Funds
- Filed herewith.
Ex. 99 (7) Sub-Advisory Agreement between Independence Capital
Management, Inc. and Vontobel USA Inc. with respect to the
International Equity Fund - Filed herewith.
(e) None. Common stock of the Registrant is sold only to The Penn
Mutual Life Insurance Company and its affiliated insurance
companies for their general or separate accounts.
(f) None.
(g) (1) Amended and Restated Custodian Agreement between the
Registrant and Provident National Bank - Previously filed
on April 26, 1993 as Exhibit 8(a) to Post-Effective
Amendment No. 38 to this Registration Statement, and
incorporated by reference to Exhibit 8(a) of
Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(2) Form of Foreign Custody Manager Agreement between the
Registrant and PNC Bank - Incorporated by reference to
Exhibit 8(b) of Post-Effective Amendment No. 46 on Form
N-1A (File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-000286) on February 27, 1998.
(h) (1) Administrative and Corporate Services Agreement between
the Registrant and The Penn Mutual Life Insurance Company
- Incorporated by reference to Exhibit 9(a) of
Post-Effective Amendment No. 45 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0001036050-97-001076) on November 21, 1997.
(2) Accounting Services Agreement between the Registrant and
Provident Financial Processing Corporation - Previously
filed on March 10, 1990 as Exhibit 9(b) to Post-Effective
Amendment No. 33 to this Registration Statement, and
incorporated by reference to Exhibit 9(b) of
Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(3) Agreement between the Registrant and Provident Financial
Processing Corporation on fees for services under
Accounting Services Agreement - Previously filed on
February 24, 1995 as Exhibit 9(c) to Post-Effective
Amendment No. 43 to this Registration Statement, and
incorporated by reference to Exhibit 9(c) of
Post-Effective Amendment No. 44 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
#0000950109-97-001341) on February 14, 1997.
(i) Opinion and Consent of Morgan, Lewis & Bockius LLP -
Incorporated by reference to Exhibit 11(b) of Post-Effective
Amendment No. 43 on Form N-1A (File Nos. 2-77284
C-16
<PAGE>
and 811-3459), as filed with the Securities and Exchange
Commission via EDGAR (Accession #0000950109-96-002456) on
April 29, 1996.
EX-99 (j) Consent of Ernst & Young LLP - Filed herewith.
(k) None.
(l) None.
(m) None.
EX-27 (n) Financial Data Schedules - Filed herewith.
(o) None.
EX-99 (p) Powers of Attorney of Directors - Filed herewith.
C-17
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Relating to
VALUE EQUITY FUND
SMALL CAPITALIZATION FUND
FLEXIBLY MANAGED FUND
INTERNATIONAL EQUITY FUND
HIGH YIELD BOND FUND
INVESTMENT ADVISORY AGREEMENT, made as of May 1, 1998 by and between
PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized and existing
under the laws of the State of Maryland, and INDEPENDENCE CAPITAL MANAGEMENT,
INC. ("Adviser"), a corporation organized and existing under the laws of the
State of Pennsylvania.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the Investment Company Act of 1940, as amended (the
"Act") and is authorized to issue shares in separate series with each series
representing interests in a separate fund of securities and other assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth, and Adviser desires to render such services under such
terms and conditions:
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Value Equity,
Small Capitalization, Flexibly Managed, International Equity and the High Yield
Bond Funds of Penn Series (individually a "Fund" and collectively the "Funds"),
in accordance with the investment objectives, program and restrictions
applicable to the Fund as provided in Penn Series' Prospectus and Statement of
Additional Information, as amended from time to time, and such other limitations
as may be imposed by law or as Penn Series may impose with notice in writing to
Adviser. No investment will be made by Adviser for a Fund if that investment
would be in violation of the objectives, program, restrictions or limitations of
the Fund. Adviser shall not take custody of any assets of Penn Series, but shall
issue settlement instructions to the custodian designated by Penn Series (the
"Custodian"). Adviser shall obtain and evaluate such information relating to the
economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of each Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Adviser, as agent and attorney-in-fact
with respect to Penn Series, is authorized, in its discretion and without prior
consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may
select, in conformance with the provisions of Paragraph 4
herein;
provided, however, that Adviser shall make no investment for a Fund that is in
violation of the objectives, program, restrictions or limitations of the Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agreement. As requested from time to time, Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to each Fund.
3. Fees.
A. Payment of Fees. For the services rendered to Penn Series under
this Agreement, Penn Series will pay Adviser fees based on average
daily net assets of each Fund.
B. Fee Rates. The fees shall be paid at the following rates:
-2-
<PAGE>
Value Equity Fund .50%
Small Capitalization Fund .50%
Flexibly Managed Fund .50%
International Equity Fund .75%
High Yield Bond Fund .50%
C. Method of computation. Each fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be
paid monthly to Adviser as of the first business day of the
next succeeding calendar month. The daily fee will be computed
by multiplying the fraction of one over the number of calendar
days in the year by the annual rate applicable to the Fund as
set forth above, and multiplying this product by the net
assets of the Fund. The Fund's net assets, for purposes of the
calculations described above, will be determined in accordance
with Penn Series' Prospectus and Statement of Additional
Information as of the close of business on the most recent
previous business day on which Penn Series was open for
business.
D. Expense Limitation. The expense limitations of the Funds
are as follows:
Value Equity Fund 1.00%
Small Capitalization Fund 1.00%
Flexibly Managed Fund 1.00%
International Equity Fund 1.50%
High Yield Bond Fund 0.90%
With respect to each of the Value Equity, Small
Capitalization and International Equity Funds, the extent that
a Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in
accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
accounting, administrative and corporate services fees before
any adjustment pursuant to this provision) exceed the expense
limitation for the Fund in an amount up to and including .10%
of the average daily net assets of the Fund, such excess
amount shall be a liability of Adviser to Penn Series. The
liability (if any) of Adviser to pay Penn Series such excess
amount shall be determined on a daily basis. If, at the end of
each month, there is any liability of Adviser to pay Penn
Series such excess amount, the advisory fee shall be reduced
by such liability. If, at the end of each month, there is no
liability of Adviser to pay Penn Series such excess amount and
if payments of the advisory fee at the end of prior months
during the fiscal year have been reduced in excess of that
required to maintain expenses within the expense limitation,
such excess reduction shall be recaptured by Adviser and shall
be payable by Penn Series to Adviser along with the advisory
fee payable to Adviser for that month.
-3-
<PAGE>
With respect to each of the Flexibly Managed Fund and
the High Yield Bond Funds, to the extent that a Fund's total
expenses for a fiscal year (excluding interest, taxes,
brokerage, other expenses which are capitalized in accordance
with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
accounting administrative and corporate service fees before
any adjustment pursuant to this provision) exceed the expense
limitation for the Fund, one-half of such excess amount shall
be a liability of Adviser to Penn Series. The liability (if
any) of Adviser to pay Penn Series one-half of such excess
amount shall be determined on a daily basis. If, at the end of
each month, there is any liability of Adviser to pay Penn
Series such excess amount, the advisory fee shall be reduced
by such liability. If, at the end of each month, there is no
liability of Adviser to pay Penn Series such excess amount and
if payments of the advisory fee at the end of prior months
during the fiscal year have been reduced in excess of that
required to maintain expenses within the expense limitation,
such excess reduction shall be recaptured by Adviser and shall
be payable by Penn Series to Adviser along with the advisory
fee payable to Adviser for that month. If, at the end of the
fiscal year, there is any remaining liability of Adviser to
pay Penn Series such excess amount (which has not been paid
through reduction of the advisory fee), Adviser shall remit to
Penn Series an amount sufficient to pay such remaining
liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for a Fund, Adviser will use its best efforts to seek the best price
and the most favorable execution of its orders. In assessing the best price and
the most favorable execution for any transaction, Adviser shall consider the
breadth of the market in the security, the price of the security, the skill,
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any. Where best price and most favorable
execution will not be compromised, Adviser may take into account the research
and related services that the broker has provided to Penn Series or the Adviser.
It is understood that the Adviser will not be deemed to have acted unlawfully or
to have breached a fiduciary duty to 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.
-4-
<PAGE>
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 hereunder or otherwise helpful to Penn
Series, or in the discharge of Adviser's overall responsibilities with respect
to the other accounts which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser,
and any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of Penn
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Adviser and its affiliates shall cooperate
with Penn Series' independent public accountants and take all reasonable action
in the performance of services and obligations under this Agreement to assure
that the information needed by such accountants is made available to them for
the expression of their opinion without any qualification as to the scope of
their examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
-5-
<PAGE>
11. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Adviser or any affiliated corporation of
Adviser, or by any sub-adviser or affiliated corporation of a sub-adviser, on
behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser or an affiliated corporation, or by any sub-adviser or
affiliated corporation, for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn Series
at reasonable times, and, in the event of termination of this Agreement, will be
promptly delivered to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities. It is understood that
Adviser may give advice and take action for its other clients which may differ
from advice given, or the timing or nature of action taken, for a Fund. Adviser
is not obligated to initiate transactions for a Fund in any security which
Adviser, its principals, affiliates or employees may purchase or sell for its or
their own accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn Series, except
after prior notification to and approval in writing by Penn Series, which
approval shall not be unreasonably withheld, and may not be withheld where
Adviser or any affiliate may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series as
the Board of Directors of Penn Series shall deem appropriate, Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in the
Funds.
15. Instructions, Opinion of Counsel and Signatures. At any time
Adviser may apply to an officer of Penn Series for instructions, and may consult
legal counsel for Penn Series, in respect of any matter arising in connection
with this Agreement, and Adviser shall not be liable for any action taken or
omitted by it or an affiliate in good faith in accordance with such instructions
or with the advice or opinion of Penn Series' legal counsel. Adviser and its
affiliates shall be protected in acting upon any instruction, advice, or opinion
provided by Penn Series or its legal counsel and upon any other paper or
document delivered by Penn Series or its legal counsel believed by Adviser to be
genuine and to have been signed by the proper person or persons and
-6-
<PAGE>
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
-7-
<PAGE>
this indemnification, Adviser shall give Penn Series reasonable opportunity to
defend against said claim in its own name or in the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold
harmless Penn Series from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Penn Series resulting from
any claim, demand, action or suit arising out of Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Adviser, its
affiliates, their agents or contractors. Penn Series shall not be entitled to
such indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or its agents or contractors or
constituting a failure by Penn Series to comply with any term of this Agreement;
provided, that such negligence or misconduct is not attributable to Adviser or
any person that is an affiliate of Adviser or an affiliate of an affiliate of
Adviser. Prior to confessing any claim against it which may be subject to this
indemnification, Penn Series shall give Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Penn Series. For purposes
of this Section 20 and of Section 19 hereof, no broker or dealer shall be deemed
to be acting as agent or contractor of Adviser or any affiliate of Adviser, in
effecting or executing any portfolio transaction for 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
-8-
<PAGE>
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.
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:
-9-
<PAGE>
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:/s/ James B. McElwain
----------------------
James B. McElwain
President
INDEPENDENCE CAPITAL
MANAGEMENT, INC.
By:/s/ Peter M. Sherman
--------------------
Peter M. Sherman
President
-10-
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
OPCAP ADVISORS
Relating to
VALUE EQUITY FUND
SMALL CAPITALIZATION FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and OPCAP
ADVISORS ("Sub-Adviser"), a partnership organized and existing under the laws of
the State of Delaware.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as 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:
<PAGE>
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Value Equity and Small Capitalization Funds (each a "Fund" and together the
"Funds"), and to exercise all rights incidental to ownership in accordance with
the investment objectives, program and restrictions applicable to the Funds as
provided in Penn Series' Prospectus and Statement of Additional Information
("SAI"), as amended from time to time, and such other limitations as may be
imposed by law or as Penn Series or Adviser may impose with notice in writing to
Sub-Adviser. To enable Sub-Adviser to fully exercise its discretion, Adviser
hereby appoints Sub-Adviser as agent and attorney-in-fact for the Funds with
full power and authority to buy, sell and otherwise deal in securities and
contracts for the Funds. No investment will be made by Sub-Adviser for a Fund if
that investment would violate the investment objectives, investment restrictions
or limitations of a Fund set out in the Prospectus and the SAI delivered to the
Sub-Adviser and as may be amended and delivered to Sub-Adviser in the future.
Sub-Adviser shall not take custody of any assets of Penn Series, but shall issue
settlement instructions to the custodian designated by Penn Series (the
"Custodian"). Sub-Adviser shall, in its discretion, obtain and evaluate such
information relating to the economy, industries, businesses, securities markets
and securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Funds in a manner consistent
with the investment objectives of the Funds. In furtherance of this duty,
Sub-Adviser, as agent and attorney-in-fact with respect to Adviser and Penn
Series, is authorized, in its discretion and without prior consultation with
Adviser or Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4
herein; and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the 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.
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<PAGE>
3. Fees.
A. Payment of Fees. For the services Sub-Adviser renders to
Penn Series under this Agreement, Adviser will pay Sub-Adviser
fees based on the average daily net assets of each Fund.
B. Fee Rates. The fee rates, based on the average daily net
assets of each Fund, shall be as follows:
0.40% with respect to the first $50,000,000 of the
combined total average daily net assets of the two
Funds;
0.35% with respect to the next $200,000,000 of the
combined total average daily net assets of the two
Funds;
0.30% with respect to the combined total average
daily net assets of the two Funds in excess of
$250,000,000.
C. Method of computation. The fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be
paid monthly to Sub-Adviser as of the first business day of
the next succeeding calendar month. The daily fee will be
computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rate applicable to the
Fund as set forth above, and multiplying this product by the
net assets of the Fund. A Fund's net assets, for purposes of
the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of
Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.
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 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
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<PAGE>
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
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<PAGE>
performance of this Agreement are the property of Sub-Adviser and will not
become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series, as
Sub-Adviser may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn Series
and Adviser at reasonable times and, in the event of termination of this
Agreement, will be promptly delivered to Adviser and Penn Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to 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.
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<PAGE>
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 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
-6-
<PAGE>
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
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<PAGE>
Sub-Adviser or any affiliate of Sub-Adviser, in effecting or executing any
portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to each Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as such continuation shall be specifically
approved at least annually (a) by either the Board of Directors of Penn Series,
or by a vote of a majority of the outstanding voting securities of the series of
shares of Penn Series representing interests in the Fund and (b) in either event
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Sub-Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
each Fund or any extension, renewal or amendment hereof.
22. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting securities
of the series of shares of Penn Series representing interests in the affected
Fund, and, without affecting any claim for damages or other right that any party
hereto may have as a result thereof, this Agreement shall automatically and
immediately terminate in the event of its assignment.
23. Termination of Agreement. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, with respect to a Fund, without payment
of any penalty, upon 60 days' prior notice in writing from Adviser to
Sub-Adviser, or upon 90 days' prior notice in writing from Sub-Adviser to
Adviser; provided, that in the case of termination by Adviser or Penn Series,
such action shall have been authorized by resolution of a majority of its
directors who are not interested persons of any party to this Agreement, or by
vote of a majority of the outstanding voting securities of the series of shares
of Penn Series representing interests in the affected Fund.
24. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
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
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<PAGE>
it is bound, or to relieve or deprive the board of directors of
Penn Series of its responsibility for and control of the conduct of
the affairs of Penn Series.
C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as used
herein, shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or
order.
D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Adviser
is Independence Capital Management, Inc., 600 Dresher Road,
Horsham, PA 19044, Attention: President, and that of Sub-Adviser is
OpCap Advisors, 1 World Financial Center, New York, New York 10281,
Attention: President.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.
F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered shall be
deemed to be an original, and together shall constitute one
document.
G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter hereof.
The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any and all other
provisions hereof.
H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
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<PAGE>
I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees to
notify the Adviser within a reasonable period of time regarding a
material change in the members of Sub-Adviser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
By: /s/Peter M. Sherman
- -------------------------------- ----------------------
Secretary Peter M. Sherman
President
Attest: OPCAP ADVISORS
/s/ Thomas E. Duggan By: /s/Bernard H. Garil
- -------------------- ------------------------
Thomas E. Duggan Bernard H. Garil
Secretary President
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<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
T. ROWE PRICE ASSOCIATES, INC.
Relating to
FLEXIBLY MANAGED FUND
HIGH YIELD BOND FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and T. ROWE
PRICE ASSOCIATES, INC. ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Maryland.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as
investment advisers under the federal Investment Advisers Act of 1940, as
amended; and
WHEREAS, Adviser renders investment advisory services to Penn Series
pursuant to an investment advisory agreement entered into by Penn Series and
Adviser;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the cash, securities and
other assets of the Flexibly Managed and High Yield Bond Funds (each a "Fund"
and together the "Funds"), and to exercise all rights incidental to ownership in
accordance with the investment objectives, program and restrictions applicable
to the Funds as provided in Penn Series' Prospectus and Statement of Additional
Information, as amended from time to time, and such other limitations as may be
imposed by law or as Penn Series may impose with notice in writing to
Sub-Adviser. To enable Sub-Adviser to fully exercise its discretion, Adviser
hereby appoints Sub-Adviser as agent and attorney-in-fact for the Funds with
full power and authority to buy, sell and otherwise deal in securities and
contracts for the Funds. No investment will be made by Sub-Adviser for Funds if
that investment would violate the objectives, investment restrictions or
limitations of a Fund set out in the prospectus and the SAI previously delivered
to the Sub-Adviser or to be delivered. Sub-Adviser shall not take custody of any
assets of Penn Series, but shall issue settlement instructions to the custodian
designated by Penn Series (the "Custodian"). Sub-Adviser shall, in its
discretion, obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Funds in a manner consistent with the investment objectives
of the Funds. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and Penn Series, is authorized, in its
discretion and without prior consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4 herein;
and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Funds that
would violate the objectives, program, restrictions or limitations of the Funds.
2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
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<PAGE>
3. Fees.
A. Payment of Fees. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of each Fund.
B. Fee Rates. The fee rates, based on the average daily net assets
of each Fund, shall be as follows:
0.50% with respect to the first $250,000,000 of the combined
total average daily net assets of the two Funds;
0.40% with respect to the next $500,000,000 of combined total
average daily net assets of the two Funds;
Provided, the fee rate shall be 0.40% with respect to all average
daily net assets of the two Funds at such time the combined total
average daily net assets of the two Funds exceed $750,000,000.
C. Method of computation. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business. If this Agreement is terminated before the end of the
month, the fee for the period from the beginning of such month to
the date of termination shall be prorated based upon services
provided through the date of termination.
D. Expense Limitation. The expense limitation of each Fund, as a
percentage of the Fund's average daily net assets, is 0.90%. To the
extent that a Fund's total expenses for a fiscal year (excluding
interest, taxes, brokerage, other expenses which are capitalized in
accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
accounting, administrative and corporate service fees before any
adjustment pursuant to this provision) exceed the expense limitation
for the Fund, one-half of such excess amount shall be a liability of
Sub-Adviser to Adviser. The liability (if any) of Sub-Adviser to pay
Adviser one-half of such excess amount shall be determined on a
daily basis. If, at the end of each month, there is any liability of
Sub-Adviser to pay Adviser such excess amount, the fee shall be
reduced by such liability. If, at the end
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<PAGE>
of each month, there is no liability of Sub-Adviser to pay Adviser
such excess amount and if payments of the fee at the end of prior
months during the fiscal year have been reduced in excess of that
required in this subsection, such excess reduction shall be
recaptured by Sub-Adviser and shall be payable by Adviser to
Sub-Adviser along with the fee payable to Sub-Adviser for that
month. If, at the end of the fiscal year, there is any remaining
liability of Sub-Adviser to pay Adviser such excess amount (which
has not been paid through reduction of the fee), Sub-Adviser shall
remit to Adviser an amount sufficient to pay such remaining
liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Funds, Sub-Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Sub-Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Sub-Adviser may take into account
the research and related services that the broker has provided to the Funds or
the Sub-Adviser. It is understood that the Sub-Adviser will not be deemed to
have acted unlawfully or to have breached a fiduciary duty to the Funds or be in
breach of any obligation owing to the Funds under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Funds
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of variable
contracts which are invested in Penn Series shares in allocating to brokers or
dealers purchase and sale orders for portfolio securities, provided that
Sub-Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Sub-Adviser shall
advise Penn Series' Board of Directors, when requested, as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
reasonable instructions with respect thereto as may be given by Penn Series'
Board.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and
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<PAGE>
office services as it, or any affiliated corporation of Sub-Adviser, requires in
the performance of services under this Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports,
articles of incorporation, by-laws and other information relating to the
business and affairs of Penn Series as Sub-Adviser may, at any time or from time
to time, reasonably require in order to discharge its obligations under this
Agreement. Any printed matter, or other material prepared for distribution to
the stockholders of Penn Series or the public, which refers in any way to
Sub-Adviser or any affiliated corporation of Adviser other than merely to
identify Sub-Adviser as the Sub-Adviser, shall be furnished to Sub-Adviser at
least 14 days prior to use thereof. Penn Series and Adviser shall not use such
material if Sub-Adviser shall object thereto in writing within 7 days after its
receipt by Sub-Adviser. In the event of termination of this Agreement, Penn
Series and Adviser shall, on written request of Sub-Adviser, forthwith delete
any reference to Sub-Adviser or any affiliated corporation of Sub-Adviser from
any materials prepared on behalf of Penn Series.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by
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<PAGE>
representatives of Penn Series and Adviser at reasonable times and, in the event
of termination of this Agreement, will be promptly delivered to Adviser and Penn
Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment advisor or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to the Funds, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall
be the only investment Sub-Adviser to the Fund. It is understood that
Sub-Adviser may give advice and taken action for its other clients which may
differ from advice given, or the timing or nature of action taken, for a Fund.
Sub-Adviser is not obligated to initiate transactions for a Fund in any security
which Sub-Adviser , its principals, affiliates or employees may purchase or sell
for its or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when so requested by Adviser and
Penn Series.
13. Proxies. Subject to such oversight as the Board of Directors of
Penn Series shall deem appropriate, Sub-Adviser shall vote proxies solicited by
or with respect to the issuers of securities held in a Fund.
14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Sub-Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Sub-Adviser to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any officer or agent of Penn Series, until receipt of written
notice thereof from Penn Series.
15. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms of
this Agreement, and except for the accuracy of information furnished to Penn
Series by Sub-Adviser or any
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<PAGE>
affiliate, Sub-Adviser does not assume responsibility for the preparation,
contents and distribution of the prospectuses for Penn Series, for complying
with any applicable requirements of the Act, the Securities Exchange Act of
1934, the Securities Act of 1933, or any other laws, rules and regulations of
governmental authorities having jurisdiction over Penn Series.
16. Limitation of Liability. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or any
person performing executive, administrative, trading, or other functions for
Penn Series (at the direction or request of Sub-Adviser), or Sub-Adviser or its
affiliates in connection with the discharge of obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by Penn Series in
connection with the matters to which this Agreement relates, except for such
error, mistake or loss resulting from willful misfeasance, bad faith, negligence
or willful misconduct in the performance of its, his or her duties on behalf of
Penn Series or constituting or resulting from a failure to comply with any term
of this Agreement. Sub-Adviser shall not be responsible for any loss incurred by
reason of any act or omission of the Custodian or of any broker, dealer,
underwriter or issuer selected by Sub-Adviser with reasonable care.
17. Obligations of Adviser and Sub-Adviser. It is expressly agreed that
the obligations of Adviser and Sub-Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized in
accordance with the governing documents of each party and in accordance with
applicable law, and shall be signed by an authorized officer of each party,
acting as such, and shall be binding on each party.
18. Indemnification by Adviser. Adviser will indemnify and hold
Sub-Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting from:
(i) any action or omission of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Sub-Adviser or any affiliated corporation to have been executed by
an individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series or Adviser; (ii) any action of Sub-Adviser or
any affiliated corporation, with respect to any service described in this
Agreement upon information provided by Penn Series or Adviser in form and under
policies agreed to by Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall
not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Sub-Adviser or its affiliates,
agents or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses
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<PAGE>
for legal counsel, incurred by Penn Series and Adviser and resulting from any
claim, demand, action or suit arising out of Sub-Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Sub-Adviser, its
affiliates, their agents or contractors. Neither Penn Series nor Adviser shall
be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Penn Series or Adviser, or
their agents or contractors or constituting a failure by Adviser to comply with
any term of this Agreement; provided, that such negligence or misconduct is not
attributable to Sub-Adviser or any person that is an affiliate of Sub-Adviser or
an affiliate of an affiliate of Sub-Adviser. Prior to confessing any claim
against it which may be subject to this indemnification, Adviser shall give
Sub-Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Adviser. For purposes of this Section 19 and of Section 18
hereof, no broker or dealer shall be deemed to be acting as agent or contractor
of Sub-Adviser or any affiliate of Sub-Adviser, in effecting or executing any
portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to each Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as such continuation shall be specifically
approved at least annually (a) by either the Board of Directors of Penn Series,
or by a vote of a majority of the outstanding voting securities of the series of
shares of Penn Series representing interests in the Fund and (b) in either event
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Sub-Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
each Fund or any extension, renewal or amendment hereof.
22. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting securities
of the series of shares of Penn Series representing interests in the affected
Fund, and, without affecting any claim for damages or other right that any party
hereto may have as a result thereof, this Agreement shall automatically and
immediately terminate in the event of its assignment.
23. Termination of Agreement. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, with respect to a Fund, without payment
of any penalty, upon 60 days' prior notice in writing from Penn Series to
Sub-Adviser, or upon 90 days' prior notice in writing from Sub-Adviser to Penn
Series; provided, that in the case of termination by Adviser or Penn Series,
such action shall have been authorized by resolution of a majority of its
directors who are
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<PAGE>
not interested persons of any party to this Agreement, or by vote of a majority
of the outstanding voting securities of the series of shares of Penn Series
representing interests in the affected Fund.
24. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or effect.
B. Interpretation. Nothing herein contained shall be deemed to require
Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission validly issued pursuant to
the Act. Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested person," "assignment," and "affiliated
person," as used herein, shall have the meanings assigned to them by
Section 2(a) of the Act. In addition, where the effect of a requirement
of the Act reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage prepaid,
to the addressed party at such address as such party may designate for
the receipt of such notices. Until further notice, it is agreed that
for this purpose the address of Adviser is Independence Capital
Management, Inc., 600 Dresher Road, Horsham, PA 19044, Attention:
President, and that of Sub-Adviser is T. Rowe Price Associates, Inc.,
100 East Pratt Street, Baltimore, Maryland 21202, Attention: General
Counsel.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where such
state laws have been preempted by Federal law.
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<PAGE>
F. Counterparts. This Agreement may be entered into in counterparts,
each of which when so executed and delivered shall be deemed to be an
original, and together shall constitute one document.
G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any and all other provisions hereof.
H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
By: /s/ Peter M. Sherman
- ------------------------------ ---------------------------
Secretary Peter M. Sherman
President
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/ Nancy Morris By:/s/ Darrell Braman
- ------------------------------ ---------------------------
Nancy Morris Darrell Braman
Secretary Vice President
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<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
VONTOBEL USA INC.
Relating to
INTERNATIONAL EQUITY FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and VONTOBEL
USA INC. ("Sub-Adviser"), a corporation organized and existing under the laws of
the State of New York.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as
investment advisers under the Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser is authorized to render investment advisory services
to Penn Series and to enter into a sub-advisory agreement with Sub-Adviser for
the rendering of investment advisory services by Sub-Adviser to Penn Series;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the cash, securities and
other assets of the International Equity Fund (the "Fund"), and to exercise all
rights incidental to ownership in accordance with the investment objectives,
program and restrictions applicable to the Fund as provided in Penn Series'
Prospectus and Statement of Additional Information ("SAI"), as amended from time
to time, and such other limitations as may be imposed by law or as Penn Series
or Adviser may impose with notice in writing to Sub-Adviser. To enable
Sub-Adviser to fully exercise its discretion, Adviser hereby appoints
Sub-Adviser as agent and attorney-in-fact for the Fund with full power and
authority to buy, sell and otherwise deal in securities and contracts for the
Fund. No investment will be made by Sub-Adviser for the Fund if that investment
would violate the investment objectives, investment program, or investment
restrictions or limitations of the Fund set out in the Prospectus and the SAI
previously delivered to the Sub-Adviser or to be delivered. Sub-Adviser shall
not take custody of any assets of Penn Series, but shall issue settlement
instructions to the custodian designated by Penn Series (the "Custodian").
Sub-Adviser shall, in its discretion, obtain and evaluate such information
relating to the economy, industries, businesses, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Fund in a manner consistent
with the investment objectives of the Fund. In furtherance of this duty,
Sub-Adviser, as agent and attorney-in-fact with respect to Adviser and Penn
Series, is authorized, in its discretion and without prior consultation with
Adviser or Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4
herein; and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the investment objectives, investment program, or investment
restrictions or limitations of the Fund.
2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
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<PAGE>
3. Fees.
A. Payment of Fee. For the services Sub-Adviser renders to
Penn Series under this Agreement, Adviser will pay Sub-Adviser
a fee based on the average daily net assets of the Fund.
B. Fee Rate. The fee shall be paid at the rate of 0.50%
C. Method of computation. The fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be
paid monthly to Sub-Adviser as of the first business day of
the next succeeding calendar month. The daily fee will be
computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rate applicable to the
Fund as set forth above, and multiplying this product by the
net assets of the Fund. A Fund's net assets, for purposes of
the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of
Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.
D. Expense Limitation. The expense limitation of the Fund, as
a percentage of average daily net assets, is 1.50%. To the
extent that a Fund's total expenses for a fiscal year
(excluding interest, taxes, brokerage, other expenses which
are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses, but
including investment advisory and accounting, administrative
and corporate services fees before any adjustment pursuant to
this provision) exceed the expense limitation for the Fund in
an amount up to and including .10% of the average daily net
assets of the Fund, such excess amount shall be a liability of
Sub-Adviser to Adviser. The liability (if any) of Sub-Adviser
to pay Adviser such excess amount shall be determined on a
daily basis. If, at the end of each month, there is any
liability of Sub-Adviser to pay Adviser such excess amount,
the advisory fee shall be reduced by such liability. If, at
the end of each month, there is no liability of Sub-Adviser to
pay Adviser such excess amount and if payments of the advisory
fee at the end of prior months during the fiscal year have
been reduced in excess of that required to maintain expenses
within the expense limitation, such excess reduction shall be
recaptured by Sub-Adviser and shall be payable by Adviser to
Sub-Adviser along with the advisory fee payable to Sub-Adviser
for that month. In no circumstance shall the liability of
Sub-Adviser under this Section 3D exceed the total amount of
the sub-advisory fees payable to it hereunder in any given
fiscal year.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Sub-Adviser will use its best efforts to seek the best
price and the most favorable
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<PAGE>
execution of its orders. In assessing the best price and the most favorable
execution for any transaction, Sub-Adviser shall consider the breadth of the
market in the security, the price of the security, the skill, financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any. Where best price and most favorable
execution will not be compromised, Sub-Adviser may take into account the
research and related services that the broker has provided to Penn Series or the
Sub-Adviser. It is understood that the Sub-Adviser will not be deemed to have
acted unlawfully or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of variable
contracts which are invested in Penn Series shares in allocating to brokers or
dealers purchase and sale orders for portfolio securities, provided that
Sub-Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Sub-Adviser shall
advise Penn Series' Board of Directors, when requested, as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at
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<PAGE>
any time or from time to time, reasonably request or as Sub-Adviser may deem
helpful, to reasonably ensure compliance with applicable laws and regulations or
for any other purpose. Sub-Adviser and its affiliates shall cooperate with Penn
Series' independent public accountants and take all reasonable action in the
performance of services and obligations under this Agreement to assure that the
information needed by such accountants is made available to them for the
expression of their opinion without any qualification as to the scope of their
examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series as
Sub-Adviser may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn Series
and Adviser at reasonable times and, in the event of termination of this
Agreement, will be promptly delivered to Adviser and Penn Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment advisor or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for the Fund in any security which
Sub-Adviser, its principals, affiliates or employees may purchase or sell for
its or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be
-5-
<PAGE>
unreasonably withheld, and may not be withheld, where Sub-Adviser or any
affiliate may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, when so requested by Adviser and Penn Series.
13. Proxies. Subject to such oversight by Penn Series as the Board of
Directors of Penn Series shall deem appropriate, Sub-Adviser shall vote proxies
solicited by or with respect to the issuers of securities held in a Fund.
14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Sub-Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Sub-Adviser to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any officer or agent of Penn Series, until receipt of written
notice thereof from Penn Series. Sub-Adviser shall inform Adviser of all
applications to Penn Series for instructions and all consultations with legal
counsel for Penn Series at the time of such application or consultation.
15. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms of
this Agreement, and except for the accuracy of information furnished to Penn
Series by Sub-Adviser or any affiliate, Sub-Adviser does not assume
responsibility for the preparation, contents and distribution of the
prospectuses for Penn Series, for complying with any applicable requirements of
the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, or any
other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
16. Limitation of Liability. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or any
person performing executive, administrative, trading, or other functions for
Penn Series (at the direction or request of Sub-Adviser), or Sub-Adviser or its
affiliates in connection with the discharge of obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by Penn Series in
connection with the matters to which this Agreement relates, except for such
error, mistake or loss resulting from willful misfeasance, bad faith, negligence
or willful misconduct in the performance of its, his or her duties on behalf of
Penn Series or constituting or resulting from a failure to comply with any term
of this Agreement. Sub-Adviser shall not be responsible for any loss incurred by
reason of any act or omission of the Custodian, Transfer Agent, Accounting
Services Agent, or other third party with which the Fund has a contractual
arrangement, or of any broker, dealer, underwriter or issuer selected by
Sub-Adviser with reasonable care.
-6-
<PAGE>
17. Obligations of Adviser and Sub-Adviser. It is expressly agreed that
the obligations of Adviser and Sub-Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized in
accordance with the governing documents of each party and in accordance with
applicable law, and shall be signed by an authorized officer of each party,
acting as such, and shall be binding on each party.
18. Indemnification by Adviser. Adviser will indemnify and hold
Sub-Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting from:
(i) any action or omission of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Sub-Adviser or any affiliated corporation to have been executed by
an individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series or Adviser; (ii) any action of Sub-Adviser or
any affiliated corporation, with respect to any service described in this
Agreement upon information provided by Penn Series or Adviser in form and under
policies agreed to by Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall
not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Sub-Adviser or its affiliates,
agents or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer or any third party
with which the Fund has a contractual arrangement and with which Sub-Adviser is
obligated to cooperate under the terms of this Agreement, shall be deemed to be
acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser, in
effecting or executing any portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
-7-
<PAGE>
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to the Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as such continuation shall be specifically
approved at least annually (a) by either the Board of Directors of Penn Series,
or by a vote of a majority of the outstanding voting securities of the series of
shares of Penn Series representing interests in the Fund and (b) in either event
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Sub-Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
the Fund or any extension, renewal or amendment hereof.
22. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting securities
of the series of shares of Penn Series representing interests in the Fund and,
without affecting any claim for damages or other right that any party hereto may
have as a result thereof, this Agreement shall automatically and immediately
terminate in the event of its assignment.
23. Termination of Agreement. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, without payment of any penalty, upon 60
days' prior notice in writing from Adviser to Sub-Adviser, or upon 90 days'
prior notice in writing from Sub-Adviser to Adviser; provided, that in the case
of termination by Adviser or Penn Series, such action shall have been authorized
by resolution of a majority of its directors who are not interested persons of
any party to this Agreement, or by vote of a majority of the outstanding voting
securities of the series of shares of Penn Series representing interests in the
Fund.
24. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of the
affairs of Penn Series.
C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the
-8-
<PAGE>
Act and to interpretations thereof, if any, by the United States
courts or, in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and
Exchange Commission validly issued pursuant to the Act.
Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested person," "assignment," and
"affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where
the effect of a requirement of the Act reflected in any provision
of this Agreement is relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Adviser
is Independence Capital Management, Inc., 600 Dresher Road,
Horsham, PA 19044, Attention: President, and that of Sub-Adviser
is Vontobel USA Inc., 450 Park Avenue, New York, New York 10022,
Attention: Chief Executive Officer.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Pennsylvania except
where such state laws have been preempted by Federal law.
F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered shall
be deemed to be an original, and together shall constitute one
document.
G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter hereof.
The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any and all
other provisions hereof.
H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
/s/Conrad A. Reyes By: /s/ Peter M. Sherman
------------------- ----------------------
Conrad A. Reyes Peter M. Sherman
Assistant Secretary President
Attest: VONTOBEL USA INC.
By:/s/Henry Schlegel
- ---------------------- ---------------------
Secretary Henry Schlegel
President and CEO
-10-
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" in the Statement of Additional Information and to the inclusion in
Post-Effective Amendment Number 47 to the Registration Statement Number 2-77284
(Form N-1A) of our report dated January 29, 1999, on the financial statements
and financial highlights of Penn Series Funds, Inc. for the year ended December
31, 1998, included in the 1998 Annual Report to shareholders.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 24, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 9
<NAME> EMERGING GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 27,609,594
<INVESTMENTS-AT-VALUE> 39,047,762
<RECEIVABLES> 24,175
<ASSETS-OTHER> 45,042
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,116,979
<PAYABLE-FOR-SECURITIES> 5,800
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 447,497
<TOTAL-LIABILITIES> 453,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,697,547
<SHARES-COMMON-STOCK> 2,218,181
<SHARES-COMMON-PRIOR> 1,395,974
<ACCUMULATED-NII-CURRENT> (229,925)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,242,108)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,438,168
<NET-ASSETS> 38,663,682
<DIVIDEND-INCOME> 12,143
<INTEREST-INCOME> 115,098
<OTHER-INCOME> (490)
<EXPENSES-NET> 301,492
<NET-INVESTMENT-INCOME> (174,741)
<REALIZED-GAINS-CURRENT> (2,191,288)
<APPREC-INCREASE-CURRENT> 10,934,484
<NET-CHANGE-FROM-OPS> 8,568,455
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 8,966
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,129,936
<NUMBER-OF-SHARES-REDEEMED> 7,976,427
<SHARES-REINVESTED> 8,966
<NET-CHANGE-IN-ASSETS> 20,721,964
<ACCUMULATED-NII-PRIOR> (56,325)
<ACCUMULATED-GAINS-PRIOR> (41,854)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 318,699
<AVERAGE-NET-ASSETS> 26,276,967
<PER-SHARE-NAV-BEGIN> 12.85
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 4.65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.43
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 8
<NAME> SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 44,325,134
<INVESTMENTS-AT-VALUE> 43,209,863
<RECEIVABLES> 373,595
<ASSETS-OTHER> 191,897
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,775,355
<PAYABLE-FOR-SECURITIES> 89,221
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,294
<TOTAL-LIABILITIES> 140,515
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,758,954
<SHARES-COMMON-STOCK> 3,407,397
<SHARES-COMMON-PRIOR> 2,683,387
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,843)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,115,271)
<NET-ASSETS> 43,634,840
<DIVIDEND-INCOME> 303,081
<INTEREST-INCOME> 315,503
<OTHER-INCOME> 0
<EXPENSES-NET> 344,073
<NET-INVESTMENT-INCOME> 274,511
<REALIZED-GAINS-CURRENT> 712,102
<APPREC-INCREASE-CURRENT> (5,286,799)
<NET-CHANGE-FROM-OPS> (4,300,186)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 274,511
<DISTRIBUTIONS-OF-GAINS> 711,962
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,767,847
<NUMBER-OF-SHARES-REDEEMED> 5,558,915
<SHARES-REINVESTED> 986,473
<NET-CHANGE-IN-ASSETS> 4,908,746
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,484)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 210,456
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 344,073
<AVERAGE-NET-ASSETS> 42,091,159
<PER-SHARE-NAV-BEGIN> 14.43
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> (1.41)
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0.21
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.81
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 62,099,048
<INVESTMENTS-AT-VALUE> 62,939,099
<RECEIVABLES> 7,436,807
<ASSETS-OTHER> 1,177
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70,377,083
<PAYABLE-FOR-SECURITIES> 16,705,259
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166,718
<TOTAL-LIABILITIES> 16,871,977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,702,414
<SHARES-COMMON-STOCK> 5,142,854
<SHARES-COMMON-PRIOR> 3,929,034
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (37,359)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 840,051
<NET-ASSETS> 53,505,106
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,759,686
<OTHER-INCOME> 0
<EXPENSES-NET> 352,429
<NET-INVESTMENT-INCOME> 2,407,257
<REALIZED-GAINS-CURRENT> 1,533,022
<APPREC-INCREASE-CURRENT> 407,720
<NET-CHANGE-FROM-OPS> 4,427,999
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,407,257
<DISTRIBUTIONS-OF-GAINS> 1,568,759
<DISTRIBUTIONS-OTHER> 1,623
<NUMBER-OF-SHARES-SOLD> 17,780,630
<NUMBER-OF-SHARES-REDEEMED> 8,780,551
<SHARES-REINVESTED> 3,977,639
<NET-CHANGE-IN-ASSETS> 13,428,078
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 352,428
<AVERAGE-NET-ASSETS> 45,792,219
<PER-SHARE-NAV-BEGIN> 10.20
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> 0.51
<PER-SHARE-DISTRIBUTIONS> 0.33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 53,504,698
<INVESTMENTS-AT-VALUE> 53,504,698
<RECEIVABLES> 390,187
<ASSETS-OTHER> 1,180
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,896,065
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 269,643
<TOTAL-LIABILITIES> 269,643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,629,171
<SHARES-COMMON-STOCK> 53,629,171
<SHARES-COMMON-PRIOR> 37,478,141
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,749)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 53,626,422
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,543,263
<OTHER-INCOME> 0
<EXPENSES-NET> 327,220
<NET-INVESTMENT-INCOME> 2,216,043
<REALIZED-GAINS-CURRENT> (992)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,215,051
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,216,043
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 84,556,622
<NUMBER-OF-SHARES-REDEEMED> 70,581,999
<SHARES-REINVESTED> 2,176,407
<NET-CHANGE-IN-ASSETS> 16,150,038
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,757)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 181,722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 327,220
<AVERAGE-NET-ASSETS> 45,430,567
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 7
<NAME> INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 115,192,146
<INVESTMENTS-AT-VALUE> 153,959,020
<RECEIVABLES> 326,439
<ASSETS-OTHER> 12,953
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154,298,412
<PAYABLE-FOR-SECURITIES> 9,031
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 467,173
<TOTAL-LIABILITIES> 476,204
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,420,636
<SHARES-COMMON-STOCK> 8,371,341
<SHARES-COMMON-PRIOR> 8,038,534
<ACCUMULATED-NII-CURRENT> (1,681,574)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 304,342
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 38,778,804
<NET-ASSETS> 153,822,208
<DIVIDEND-INCOME> 1,960,357
<INTEREST-INCOME> 395,839
<OTHER-INCOME> (171,001)
<EXPENSES-NET> 1,537,751
<NET-INVESTMENT-INCOME> 647,444
<REALIZED-GAINS-CURRENT> 5,292,239
<APPREC-INCREASE-CURRENT> 18,456,661
<NET-CHANGE-FROM-OPS> 24,396,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 647,443
<DISTRIBUTIONS-OF-GAINS> 4,938,505
<DISTRIBUTIONS-OTHER> 769,507
<NUMBER-OF-SHARES-SOLD> 31,336,651
<NUMBER-OF-SHARES-REDEEMED> 31,548,343
<SHARES-REINVESTED> 6,355,455
<NET-CHANGE-IN-ASSETS> 24,184,652
<ACCUMULATED-NII-PRIOR> (1,026,453)
<ACCUMULATED-GAINS-PRIOR> 64,993
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 1,537,751
<AVERAGE-NET-ASSETS> 142,850,243
<PER-SHARE-NAV-BEGIN> 16.13
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<PER-SHARE-GAIN-APPREC> 2.93
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> HIGH YIELD BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 67,787,989
<INVESTMENTS-AT-VALUE> 67,637,152
<RECEIVABLES> 1,470,765
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<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 105,672
<TOTAL-LIABILITIES> 105,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,781,166
<SHARES-COMMON-STOCK> 7,509,507
<SHARES-COMMON-PRIOR> 6,214,249
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,627,095)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (150,837)
<NET-ASSETS> 69,003,234
<DIVIDEND-INCOME> 356,617
<INTEREST-INCOME> 5,589,119
<OTHER-INCOME> 0
<EXPENSES-NET> 532,278
<NET-INVESTMENT-INCOME> 5,413,458
<REALIZED-GAINS-CURRENT> (34,795)
<APPREC-INCREASE-CURRENT> (2,434,085)
<NET-CHANGE-FROM-OPS> 2,944,578
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,413,458
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 6,598
<NUMBER-OF-SHARES-SOLD> 17,292,747
<NUMBER-OF-SHARES-REDEEMED> 10,371,757
<SHARES-REINVESTED> 5,420,056
<NET-CHANGE-IN-ASSETS> 9,865,570
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,585,701)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 326,627
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 532,278
<AVERAGE-NET-ASSETS> 65,253,344
<PER-SHARE-NAV-BEGIN> 9.52
<PER-SHARE-NII> 0.79
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> 0.79
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> GROWTH EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 121,494,675
<INVESTMENTS-AT-VALUE> 191,297,598
<RECEIVABLES> 7,083,625
<ASSETS-OTHER> 2,389
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198,383,612
<PAYABLE-FOR-SECURITIES> 2,262,093
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 429,630
<TOTAL-LIABILITIES> 2,691,723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 125,941,128
<SHARES-COMMON-STOCK> 6,337,061
<SHARES-COMMON-PRIOR> 5,583,243
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (52,162)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 69,802,923
<NET-ASSETS> 195,691,889
<DIVIDEND-INCOME> 1,045,730
<INTEREST-INCOME> 270,930
<OTHER-INCOME> 0
<EXPENSES-NET> 1,185,371
<NET-INVESTMENT-INCOME> 131,289
<REALIZED-GAINS-CURRENT> 20,481,154
<APPREC-INCREASE-CURRENT> 36,064,087
<NET-CHANGE-FROM-OPS> 56,676,530
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 131,289
<DISTRIBUTIONS-OF-GAINS> 20,497,332
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,801,255
<NUMBER-OF-SHARES-REDEEMED> 16,844,142
<SHARES-REINVESTED> 20,628,621
<NET-CHANGE-IN-ASSETS> 59,633,643
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (35,982)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 753,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,185,371
<AVERAGE-NET-ASSETS> 156,235,546
<PER-SHARE-NAV-BEGIN> 24.37
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 10.12
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 3.61
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 30.88
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> FLEXIBLY MANAGED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 504,283,801
<INVESTMENTS-AT-VALUE> 540,435,293
<RECEIVABLES> 6,679,925
<ASSETS-OTHER> 8,226
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 547,123,444
<PAYABLE-FOR-SECURITIES> 793,421
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 844,451
<TOTAL-LIABILITIES> 1,637,872
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 509,598,717
<SHARES-COMMON-STOCK> 29,790,433
<SHARES-COMMON-PRIOR> 26,029,570
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (264,986)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,151,841
<NET-ASSETS> 545,485,572
<DIVIDEND-INCOME> 6,988,321
<INTEREST-INCOME> 12,385,014
<OTHER-INCOME> (142,793)
<EXPENSES-NET> 4,122,778
<NET-INVESTMENT-INCOME> 15,107,764
<REALIZED-GAINS-CURRENT> 55,254,242
<APPREC-INCREASE-CURRENT> (39,212,128)
<NET-CHANGE-FROM-OPS> 31,149,878
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,107,764
<DISTRIBUTIONS-OF-GAINS> 55,129,786
<DISTRIBUTIONS-OTHER> 363,128
<NUMBER-OF-SHARES-SOLD> 58,177,184
<NUMBER-OF-SHARES-REDEEMED> 59,980,214
<SHARES-REINVESTED> 70,600,678
<NET-CHANGE-IN-ASSETS> 29,346,848
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (26,314)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,719,881
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,122,778
<AVERAGE-NET-ASSETS> 543,976,286
<PER-SHARE-NAV-BEGIN> 19.83
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.61
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 2.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.31
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000702340
<NAME> PENN SERIES FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> VALUE EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 247,392,459
<INVESTMENTS-AT-VALUE> 334,170,576
<RECEIVABLES> 2,023,385
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 336,198,921
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 720,391
<TOTAL-LIABILITIES> 720,391
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 248,731,465
<SHARES-COMMON-STOCK> 14,980,843
<SHARES-COMMON-PRIOR> 13,432,474
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (31,052)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,778,117
<NET-ASSETS> 335,478,530
<DIVIDEND-INCOME> 4,099,205
<INTEREST-INCOME> 2,650,627
<OTHER-INCOME> (50,492)
<EXPENSES-NET> 2,512,447
<NET-INVESTMENT-INCOME> 4,186,893
<REALIZED-GAINS-CURRENT> 27,331,911
<APPREC-INCREASE-CURRENT> (3,543,595)
<NET-CHANGE-FROM-OPS> 27,975,209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,186,893
<DISTRIBUTIONS-OF-GAINS> 27,362,963
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 40,295,090
<NUMBER-OF-SHARES-REDEEMED> 35,752,237
<SHARES-REINVESTED> 31,549,856
<NET-CHANGE-IN-ASSETS> 32,518,062
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,512,447
<AVERAGE-NET-ASSETS> 330,300,245
<PER-SHARE-NAV-BEGIN> 22.55
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (2.01)
<RETURNS-OF-CAPITAL> 0
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<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
Eugene Bay, whose signature appears below, does hereby constitute and
appoint Robert E. Chappell and Daniel J. Toran, and each of them severally, his
true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25 , 1999 /s/ Eugene Bay
--------------------------
Eugene Bay
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
James S. Greene, whose signature appears below, does hereby constitute
and appoint Robert E. Chappell and Daniel J. Toran, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25, 1999 /s/James S. Greene
------------------
James S. Greene
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
Robert E. Chappel, whose signature appears below, does hereby
constitute and appoint Robert E. Chappell and Daniel J. Toran, and each of them
severally, his true and lawful attorneys and agents, with power of substitution
and resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25, 1999 /s/Robert E. Chappell
---------------------
Robert E. Chappell
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
William H. Loesche, Jr., whose signature appears below, does hereby
constitute and appoint Robert E. Chappell and Daniel J. Toran, and each of them
severally, his true and lawful attorneys and agents, with power of substitution
and resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25, 1999 /s/William H. Loesche, Jr.
--------------------------
William H. Loesche, Jr.
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
M. Donald Wright, whose signature appears below, does hereby constitute
and appoint Robert E. Chappell and Daniel J. Toran, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25, 1999 /s/M. Donald Wright
-------------------
M. Donald Wright
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
Larry L. Mast, whose signature appears below, does hereby constitute
and appoint Robert E. Chappell and Daniel J. Toran, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25, 1999 /s/Larry L. Mast
----------------
Larry L. Mast
<PAGE>
Penn Series Funds, Inc.
Power of Attorney
Daniel J. Toran, whose signature appears below, does hereby constitute
and appoint Robert E. Chappell and Daniel J. Toran, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a trustee and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 25, 1999 /s/Daniel J. Toran
------------------
Daniel J. Toran
