<PAGE>
As filed with the Securities and Exchange Commission on April 21, 2000
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. 49 /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 29 /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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PETER M. SHERMAN
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, 2000 pursuant to paragraph (a)(2) of Rule 485
<PAGE>
Prospectus -- May 1, 2000
PENN SERIES FUNDS, INC.
600 Dresher Road, Horsham, PA 19044 o Telephone 800-523-0650
MONEY MARKET FUND
LIMITED MATURITY BOND FUND
QUALITY BOND FUND
HIGH YIELD BOND FUND
FLEXIBLY MANAGED FUND
GROWTH AND INCOME FUND
GROWTH EQUITY FUND
LARGE CAP VALUE FUND
INDEX 500 FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
EMERGING GROWTH FUND
SMALL CAP VALUE FUND
INTERNATIONAL EQUITY 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
14 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., Putnam Investment Management, Inc., Royce & Associates, Inc.,
Vontobel USA Inc., RS Investment Management, Inc., Neuberger Berman Management
Inc., Turner Investment Partners, Inc. and Wells Capital Management
Incorporated. One of the Funds, the Growth and Income Fund, is currently
available only to certain contracts issued by Penn Mutual in the qualified
pension plan market.
PROSPECTUS CONTENTS
FUND INVESTMENT SUMMARIES
Money Market Fund ......................... 3
Limited Maturity Bond Fund ................ 5
Quality Bond Fund ......................... 7
High Yield Bond Fund ...................... 10
Flexibly Managed Fund ..................... 13
Growth and Income Fund .................... 16
Growth Equity Fund ........................ 18
Large Cap Value Fund ...................... 21
Index 500 Fund ............................ 24
Mid Cap Growth Fund ....................... 25
Mid Cap Value Fund ........................ 27
Emerging Growth Fund ...................... 29
Small Cap Value Fund ...................... 31
International Equity ...................... 34
ADDITIONAL INFORMATION
MANAGEMENT
Investment Adviser
Sub-Advisers
Expenses and Limitations
ACCOUNT POLICIES
FINANCIAL HIGHLIGHTS
<PAGE>
INVESTMENT SUMMARY: MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The investment objective of the 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 table below show the performance of the
Fund both year-by-year and as an average over different
periods of time. They include only those periods in which
ICMI managed the Fund's investments. The bar chart and table
demonstrate the variability of performance over time and
provide an indication of 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.
</TABLE>
-3-
<PAGE>
For years ended December 31,
2.53% 3.71% 5.51% 5.00% 5.15% 5.00% 4.66%
-----------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter Worst Quarter
1.39% 0.61%
(6/30/95) (3/31/93)
Average Annual Total Return (for Periods Ended December 31, 1999)
Money Market Fund
1 Year................................. 4.66%
5 Year ................................ 5.06%
Since November 1, 1992(1).............. 4.46%
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(1) Date ICMI began managing the Fund's investments.
The current yield of the Money Market Fund for the seven-day period ended
December 31, 1999 was 5.22%.
-4-
<PAGE>
INVESTMENT SUMMARY: LIMITED MATURITY BOND FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The investment objective of the Fund is to provide the
highest available current income consistent with liquidity
and low risk to principal; total return is secondary.
Investment Strategy: The Fund invests primarily in short-to intermediate term
investment-grade debt securities of U.S. government and
corporate issuers. The Adviser uses an active bond
management approach. It seeks to find securities that are
undervalued in the marketplace based on both a relative
value analysis of individual securities combined with an
analysis of macro-economic factors. With this approach, the
Adviser attempts to identify securities that are undervalued
based on their quality, maturity, and sector in the market
place. The Advisor will purchase an individual security when
doing so is also consistent with its macro-economic outlook,
including its forecast of interest rates and its analysis of
the yield curve (a measure of interest rates of securities
with the same quality, but different maturities). In
addition, the Advisor will opportunistically purchase
securities to take advantage of inefficiencies of prices in
the securities markets. The Advisor will sell a security
when it believes that the security has been fully priced.
The Adviser seeks to reduce credit risk by diversifying
among many issuers and different types of securities.
Duration: The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest
rates. Typically, with a 1% rise in interest rates, an
investment's value may be expected to fall approximately 1%
for each year of its duration. Although the Fund may invest
in securities of any duration, under normal circumstances it
maintains an average portfolio duration of one to three
years.
Quality: The Fund will invest primarily in investment grade
debt securities and no more than 10% of its assets in "junk
bonds."
Sectors: The Fund will invest primarily in Corporate Bonds
and U.S. Government Bonds, including Mortgage-Backed and
Asset-Backed Securities.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Turnover: Because the Adviser will look for inefficiencies
in the market and sell when they feel a security is fully
priced, turnover can be expected to be relatively high.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are seeking the highest current income consistent with
liquidity and low risk to principal available through an
investment in investment grade debt. The Fund's value will
change primarily with the changes in the prices of fixed
income securities (e.g., bonds) 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 experience larger changes in value
than shorter-term securities because they are more sensitive
to interest rate changes. A portfolio with a lower average
duration generally will experience less price volatility in
response to changes in interest rates as compared to a
portfolio with a higher duration. The prices of
mortgage-backed securities may be particularly sensitive to
changes in interest rates because of the risk that borrowers
will become more or less likely to refinance their
mortgages. For example, an increase in interest rates
generally will reduce pre-payments, effectively lengthening
the maturity of some mortgage-backed securities, and making
them more volatile. Due to pre-payment risk,
mortgage-backed securities may respond differently to
changes in interest rates than other fixed income
securities. As with investing in other securities whose
prices increase or decrease in market value, you may lose
money investing in the Fund.
Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly no
performance information is presented.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT SUMMARY: QUALITY BOND FUND
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The 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. It
seeks to find securities that are undervalued in the
marketplace based on both a relative value analysis of
individual securities combined with an analysis of
macro-economic factors. With this approach, the Adviser
attempts to identify securities that are undervalued based
on their quality, maturity, and sector in the market place.
The Advisor will purchase an individual security when doing
so is also consistent with its macro-economic outlook,
including its forecast of interest rates and its analysis of
the yield curve (a measure of interest rates of securities
with the same quality, but different maturities). In
addition, the Advisor will opportunistically purchase
securities to take advantage of inefficiencies of prices in
the securities markets. The Advisor will sell a security
when it believes that the security has been fully priced.
The Adviser seeks to reduce credit risk by diversifying
among many issuers and different types of securities.
Duration: The average duration of a fixed income portfolio
measures its exposure to the risk of changing interest
rates. Typically, with a 1% rise in interest rates, an
investment's value may be expected to fall approximately 1%
for each year of its duration. 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
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
is fully priced, turnover can be relatively high. The Fund's
annual portfolio turnover rates for 1999, 1998 and 1997 were
815.1%, 477.2% and 317.3% 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 primarily with the
changes in the prices of the fixed income securities (e.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. A portfolio with a lower average duration generally
will experience less price volatility in response to changes
in interest rates as compared with a portfolio with a higher
duration. The prices of mortgage-backed securities may be
particularly sensitive to changes in interest rates because
of the risk that borrowers will become more or less likely
to refinance their mortgages. For example, an increase in
interest rates generally will reduce pre-payments,
effectively lengthening the maturity of some mortgage-backed
securities, and making them more volatile. Due to
pre-payment risk, mortgage-backed securities may respond
differently to changes in interest rates than other fixed
income securities. As with investing in other securities
whose prices increase and decrease in market value, loss of
money is a risk of investing in the Fund.
Performance Information: The bar chart and table below show the performance of the
Fund both year-by-year and as an average over different
periods of time. They only include those periods in which
ICMI managed the Fund's investments. They demonstrate the
variability of performance over time and provide an
indication of 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.
</TABLE>
-8-
<PAGE>
For years ended December 31,
11.67% -5.29% 20.14% 4.14% 8.03% 10.17% 0.00%
---------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter Worst Quarter
6.31% -4.71%
(3/31/95) (3/31/94)
Average Annual Total Return (for Periods Ended December 31, 1999)
Lehman Brothers
Quality Bond Fund Aggregate Bond Index(1)
1 Year........................ 0.00% -0.83%
5 Year ....................... 8.29% 7.73%
Since November 1, 1992(2)..... 6.82% 6.50%
- -------------------
(1) 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 bond market returns. It does not factor in the costs of
buying, selling and holding securities -- costs which are reflected in the
Fund's results.
(2) Date ICMI began managing the Fund's investments.
-9-
<PAGE>
INVESTMENT SUMMARY: HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: T. Rowe Price Associates, Inc.
Investment Objective: The investment objective of the Fund is to realize high
current income.
Investment Strategy: The Fund invests 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 the 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's dollar weighted
average maturity generally is expected to be in the eight to
twelve 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. The Fund may sell holdings for a variety of reasons,
such as to adjust portfolio's average maturity or quality,
or to shift assets into higher yielding securities.
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
bonds in the hope of earning high current income. The Fund's
value will change primarily with changes in the prices of
the bonds held by the Fund. The value of bonds 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
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
shorter-term securities because they are more sensitive to
interest rate changes. The Fund may be more vulnerable to
interest rate risk if it is focusing on BB rated bonds,
since better-quality junk bonds follow the higher-grade
market to some extent. But if the Fund's focus is bonds
rated B and below, credit risk will probably predominate.
Investing in high yield bonds involves additional risks,
including credit risk. The value of high yield, lower
quality bonds 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. Therefore, the Fund's credit risk
increases when the U.S. economy slows or enters a recession.
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 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. As with investing in other securities
whose prices increase and decrease in market value, you may
lose money by investing in the Fund.
Performance Information: The bar chart and table below show the performance of the
Fund both year-by-year and as an average over different
periods of time. They demonstrate the variability of
performance over time and provide an indication of 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.
</TABLE>
-11-
<PAGE>
For years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -9.04% 37.01% 15.80% 19.81% 7.33% 16.41% 13.87% 15.78% 4.79% 4.24%
- ---------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter Worst Quarter
14.09% -6.86%
(03/31/91) (09/30/90)
Average Annual Total Return (for Periods Ended December 31, 1999)
First Boston
High Yield Bond Fund High Yield Index(1)
1 Year....................... 4.24% 3.28%
5 Year ...................... 10.87% 11.20%
10 Year ..................... 10.38% 12.13%
- -------------------
(1) The First Boston Index is a widely recognized benchmark of high yield bond
performance. The index is a passive measure of bond market returns. It does
not factor in the costs of buying, selling and holding securities -- costs
which are reflected in the Fund's results.
-12-
<PAGE>
INVESTMENT SUMMARY: FLEXIBLY MANAGED FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: T. Rowe Price Associates, Inc.
Investment Objective: The investment objective of the Fund is to maximize total
return (capital appreciation and income).
Investment Strategy: The Sub-Adviser invests primarily in common stocks of
established U.S. companies that it believes have above
average potential for capital growth. Common stocks
typically constitute at least half of total assets. The
remaining assets are generally invested in other securities,
including convertibles, warrants, preferred stocks,
corporate and government debt, 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 that the Sub-Adviser
considers to be underpriced in terms of company assets,
earnings, or other factors at the time they are purchased.
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. Bonds and convertible securities may be
purchased to gain additional exposure to a company or for
their income or other features; maturity and quality are not
necessarily major
</TABLE>
-13-
<PAGE>
<TABLE>
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<S> <C>
considerations. 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
investing for total return and are willing to accept the
risks and uncertainties of investing in common stocks and
bonds. The Fund's value will change primarily with changes
in the prices of the securities 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. 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 approach is that
some holdings may not recover and provide the capital growth
anticipated. 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. Convertible securities are also
exposed to price fluctuations of the company's stock. As
with investing in other securities whose prices increase and
decrease in market value, you may lose money by investing in
the Fund.
Performance Information: The bar chart and table below show the performance of the
Fund both year-by-year and as an average over different
periods of time. They demonstrate the variability of
performance over time and provide an indication of 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.
</TABLE>
-14-
<PAGE>
For years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -0.82% 21.63% 9.61% 15.79% 4.14% 22.28% 16.37% 15.65% 6.09% 7.15%
- ---------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
Best Quarter Worst Quarter
12.44% -9.28%
(03/31/91) (09/30/90)
Average Annual Total Return (for Periods Ended December 31, 1999)
Flexibly Managed Fund S & P 500(1)
1 Year....................... 7.15% 21.04%
5 Year ...................... 13.34% 28.54%
10 Year ..................... 11.54% 18.28%
- -------------------
(1) 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.
-15-
<PAGE>
INVESTMENT SUMMARY: GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The investment objective of the Fund is to provide total
return through a combination of current income and capital
appreciation.
Investment Strategy: The Fund invests primarily in common stocks of well
established companies that the Adviser believes have
long-term potential for above average growth in earnings and
income. The Adviser may from time to time invest in
non-dividend paying companies with prospects for future
income or capital appreciation. The Adviser may also use
convertible bonds or preferred stock to enhance income as
well as provide capital appreciation. The Adviser emphasizes
companies that it believes are capable of generating strong
earnings and sales gains in an increasingly global economy.
Companies with consistent earnings growth are most able to
provide a predictable level of current income as well as the
potential for growth in income over time. By its nature the
Fund invests primarily in large-capitalization companies.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the uncertainties of investing in
common stocks in the hope of earning above-average growth in
capital and income. The Fund's value will change primarily
with changes in the prices of the stocks and other
investments 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 stock. In
general, common stocks are more volatile than other
investments, such as fixed income securities. However, over
the long-term, common stocks have shown greater potential
for capital appreciation. By investing in common stocks of
larger, well established companies, the Adviser seeks to
avoid some of the volatility associated with smaller, less
well established companies. Investing in companies with
dividends may also reduce the volatility associated with
common stock investing. In addition, the Fund is subject to
the risk that its principal market segment, large
capitalization growth companies, may underperform compared
to other market segments or the equity markets as a whole.
Convertible bonds and preferred stocks may also be affected
by the change in the level of interest rates and investor
judgements about the quality of the issuer. As with
investing in other securities
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
whose prices increase or decrease in market value, you may
lose money investing in the Fund.
Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly
no performance information is presented.
</TABLE>
-17-
<PAGE>
INVESTMENT SUMMARY: GROWTH EQUITY FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Investment Objective: The investment objective of the 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. In
general, common stocks are more volatile than 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. In addition, the
Fund is subject to the risk that its principal market
segment, large capitalization growth companies, may
underperform compared to other market segments or the equity
markets as a whole. As with investing in other securities
whose prices increase and decrease in market value, you may
lose money by investing in the Fund.
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Performance Information: The bar chart and table below show the performance of the
Fund both year-by-year and as an average over different
periods of time. They include only those periods in which
ICMI managed the Fund's investments. The bar chart and table
demonstrate the variability of performance over time and
provide an indication of 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.
</TABLE>
For years ended December 31,
12.43% -8.12% 26.45% 19.76% 26.74% 41.67% 34.10%
-----------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter Worst Quarter
27.93% -7.61%
(12/31/99) (9/30/98)
-19-
<PAGE>
Average Annual Total Return (for periods ended December 31, 1999)
Growth Equity Fund S & P 500(1)
1 Year............................ 34.10% 21.04%
5 Year ........................... 29.53% 28.54%
Since November 1, 1992(2)......... 21.41% 21.76%
- -------------------
(1) 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.
(2) Date ICMI began managing the Fund's investments.
-20-
<PAGE>
INVESTMENT SUMMARY: LARGE CAP VALUE FUND
(formerly the Value Equity Fund)
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: Putnam Investment Management, Inc.
Investment Objective: The investment objective of the Fund is to maximize total
return (capital appreciation and income).
Investment Strategy: The Fund invests primarily in common stocks of large
capitalization companies that the Sub-Adviser believes are
undervalued. In selecting individual investments for the
Fund, the Sub-Adviser attempts to find value stocks that
offer the potential for both current income and capital
appreciation. To find such a stock, the Sub-Adviser
considers a company's financial strength, competitive
position in its industry and projected future earnings and
dividends. The Sub-Adviser will purchase the common stock of
a company when it believes that the stock is undervalued
compared to its true worth.
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. In general, common stocks are
more volatile than other investments, such as fixed income
securities. However, over the long-term, common stocks have
shown greater potential for capital appreciation. In
addition, the Fund is subject to the risk that its principal
market segment, large capitalization value companies, may
underperform compared to other market segments or the equity
markets as a whole. As with investing in other securities
whose prices increase and decrease in market value, you may
lose money by investing in the Fund.
Performance Information: The bar chart and table below show the performance of the
Fund both year-by-year and as an average over different
periods of time. They represent the performance of the
Fund's previous manager. Since May 1, 2000, Putnam
Investment Management, Inc. has been
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
responsible for the Fund's day-to-day portfolio management.
The bar chart and table demonstrate the variability of
performance over time and provide an indication of 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.
</TABLE>
For years ended December 31,
7.08% 2.92% 37.48% 25.19% 24.98% 9.59% -0.80%
----------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
Best Quarter Worst Quarter
16.16% -18.06%
(06/30/97) (09/30/98)
-22-
<PAGE>
Average Annual Total Return (for Periods Ended December 31, 1999)
Large Cap Value Fund S & P 500(1)
1 Year........................... -0.80% 21.04%
5 Year .......................... 18.52% 28.54%
Since November 1, 1992(2)........ 14.75% 21.76%
(1) 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.
(2) Date OpCap Advisors, the Fund's previous manager, began managing the Fund's
investments.
-23-
<PAGE>
INVESTMENT SUMMARY: INDEX 500 FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: Wells Capital Management Incorporated
Investment Objective: The Fund's investment objective is total return (capital
appreciation and income) which corresponds to that of the
Standard & Poor's Composite Index of 500 stocks.
Investment Strategy: The Fund invests substantially all of its assets in
securities listed in the S&P 500 Index which is comprised of
500 selected securities (mostly common stocks). The
Sub-Adviser does not actively manage the Fund's assets using
traditional investment analysis. Instead, the Sub-Adviser
invests in each company in the S&P 500 Index in proportion
to its weighting in the Index. In this manner, the
Sub-Adviser attempts to match the return of the S&P 500 as
closely as possible.
Risks of Investing: An investment in the Fund may be appropriate for investors
who are willing to accept the uncertainties of investing in
common stocks in the hope of earning a return consistent
with the S&P 500 Index. The Fund's value will change
primarily with changes in the prices of the stocks and other
investments 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. In
general, common stocks are more volatile than other
investments, such as fixed income securities. However, over
the long-term, common stocks have shown greater potential
for capital appreciation. The Fund is also subject to the
risk that the performance of the Fund may not correlate to
that of the S&P 500 Index. In addition, the Fund is subject
to the risk that the securities that comprise the S&P 500
may underperform other market segments or the equity markets
as a whole. As with investing in other securities whose
prices increase or decrease in market value, you may lose
money investing in the Fund.
Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly
no performance information is presented.
</TABLE>
-24-
<PAGE>
INVESTMENT SUMMARY: MID CAP GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser: Independence Capital Management, Inc.
Sub-Adviser: Turner Investment Partners, Inc.
Investment Objective: The investment objective of the Fund is to maximize capital
appreciation.
Investment Strategy: The Fund invests primarily in common stocks of U.S.
companies with medium market capitalizations (i.e., between
$1 billion and $10 billion) that the Sub-Adviser believes
have strong earnings growth potential. The Fund will invest
in securities of companies that are diversified across
economic sectors, and will attempt to maintain sector
concentrations that approximate those of its current
benchmark, the Russell Mid Cap Growth Index. The Fund's
exposure is generally limited to a maximum of 2% in any
single issue. However, the Fund may hold up to two times the
index weighting of those securities that comprise between 1%
and 5% of the Index, and up to one and one half times the
index weighting of those securities that comprise more than
5% of the Index. Due to its investment strategy, the Fund
may buy and sell securities frequently which may result in
higher transaction costs.
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 mid-cap stocks in the hope of achieving
above-average capital appreciation. The Fund's value will
change primarily with the 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 that issued the common stocks. In general, common
stocks are more volatile than other investments, such as
fixed income securities. However, over the long term, common
stocks have shown greater potential for capital
appreciation. In addition to the general risks of common
stocks, an investment in mid-cap stocks may entail special
risks. The prices of mid-cap stocks may be more volatile
than investments in larger, more established companies. In
addition, the Fund is subject to the risk that its principal
market segment, medium capitalization growth companies, may
underperform compared to other market segments or the equity
markets as a whole. As with investing in
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
other securities whose prices increase and decrease in
market value, you may lose money by investing in the Fund.
Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly
no performance information is presented.
</TABLE>
-26-
<PAGE>
INVESTMENT SUMMARY: MID CAP VALUE FUND
Investment Adviser:
Independence Capital Management, Inc.
Sub-Adviser:
Neuberger Berman Management Inc.
Investment Objective:
The investment objective of the Fund is to achieve growth of capital.
Investment Strategy:
The Fund invests primarily in common stocks of U.S. companies with medium market
capitalizations that the Sub-Adviser believes are undervalued. In selecting
individual securities, the Sub-Adviser seeks well-managed companies whose stock
prices are undervalued. To identify these companies, the Sub-Adviser looks for
strong business fundamentals, consistent cash flow, and a sound track record
through all phases of the market cycle. The Sub-Adviser may also consider the
company's position relative to competitors, a high level of stock ownership
among management and a recent sharp decline in the stock price that appears to
be the result of a short-term market over-reaction to negative news. The
Sub-Adviser generally considers selling a stock when it reaches the
Sub-Adviser's target price, when it fails to perform as expected, or when other
opportunities appear more attractive. The Sub-Adviser seeks to reduce risk by
diversifying among many companies and industries.
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 mid-cap stocks in the hope
of achieving above-average growth of capital. The Fund's value will change
primarily with the 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 that
issued the common stocks. In general, common stocks are more volatile than other
investments, such as fixed income securities. However, over the long term,
common stocks have shown greater potential for capital appreciation. In addition
to the general risks of common stocks, an investment in mid-cap stocks may
entail special risks. The prices of mid-cap stocks may be more volatile than
investments in larger, more established companies. In addition, the Fund is
-27-
<PAGE>
subject to the risks that is principal market segment, medium capitalization
value companies, may underperform compared to other market segments or the
equity markets as a whole. As with investing in other securities whose prices
increase and decrease in market value, you may lose money by investing in the
Fund.
Performance Information:
The Fund had no assets prior to May 1, 2000 and accordingly no performance
information is presented.
-28-
<PAGE>
INVESTMENT SUMMARY: EMERGING GROWTH FUND
Investment Adviser:
Independence Capital Management, Inc.
Sub-Adviser:
RS Investment Management, Inc.
Investment Objective:
The investment objective of the 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. In general, common stocks are
more volatile than other investments, such as fixed income securities. However,
over the long term, common stocks have shown greater potential for capital
appreciation. In addition to the general risks of common stocks, an investment
in small-cap stocks may entail special risks. Small-cap stocks may be more
volatile and less liquid than investments in larger, more established companies.
Smaller capitalization companies may have limited product lines, markets or
financial resources and may depend on a limited management group. As a result,
smaller capitalization companies may be more vulnerable to adverse business or
market developments. In addition, the Fund is subject to the risk that is
principal market segment, small capitalization emerging growth companies, may
underperform compared to other market segments or the equity markets as a whole.
As with investing in other securities whose prices increase and decrease in
market value, you may lose money by investing in the Fund.
-29-
<PAGE>
Performance Information:
The bar chart and table show the performance of the Fund for both year-by-year
and as an average over different periods of time. They demonstrate the
variability of performance over time and provide an indication of 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.
1998 1999
------ -------
35.7% 183.03%
Best Quarter Worst Quarter
76.17% -22.42%
(12/31/99) (09/30/98)
Average Annual Total Return (for Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
Emerging Growth Fund Russell 2000
1 Year................................. 185.03% 21.26%(1)
- --------------------------------------------------------------------------------
Since May 1, 1997(2)................... 87.87% 16.99%
- --------------------------------------------------------------------------------
(1) 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.
(2) Date of inception.
-30-
<PAGE>
INVESTMENT SUMMARY: SMALL CAP VALUE FUND
(formerly the Small Capitalization Fund)
Investment Adviser:
Independence Capital Management, Inc.
Sub-Adviser:
Royce & Associates, Inc.
Investment Objective:
The investment objective of the Fund is to seek capital appreciation.
Investment Strategy:
The Fund invests primarily in common stocks of small cap and micro-cap companies
in an attempt to take advantage of what the sub-adviser believes are
opportunistic situations for undervalued securities. Such opportunities may
include turnarounds, emerging growth companies with interrupted earnings
patterns, companies with unrecognized asset value or undervalued growth
companies. The Fund will invest primarily in companies with a market
capitalization of $1.5 billion or less.
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 the prices of the stocks and other investments 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. In general, common stocks are more
volatile than other investments, such as fixed income securities. However, over
the long-term, common stocks have shown greater potential for capital
appreciation.
In addition to the general risks of common stocks, an investment in small-cap
stocks may entail special risks. Small-cap stocks may be more volatile and less
liquid than investments in larger, more established companies. Smaller
capitalization companies may have limited product lines, markets or financial
resources and may depend on a limited management group. As a result, smaller
capitalization companies may be more vulnerable to adverse business or market
-31-
<PAGE>
developments. These risks are even greater for the micro-cap companies that the
Fund owns. Micro-cap companies are followed by relatively few securities
analysts and there tends to be less information about them. Their securities
generally have limited trading volumes and are subject to even more abrupt
erratic price movements. Micro-cap companies are even more vulnerable to adverse
business and market developments.
The Fund's ability to achieve its goal will depend largely on the Sub-Advisers
skill in selecting the Fund's investments using its opportunistic approach. In
addition, the Fund is subject to the risk that its principal market segment,
small capitalization companies, may underperform compared to other market
segments or the equity markets as a whole. As with investing in other securities
whose prices increase and decrease in market value, you may lose money by
investing in the Fund.
Performance Information:
The bar chart and table show the performance of the Fund for both year-by-year
and as an average over different periods of time. They represent the performance
of the Fund's previous manager. Since May 1, 2000, Royce & Associates, Inc. has
been responsible for the Fund's day-to-day portfolio management. The bar chart
and table demonstrate the variability of performance over time and provide an
indication of 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.
-32-
<PAGE>
1996 1997 1998 1999
------ ------ ------ ------
19.76% 23.02% -9.16% -1.33%
Best Quarter Worst Quarter
14.35% -14.69%
(12/31/98) (09/30/98)
Average Annual Total Return (for Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
Small Cap Value Fund Russell 2000
- --------------------------------------------------------------------------------
1 Year................................. -1.33% 21.26%(1)
- --------------------------------------------------------------------------------
Since March 1, 1995(2)................. 8.58% 16.61%
- --------------------------------------------------------------------------------
(1) 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.
(2) Date of Inception
-33-
<PAGE>
INVESTMENT SUMMARY: INTERNATIONAL EQUITY FUND
Investment Adviser:
Independence Capital Management, Inc.
Sub-Adviser:
Vontobel USA Inc.
Investment Objective:
The investment objective of the 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, Denmark, Sweden, Switzerland,
Norway, Japan, Hong Kong, Australia, New Zealand and Singapore. Using a
bottom-up investment approach, focusing on individual stock selection, 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
issuers, 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. 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
-34-
<PAGE>
addition, the Fund'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
Fund'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. As with investing in other securities whose prices increase and
decrease in market value, you may lose money by investing in the Fund.
Performance Information:
The bar chart and table show the performance of the Fund both year-by-year and
as an average over different periods of time. They demonstrate the variability
of performance over time and provide an indication of 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.
1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------
38.14% -6.31% 13.80% 16.87% 10.41% 18.85% 45.78%
-35-
<PAGE>
Best Quarter Worst Quarter
32.31% -14.90%
(12/31/99) (9/30/98)
Average Annual Total Return (for Periods Ended December 31, 1999)
- --------------------------------------------------------------------------------
International Equity Fund MSCI EAFE Index(1)
- --------------------------------------------------------------------------------
1 Year......................... 45.78% 26.96%
- --------------------------------------------------------------------------------
5 Year ........................ 20.53% 12.83%
- --------------------------------------------------------------------------------
Since November 2, 1992(2)...... 18.42% 14.56%
- --------------------------------------------------------------------------------
(1) 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.
(2) Date of Inception.
-36-
<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, except for
the Index 500 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 may result in increased transaction costs.
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 $10.5 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, 1999, ICMI serves as investment adviser
for over $1.9 billion of investment assets.
ICMI provides day-to-day portfolio management services for the Money Market,
Limited Maturity Bond, Quality Bond, Growth and Income, and Growth Equity Funds.
Richardson T. Merriman, Senior Vice President of Independence Capital
Management, Inc., manages the Growth and Income and Growth Equity Funds. He has
served as portfolio manager of the Growth Equity Fund since 1995 and the Growth
and Income Fund since its inception in May, 2000. Mr. Merriman is also President
of The Pennsylvania Trust Company, a Penn Mutual subsidiary.
Peter M. Sherman, President and Portfolio Manager of Independence Capital
Management, Inc., manages the Money Market, Limited Maturity Bond and Quality
Bond Funds. He has served as portfolio manager of the Money Market and Quality
Bond Funds since November 1992 and the Limited Maturity Bond Fund since its
inception in May, 2000. 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.
-37-
<PAGE>
In addition, ICMI provides investment management services to the High Yield
Bond, Flexibly Managed, Large Cap Value, Index 500, Mid Cap Growth, Mid Cap
Value, Small Cap Value, Emerging Growth and International Equity Funds through
Sub-Advisers that are specially selected and qualified to manage the Funds.
Manager of Managers Structure. ICMI acts as "manager of manager" for the Funds.
In this capacity, ICMI has hired sub-advisers to manage the assets of the High
Yield Bond, Flexibly Managed, Large Cap Value, Index 500, Mid Cap Growth, Mid
Cap Value, Emerging Growth, Small Cap Value and International Equity Funds. ICMI
remains responsible for the performance of these Funds as it recommends hiring
or changing sub-advisers to the Company's Board of Directors. Each Sub-Adviser
makes investment decisions for the Fund it manages. ICMI over-sees the
sub-advisers to ensure compliance with the Fund's investment policies and
guidelines, and monitors each sub-adviser's adherence to its investment style.
Shareholders of the High Yield Bond, Flexibly Managed, Growth and Income, Large
Cap Value, Emerging Growth, Small Cap Value and International Equity Funds have
authorized ICMI, subject to the supervision and approval of the Company's Board
of Directors, to hire and terminate sub-advisers without shareholder approval.
ICMI currently manages the assets of the Money Market, Quality Bond and Growth
Equity Funds. While it has no present intention to do so, shareholders of these
Funds have authorized ICMI, subject to the supervision and approval of the
Company's Board of Directors, to hire sub-advisers without shareholder
approval.
Shareholders of the Limited Maturity Bond, Index 500, Mid Cap Growth and Mid Cap
Value Funds may, in the future, be asked to approve a proposal authorizing ICMI
subject to the supervision and approval of the Company's Board of Directors, to
hire, terminate and replace sub-advisers without shareholder approval.
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. As sub-adviser, Price Associates provides day-to-day portfolio 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, 1999, Price Associates and its affiliates, managed more than
$179 billion of assets for over eight million individual and institutional
accounts.
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.
-38-
<PAGE>
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 1996. During the past five years, he has been a Vice President and a
portfolio manager in the taxable bond department of Price Associates.
Putnam Investment Management, Inc. Putnam Investment Management, Inc. ("Putnam")
is sub-adviser to the Large Cap Value Fund. As sub-adviser, Putnam provides
investment management services to the Fund. Putnam is located at One Post Office
Square, Boston, MA 02109. As of December 31, 1999, Putnam and its affiliates had
approximately $391 billion in assets under management.
Deborah F. Kuenster is primarily responsible for the day-to-day portfolio
management of the Large Cap Value Fund. Ms. Kuenster is Managing Director, Chief
Investment Officer of the Large Cap Value Equities Group of Putnam and joined
Putnam in 1997. Prior to joining Putnam, Ms. Kuenster was a Senior Portfolio
Manager of DuPont Pension Fund Investment from 1989 to 1997. Ms. Kuenster has
more than 20 years of investment experience and is a Chartered Financial
Analyst.
Wells Capital Management Incorporated. Wells Capital Management Incorporated
("Wells") is sub-adviser to the Index 500 Fund. As sub-adviser, Wells provides
day-to-day portfolio management services to the Fund. Wells is located at 525
Market Street, 10th Floor, San Francisco, California 94105. As of December 31,
1999, Wells and its affiliates had approximately $71 billion in assets under
management.
David D. Sylvester and Laurie R. White have primary responsibility for the
day-to-day management of the Index 500 Fund. Mr. Sylvester is an Executive Vice
President at Wells and has been affiliated with Wells or its affiliates since
1979. Ms. White has been a Managing Director at Wells and has been affiliated
with Wells or its affiliates since 1991.
Turner Investment Partners, Inc. Turner Investment Partners, Inc. ("Turner") is
sub-adviser to the Mid Cap Growth Fund. As sub-adviser, Turner provides
investment management services to the Fund. Turner is located at 1235 Westlakes
Drive, Suite 350, Berwyn, Pennsylvania 19312. As of December 31, 1999, Turner
had approximately $5.6 billion in assets under management.
Chris McHugh, Bill McVail and Robert Turner are primarily responsible for the
day-to-day portfolio management of the Mid Cap Growth Fund. Mr. McHugh is Senior
Equity Fund Portfolio Manager of Turner and joined Turner in 1990. Mr. McVail is
Senior Equity Portfolio Manager of Turner and joined Turner in 1998. Prior to
1998, Mr. McVail was Portfolio Manager at PNC Equity Advisors. Mr. Turner
founded Turner in 1990 and serves as Turner's Chairman and Chief Investment
Officer.
-39-
<PAGE>
Neuberger Berman Management Inc. Neuberger Berman Management, Inc. ("Neuberger
Berman") is sub-adviser to the Mid Cap Value Fund. As sub-adviser, Neuberger
Berman provides investment management services to the Fund. Neuberger Berman is
located at 605 Third Avenue, 2nd Floor, New York, New York 10158. As of December
31, 1999, Neuberger Berman and its affiliates had approximately $54.4 billion in
assets under management.
Robert I. Gendelman and S. Basu Mullick have primary responsibility for managing
the Mid Cap Value Fund's assets. Messrs. Gendelman and Mullick are Vice
Presidents of Neuberger Berman and are Managing Directors of Neuberger Berman,
LLC. Mr. Gendelman has been a portfolio manager with Neuberger Berman since
1994. Mr. Mullick joined Neuberger Berman in 1998. Prior to joining Neuberger
Berman, he was a portfolio manager of at ARK Asset Management Corporation from
1993 to 1998.
Royce & Associates, Inc. Royce & Associates, Inc. ("Royce") is sub-adviser to
the Small Cap Value Fund. As sub-adviser, Royce provides investment management
services to the Fund. Royce is located at 1414 Avenue of the Americas, New York,
New York 10019. As of December 31, 1999, Royce had approximately $3 billion in
assets under management.
Boniface A. Zaino has primary responsibility for the day-to-day investment
management of the Fund. Mr. Zaino is a Managing Director and Senior Portfolio
Manager at Royce. He has joined Royce in 1998 from Trust Company of the West
where he was Group Managing director since 1984.
RS Investment Management , Inc. (formerly, Robertson Stephens Investment
Management, Inc.) RS Investment Management, Inc. ("RSIM") is sub-adviser to the
Emerging Growth Fund. As sub-adviser, RSIM provides day-to-day portfolio
management services to the Fund. RSIM is located at 388 Market Street, San
Francisco, CA 94111. As of December 31, 1999, RSIM managed more than $8.3
billion for individual and institutional clients.
James Callinan, Portfolio Manager of RSIM, 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.
Vontobel USA Inc. Vontobel USA Inc. ("Vontobel") is sub-adviser to the
International Equity Fund. As sub-adviser, Vontobel provides day-to-day
portfolio services to the Fund. Vontobel is a wholly owned subsidiary of
Vontobel Holding AG, and an affiliate of Bank Vontobel AG, 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, 1999, Vontobel managed assets of over $2.1 billion, a substantial part of
which was invested outside of the United States. The Vontobel group of companies
has investments in excess of $44 billion under management.
-40-
<PAGE>
Fabrizio Pierallini and Rajiv Jain are responsible for the day-to-day investment
management of the International Equity Fund. Mr. Pierallinini is the Chief
Investment Officer of and a Managing Director and Senior Vice President at
Vontobel. Mr. Pierallini has more than 19 years of investment research and
management experience. 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. Mr.
Jain is a First Vice President of Vontobel and an Associate Portfolio Manager of
the International Equity Fund. Mr. Jain has over nine years of experience. Mr.
Jain joined Vontobel in November of 1994. Prior thereto, he served as an equity
analyst with Swiss Bank Corporation, New York.
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 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.
As explained below, the investment adviser, the investment sub-advisers and/or
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
- --------------------------------------------------------------------------------
Money Market 0.80%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.90%
- --------------------------------------------------------------------------------
Quality Bond 0.90%
- --------------------------------------------------------------------------------
High Yield Bond 0.90%
- --------------------------------------------------------------------------------
Flexibly Managed 1.00%
- --------------------------------------------------------------------------------
Growth and Income 1.00%
- --------------------------------------------------------------------------------
Growth Equity 1.00%
- --------------------------------------------------------------------------------
-41-
<PAGE>
- --------------------------------------------------------------------------------
Fund Expense Limitation
- --------------------------------------------------------------------------------
Large Cap Value 1.00%
- --------------------------------------------------------------------------------
Index 500 0.40%*
- --------------------------------------------------------------------------------
Mid Cap Growth 1.00%
- --------------------------------------------------------------------------------
Mid Cap Value 1.00%
- --------------------------------------------------------------------------------
Emerging Growth 1.15%
- --------------------------------------------------------------------------------
Small Cap Value 1.15%
- --------------------------------------------------------------------------------
International Equity 1.50%
- --------------------------------------------------------------------------------
*Penn Mutual currently intends to voluntarily waive its fees and reimburse
expenses so that the Index 500 Fund's total expenses do not exceed 0.25%.
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 Money Market, Quality Bond, Growth
Equity, Large Cap Value and Small Cap Value Funds, the Adviser will waive fees
with regard 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 International Equity
Fund, the sub-adviser will waive fees with regard 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 Limited Maturity Bond, Growth and Income, Index 500, Mid Cap
Growth and Mid Cap Value, Penn Mutual will waive fees or reimburse expenses for
the entirety of any excess above the expense limitation.
For the year ended December 31, 1999, the Funds paid ICMI a fee based on the
average daily net assets of the Fund, at the following annual rate; Money Market
Fund: 0.40%; Quality Bond Fund: 0.45%; High Yield Bond Fund: 0.50%; Flexibly
Managed Fund: 0.50%; Growth Equity Fund: 0.47%; Large Cap Value Fund: 0.50%;
Emerging Growth Fund: 0.74%; Small Cap Value Fund: 0.50%; and International
Equity Fund: 0.75%.
For providing investment management services to the Limited Maturity Bond,
Growth and Income, Index 500 and Mid Cap Growth Funds, the Funds pay ICMI, on a
monthly basis, a fee based on the average daily net assets of the Fund, at the
following annual rate: Limited Maturity Bond Fund: 0.30%; Growth and Income
Fund: 0.50%; Index 500 Fund: 0.07%; and Mid Cap Growth Fund: 0.70%. For
providing investment management services to the Mid Cap Value Fund, the Fund
pays ICMI, on a monthly basis, a fee based on the average daily net assets of
the Fund, at the following annual rate: 0.55% of the first $250 million; 0.525%
of the next $250 million; 0.50% of the next $250 million; 0.475% of the next
$250 million; and 0.425% of average daily net assets in excess of $1.5 billion.
-42-
<PAGE>
ACCOUNT POLICIES
Purchasing and Selling Fund Shares
Shares are offered on each day that the New York Stock Exchange ("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 for 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.
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.
-43-
<PAGE>
Taxes
The Funds expect that they will not have to pay federal income taxes if they
distribute annually all of their net investment income and net capital gains.
The Funds will not be subject to federal excise taxes with respect to
undistributed income.
Special tax rules apply to life insurance companies, variable annuity contracts
and variable life insurance contracts. 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.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about the federal, state and local
tax consequences applicable to your investment.
-44-
<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,
-----------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
<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............................ 0.0456 0.0489 0.0503 0.0489 0.0538
--------- --------- --------- --------- --------
Total from investment operations.............. 0.0456 0.0489 0.0503 0.0489 0.0538
--------- --------- --------- --------- --------
Less dividends:
- ---------------
Dividends from net investment income............. (0.0456) (0.0489) (0.0503) (0.0489) (0.0538)
--------- --------- --------- --------- --------
Total dividends.................................. (0.0456) (0.0489) (0.0503) (0.0489) (0.0538)
--------- --------- --------- --------- --------
Net asset value, end of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========
Total return................................. 4.66% 5.00% 5.15% 5.00% 5.51%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands)........... $ 86,581 $ 53,626 $ 37,476 $ 34,501 $ 24,726
========= ========= ========= ========= ========
Ratio of expenses to average net assets.......... 0.72% 0.72% 0.70% 0.73%(a) 0.69%(a)
========= ========= ========= ========= ========
Ratio of net investment income to average net assets 4.60% 4.88% 5.04% 4.88%(a) 5.37%(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% and
.74%, and the ratios of net investment income to average net assets would
have been 4.87% and 5.32% for the years ended December 31, 1996 and 1995,
respectively.
-45-
<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,
-----------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 10.40 $ 10.20 $ 10.00 $ 10.24 $ 9.04
-------- ------- ------- ------- --------
Income from investment operations:
- ----------------------------------
Net investment income.................................. 0.54 0.51 0.60 0.66 0.61
Net realized and unrealized gain on investment
transactions......................................... (0.54) 0.53 0.20 (0.24) 1.21
-------- ------- ------- ------- --------
Total from investment operations.................... 0.00 1.04 0.80 0.42 1.82
-------- ------- ------- ------- --------
Less distributions:
- -------------------
Dividend from net investment income.................... 0.00 (0.51) (0.60) (0.66) (0.61)
Distribution from net realized gain.................... 0.00 (0.33) 0.00 0.00 0.00
Distribution in excess of net investment income........ 0.00 0.00 0.00 0.00 (0.01)
-------- ------- ------- ------- --------
Total distributions................................. 0.00 (0.84) (0.60) (0.66) (0.62)
-------- ------- ------- ------- --------
Net asset value, end of year........................... $ 10.40 $ 10.40 $ 10.20 $ 10.00 $ 10.24
======== ======= ======= ======= ========
Total return........................................ 0.00% 10.17% 8.03% 4.14% 20.14%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands)................. $ 55,975 $53,505 $40,077 $37,611 $ 38,048
======== ======= ======= ======= ========
Ratio of expenses to average net assets................ 0.77% 0.77% 0.75% 0.77%(a) 0.73%
======== ======= ======= ======= ========
Ratio of net investment income to average net assets... 5.21% 5.26% 5.87% 6.03%(a) 6.20%
======== ======= ======= ======= ========
Portfolio turnover rate................................ 815.1% 477.2% 317.3% 107.6% 449.2%
======== ======= ======= ======= ========
</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 .78% and
.78%, and the ratio of net investment income to average net assets would
have been 6.02% and 6.15%, for the years ended December 31, 1996 and 1995,
respectively.
-46-
<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,
-----------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................... $ 9.19 $ 9.52 $ 8.91 $ 8.44 $ 7.94
-------- -------- -------- -------- --------
Income from investment operations:
- ----------------------------------
Net investment income................................ 0.89 0.79 0.80 0.70 0.80
Net realized and unrealized gain (loss) on
investment transactions............................ (0.50) (0.33) 0.61 0.47 0.50
-------- -------- -------- -------- --------
Total from investment operations ................. 0.39 0.46 1.41 1.17 1.30
-------- -------- -------- -------- --------
Less distributions:
- -------------------
Dividend from net investment income.................. 0.00 (0.79) (0.80) (0.70) (0.80)
Distribution in excess of net investment income...... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total distributions............................... 0.00 (0.79) (0.80) (0.70) (0.80)
-------- -------- -------- -------- --------
Net asset value, end of year......................... $ 9.58 $ 9.19 $ 9.52 $ 8.91 $ 8.44
======== ======== ======== ======== ========
Total return...................................... 4.24% 4.79% 15.78% 13.87% 16.41%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands)............... $ 69,928 $ 69,003 $ 59,138 $ 44,042 $ 36,442
======== ======== ======== ======== ========
Ratio of expenses to average net assets.............. 0.85% 0.82% 0.81% 0.84% 0.87%
======== ======== ======== ======== ========
Ratio of net investment income to average net assets. 9.11% 8.30% 8.96% 8.14% 9.20%
======== ======== ======== ======== ========
Portfolio turnover rate.............................. 78.2% 82.7% 111.3% 118.5% 84.3%
======== ======== ======== ======== ========
</TABLE>
-47-
<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,
-----------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......................... $ 18.31 $ 19.83 $ 18.74 $ 17.40 $ 15.19
Income from investment operations:
- ----------------------------------
Net investment income....................................... 0.67 0.60 0.61 0.65 0.53
Net realized and unrealized gain on investment transactions. 0.64 0.61 2.33 2.19 2.86
-------- -------- -------- -------- --------
Total from investment operations......................... 1.31 1.21 2.94 2.84 3.39
-------- -------- -------- -------- --------
Less distributions:
- -------------------
Dividend from net investment income......................... 0.00 (0.60) (0.61) (0.65) (0.53)
Distribution in excess of net investment income............. 0.00 (0.00) 0.00 0.00 (0.01)
Distribution from net realized gains........................ 0.00 (2.13) (1.24) (0.85) (0.64)
-------- -------- -------- -------- --------
Total distributions ..................................... 0.00 (2.73) (1.85) (1.50) (1.18)
-------- -------- -------- -------- --------
Net asset value, end of year................................ $ 19.62 $ 18.31 $ 19.83 $ 18.74 $ 17.40
======== ======== ======== ======== ========
Total return............................................. 7.15% 6.09% 15.65% 16.37% 22.28%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands)...................... $482,856 $545,486 $516,139 $398,544 $266,556
======== ======== ======== ======== ========
Ratio of expenses to average net assets..................... 0.76% 0.76% 0.76% 0.77% 0.79%
======== ======== ======== ======== ========
Ratio of net investment income to average net assets........ 3.25% 2.78% 3.10% 3.90% 3.45%
======== ======== ======== ======== ========
Portfolio turnover rate..................................... 31.0% 48.0% 37.1% 32.9% 37.2%
======== ======== ======== ======== ========
</TABLE>
-48-
<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,
------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $ 30.88 $ 24.37 $ 21.46 $ 20.00 $ 18.30
-------- -------- -------- -------- --------
Income from investment operations:
- ----------------------------------
Net investment income.................................... (0.05) 0.02 0.10 0.11 0.09
Net realized and unrealized gain (loss) on investment
transactions........................................... 10.58 10.12 5.64 3.85 4.75
-------- -------- -------- -------- --------
Total from investment operations...................... 10.53 10.14 5.74 3.96 4.84
-------- -------- -------- -------- --------
Less distributions:
- -------------------
Dividend from net investment income...................... 0.00 (0.02) (0.10) (0.11) (0.09)
Distribution from net realized gains..................... 0.00 (3.61) (2.73) (2.39) (3.05)
-------- -------- -------- -------- --------
Total distributions................................... 0.00 (3.63) (2.83) (2.50) (3.14)
-------- -------- -------- -------- --------
Net asset value, end of year............................. $ 41.41 $ 30.88 $ 24.37 $ 21.46 $ 20.00
======== ======== ======== ======== ========
Total return.......................................... 34.10% 41.67% 26.74% 19.76% 26.45%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands)................... $284,263 $195,692 $136,058 $106,039 $ 95,593
======== ======== ======== ======== ========
Ratio of expenses to average net assets.................. 0.73% 0.76% 0.77% 0.80%(a) 0.77%
======== ======== ======== ======== ========
Ratio of net investment income to average net assets.... (0.14%) 0.08% 0.39% 0.48%(a) 0.43%
======== ======== ======== ======== ========
Portfolio turnover rate.................................. 209.1% 161.3% 169.1% 177.1% 169.8%
======== ======== ======== ======== ========
</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% and
.82%, and the ratio of net investment income to average net assets would
have been .47% and .38%, for the years ended December 31, 1996 and 1995,
respectively.
-49-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE LARGE CAP VALUE 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,
-----------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 22.39 $ 22.55 $ 19.32 $ 16.28 $ 12.67
-------- -------- -------- -------- --------
Income from investment operations:
- ----------------------------------
Net investment income.................................. 0.21 0.31 0.29 0.22 0.25
Net realized and unrealized gain on investment
transactions........................................ (0.39) 1.85 4.53 3.88 4.50
-------- -------- -------- -------- --------
Total from investment operations.................... (0.18) 2.16 4.82 4.10 4.75
-------- -------- -------- -------- --------
Less distributions:
- -------------------
Dividend from net investment income.................... 0.00 (0.31) (0.29) (0.22) (0.25)
Distribution from net realized gains................... 0.00 (2.01) (1.30) (0.84) (0.89)
-------- -------- -------- -------- --------
Total distributions................................. 0.00 (2.32) (1.59) (1.06) (1.14)
-------- -------- -------- -------- --------
Net asset value, end of year........................... $ 22.21 $ 22.39 $ 22.55 $ 19.32 $ 16.28
======== ======== ======== ======== ========
Total return........................................ (0.80)% 9.59% 24.98% 25.19% 37.48%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands)................. $290,937 $335,479 $302,960 $200,674 $127,260
======== ======== ======== ======== ========
Ratio of expenses to average net assets................ 0.76% 0.76% 0.76% 0.78% 0.80%
======== ======== ======== ======== ========
Ratio of net investment income to average net assets... 0.88% 1.27% 1.43% 1.38% 1.71%
======== ======== ======== ======== ========
Portfolio turnover rate................................ 67.6% 24.0% 18.7% 25.0% 34.3%
======== ======== ======== ======== ========
</TABLE>
* Prior to May 1, 2000, the Large Cap Value Fund was the Value Equity Fund.
-50-
<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>
Period
ended
Year ended December 31, December 31,
--------------------------- ------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period or year.................................... $ 17.43 $ 12.85 $ 10.00
-------- --------- ---------
Income from investment operations:
- ----------------------------------
Net investment loss............................................................. (0.11) (0.06) 0.00
Net realized and unrealized gain (loss) on investment transactions............. 32.36 4.65 3.92
-------- --------- ---------
Total from investment operations............................................. 32.25 4.59 3.92
-------- --------- ---------
Less distributions:
- -------------------
Distribution from net realized gains............................................ 0.00 (0.01) (1.07)
-------- --------- ---------
Total distributions.......................................................... 0.00 (0.01) (1.07)
-------- --------- ---------
Net asset value, end of period or year.......................................... $ 49.68 $ 17.43 $ 12.85
======== ========= ========
Total return................................................................. 185.03% 35.70% 39.22%(c)
Ratios/Supplemental data:
- -------------------------
Net assets, end of period or year (in thousands)................................ $183,413 $ 38,664 $ 17,942
======== ========= ========
Ratio of expenses to average net assets......................................... 1.04% 1.15%(b) 1.15%(a)(b)
======== ========= ========
Ratio of net investment income to average net assets........................... (0.68)% (0.66)%(b) (0.73)%(a)(b)
======== ========= ========
Portfolio turnover rate......................................................... 172.4% 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.
-51-
<PAGE>
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE SMALL CAP VALUE 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,
-----------------------
1999 1998 1997 1996 1995**
------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period or year................ $ 12.81 $ 14.43 $ 12.53 $ 10.96 $ 10.00
------ ------- ------ ------ ------
Income from investment operations:
- ----------------------------------
Net investment income....................................... 0.08 0.08 0.07 0.07 0.09
Net realized and unrealized gain (loss) on investment
transactions............................................. (0.25) (1.41) 2.81 2.09 1.19
------ ------- ------ ------ ------
Total from investment operations......................... (0.17) (1.33) 2.88 2.16 1.28
------ ------- ------ ------ ------
Less distributions:
- -------------------
Dividend from net investment income......................... 0.00 (0.08) (0.07) (0.07) (0.09)
Distribution from net realized gains........................ 0.00 (0.21) (0.91) (0.52) (0.23)
------ ------- ------ ------ ------
Total distributions...................................... 0.00 (0.29) (0.98) (0.59) (0.32)
------ ------- ------ ------ ------
Net asset value, end of period or year...................... $ 12.64 $ 12.81 $ 14.43 $ 12.53 $ 10.96
====== ======= ====== ====== ======
Total return............................................. 1.33)% (9.16)% 23.02% 19.76% 12.76%(b)
Ratios/Supplemental data:
- -------------------------
Net assets, end of period or year (in thousands)............ $44,939 $ 43,635 $38,726 $16,134 $ 4,828
====== ======= ====== ====== ======
Ratio of expenses to average net assets..................... 0.81% 0.82% 0.85% 0.99%(a) 1.00%(a)(c)
====== ======= ====== ====== ======
Ratio of net investment income to average net assets........ 0.65% 0.65% 0.66% 0.85%(a) 1.53%(a)(c)
====== ======= ====== ====== ======
Portfolio turnover rate..................................... 102.8% 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 loss 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.
* Prior to May 1, 2000, the Small Cap Value Fund was the Small Capitalization
Fund.
** For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
-52-
<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,
-----------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $ 18.37 $ 16.13 $ 15.61 $ 14.47 $ 13.01
------- ------- ------- ------- -------
Income from investment operations:
- ----------------------------------
Net investment income..................................... 0.03 0.10 0.58 0.63 0.13
Net realized and unrealized gain (loss) on investment
transactions and foreign related transaction............ 8.38 2.93 1.04 1.81 1.67
------- ------- ------- ------- -------
Total from investment operations....................... 8.41 3.03 1.62 2.44 1.80
------- ------- ------- ------- -------
Less distributions:
- -------------------
Dividend from net investment income....................... 0.00 (0.10) (0.53) (0.56) (0.12)
Distribution in excess of net investment income .......... 0.00 (0.08) 0.00 (0.74) (0.22)
Distribution from net realized gains...................... 0.00 (0.61) (0.57) 0.00 0.00
------- ------- ------- ------- -------
Total distributions.................................... 0.00 (0.79) (1.10) (1.30) (0.34)
------- ------- ------- ------- -------
Net asset value, end of year.............................. $ 26.78 $ 18.37 $ 16.13 $ 15.61 $ 14.47
======= ======= ======= ======= =======
Total return........................................... 45.78% 18.85% 10.41% 16.87% 13.80%
Ratios/Supplemental data:
- -------------------------
Net assets, end of year (in thousands).................... $215,312 $153,822 129,638 104,418 $ 69,531
======= ======= ======= ======= =======
Ratio of expenses to average net assets................... 1.08% 1.08% 1.13% 1.17% 1.23%
======= ======= ======= ======= =======
Ratio of net investment income to average net assets...... .20% 0.45% 0.62% 0.66% 0.91%
======= ======= ======= ======= =======
Portfolio turnover rate................................... 45.0% 43.5% 35.7% 54.8% 62.5%
======= ======= ======= ======= =======
</TABLE>
-53-
<PAGE>
Statement of Additional Information
In addition to this Prospectus, Penn Series has a Statement of Additional
Information ("SAI"), dated May 1, 2000, 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
1-202-942-8090); (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 electronic request at
[email protected] or by writing to Securities Exchange Commission, Public
Reference Section, Washington, D.C. 20549-0102. To aid you in obtaining this
information, Penn Series' Investment Company Act registration number is
811-03459.
-54-
<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 fourteen
separate investment portfolios (the "Funds").
MONEY MARKET FUND
LIMITED MATURITY BOND FUND
QUALITY BOND FUND
HIGH YIELD BOND FUND
FLEXIBLY MANAGED FUND
GROWTH AND INCOME FUND
GROWTH EQUITY FUND
LARGE CAP VALUE FUND
INDEX 500 FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
EMERGING GROWTH FUND
SMALL CAP VALUE FUND
INTERNATIONAL EQUITY FUND
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Penn Series prospectus dated May 1, 2000. 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, 2000.
<PAGE>
TABLE OF CONTENTS
Penn Series ............................................................... 3
Investment Objectives...................................................... 3
Investment Policies........................................................ 4
Securities and Investment Techniques....................................... 11
Investments in Debt Securities.................................... 11
Investments in Foreign Equity Securities.......................... 14
Investments in Smaller Companies.................................. 14
Foreign Currency Transactions..................................... 15
Repurchase Agreements............................................. 16
Lending of Portfolio Securities................................... 17
Illiquid Securities............................................... 17
Warrants ......................................................... 17
When-Issued Securities............................................ 18
The Quality Bond Fund's Policy Regarding Industry Concentration... 18
Options ......................................................... 18
Futures Contracts................................................. 19
Investment Companies.............................................. 20
Loan Participations and Assignments............................... 20
Trade Claims...................................................... 21
Investment Restrictions.................................................... 22
Money Market Fund................................................. 22
Limited Maturity Bond Fund........................................ 23
Quality Bond Fund ................................................ 23
High Yield Bond Fund.............................................. 24
Flexibly Managed Fund............................................. 26
Growth and Income Fund............................................ 27
Growth Equity Fund................................................ 27
Large Cap Value Fund.............................................. 28
Index 500 Fund.................................................... 29
Mid Cap Growth Fund............................................... 30
Mid Cap Value Fund ............................................... 30
Emerging Growth Fund.............................................. 31
Small Cap Value Fund.............................................. 32
International Equity Fund......................................... 33
General Information........................................................ 34
Investment Advisory Services...................................... 34
Administrative and Corporate Services............................. 36
Accounting Services............................................... 37
Limitation on Fund Expenses....................................... 38
Portfolio Transactions............................................ 38
Directors and Officers............................................ 40
Custodial Services................................................ 41
Independent Auditors.............................................. 41
Legal Matters..................................................... 41
Net Asset Value of Shares......................................... 41
Ownership of Shares............................................... 42
Tax Status........................................................ 43
Voting Rights .................................................... 44
Performance Information.................................................... 44
Total Return...................................................... 44
Ratings of Commercial Paper................................................ 45
Ratings of Corporate Debt Securities....................................... 46
Financial Statements of Penn Series........................................ 48
Report of Independent Auditors............................................. 48
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES
- --------------------------------------------------------------------------------
Penn Series is an open-end management investment company that offers
shares of diversified portfolios 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 was established as a Maryland corporation pursuant to Articles of
Incorporation dated April 21, 1982.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objectives of the Funds are as follows. There can be no
assurance that these objectives will be achieved.
- --------------------------------------------------------------------------------
Money Market Fund preserve shareholder capital, maintain liquidity
and achieve the highest possible level of current
income consistent therewith;
- --------------------------------------------------------------------------------
Limited Maturity Bond Fund highest available current income consistent with
liquidity and low risk to principal; total return
is secondary;
- --------------------------------------------------------------------------------
Quality Bond Fund the highest income over the long term consistent
with the preservation of principal;
- --------------------------------------------------------------------------------
High Yield Bond Fund high current income;
- --------------------------------------------------------------------------------
Flexibly Managed Fund maximize total return (capital appreciation and
income);
- --------------------------------------------------------------------------------
Growth and Income Fund provide total return through a combination of
current income and capital appreciation;
- --------------------------------------------------------------------------------
Growth Equity Fund long-term growth of capital and increase of future
income;
- --------------------------------------------------------------------------------
Large Cap Value Fund maximize total return (capital appreciation and
income);
- --------------------------------------------------------------------------------
Index 500 Fund total return (capital appreciation and income)
which corresponds to that of the Standard & Poor's
Composite Index of 500 stocks;
- --------------------------------------------------------------------------------
Mid Cap Growth Fund maximize capital appreciation;
- --------------------------------------------------------------------------------
Mid Cap Value Fund growth of capital;
- --------------------------------------------------------------------------------
Emerging Growth Fund capital appreciation;
- --------------------------------------------------------------------------------
Small Cap Value Fund capital appreciation;
- --------------------------------------------------------------------------------
International Equity Fund capital appreciation.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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, Inc. 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; (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).
- --------------------------------------------------------------------------------
Limited Maturity Bond Fund
The Fund invests in a diversified portfolio of short to intermediate
term debt securities. The Fund will invest primarily in 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 "high yield" securities which are rated BB
or B by S&P (or securities with a comparable rating by another established
rating agency), and 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
3
<PAGE>
time purchase these securities on a when-issued basis; the value of such
income-producing securities may decline or increase prior to settlement date.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 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 the Sub-Adviser.
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 D by S&P, if, in the opinion
of the Sub-Adviser, 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; (xv) Deferrable Subordinate
Securities and (xvi) Zero Coupon and Pay-in-Kind Bonds. Zero Coupon and
Pay-in-Kind Bonds can be more volatile than coupon bonds. There is no limit on
the Fund's investment in these securities. 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 the Sub-Adviser's credit analysis than
would be the case if the Fund were investing in
4
<PAGE>
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.
The Sub-Adviser places primary significance on its own in-depth credit
analysis and security research. The Fund's investments will be selected from an
approved list of securities deemed appropriate for the Fund by the Sub-Adviser,
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 the Sub-Adviser.
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 the Sub-Adviser.
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.
Deferrable Subordinated Securities. Recently, securities have been issued
which have long maturities and are deeply subordinated in the issuer's capital
structure. They generally have 30-year maturities and permit the issuer to defer
distributions for up to five years. These characteristics give the issuer more
financial flexibility than is typically the case with traditional bonds. As a
result, the securities may be viewed as possessing certain "equity-like"
features by rating agencies and bank regulators. However, the securities are
treated as debt securities by market participants, and the fund intends to treat
them as such as well. These securities may offer a mandatory put or remarketing
option that creates an effective maturity date significantly shorter than the
stated one. The High Yield Bond Fund will invest in these securities to the
extent their yield, credit, and maturity characteristics are consistent with the
Fund's investment objective and program.
Other Investments. The Fund may invest up to 20% of its total assets in
dividend-paying preferred or common stocks (including up to 10% in warrants to
purchase common stocks) that are considered by the Sub-Adviser to be consistent
with the Fund's current income and capital appreciation investment objectives.
In seeking higher 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, lowering 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 with
regard to 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. The Sub-Adviser 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
5
<PAGE>
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 1999 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 0.0
AA 0.0
A 0.1
BBB 2.4
BB 13.3
B 60.2
CCC 5.7
CC 0.1
C 0.0
D 0.1
Unrated* 4.7
* T. Rowe Price Associates, Inc. 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: AAA: 0.1%; BBB: 0.0%; BB: 0.1%; B: 3.5%; CCC: 0.9%;
CC: 0.0%; C: 0.0%; D: 0.0%; Unrated: 4.7%.
** Unaudited.
- --------------------------------------------------------------------------------
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 shares of
internally managed fund of the Sub-Adviser or 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
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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 Sub-Advisers' credit research.
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Growth and Income Fund
The Fund will invest at least 65% of its assets in equity securities of
U.S. issuers. The Fund will invest primarily in common stocks of issuers with
above-average growth potential. The Fund may also invest in convertible
securities, preferred stocks, foreign securities and ADRs. 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.
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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.
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Large Cap Value Fund
Prior to May 1, 2000, the Large Cap Value Fund was named the Value Equity
Fund.
The Fund will invest at least 65% of its assets in equity securities of
U.S. issuers. The Fund's assets will be invested primarily in common stocks of
issuers that the Sub-Adviser believes are undervalued. 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 may invest an unlimited amount in foreign securities.
Generally, the Fund will not invest more than 20% of its assets in foreign
securities. The Fund's holdings are generally listed on a national securities
exchange. 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 invest in
derivatives including 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.
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Index 500 Fund
The Fund seeks to replicate the return of the S&P 500 Index, which is
comprised of approximately 500 securities selected by Standards & Poor's (most
of which are common stocks listed on the New York Stock Exchange). The Fund will
normally invest in all of the stocks and other securities which comprise the S&P
500 Index. The Fund's policy is to be substantially invested in common stocks
included in the S&P 500 Index, and it is expected that cash reserves items held
to accommodate shareholder transactions would be hedged with S&P 500 Index
Futures. Over time, the correlation between the performance of the Fund and the
S&P 500 Index is expected to be over 0.95. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when the net asset value of the
Fund, including the value of its dividend and capital gains distributions,
increasing or decreasing in exact proportion to changes in the S&P 500 Index.
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Mid Cap Growth Fund
The Fund will invest at least 65% of the value of its total assets in a
diversified portfolio of equity securities of U.S. issuers. The Fund will
primarily invest in common stocks of issuers, that have market capitalizations
between $1 billion and $10 billion at the time of purchase that the Sub-Adviser
believes to have strong earnings growth potential. Any remaining assets may be
invested in securities issued by smaller capitalization companies and larger
capitalization companies, warrants and rights to purchase common stocks, ADRs
and foreign securities. The Fund seeks to purchase securities that are well
diversified across economic sectors and to maintain sector concentrations that
approximate the economic sector weightings comprising the Russell Midcap Growth
Index (or such other appropriate index selected by the Sub-Adviser). 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 invest in derivatives including 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.
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Mid Cap Value Fund
The Fund will invest at least 65% of the value of its assets in equity
securities of U.S. issuers. The Fund will primarily invest in common stocks
issued by medium capitalization companies. Any remaining assets may be invested
in securities issued by smaller capitalization companies and larger
capitalization companies, warrants and rights to purchase common stocks, foreign
securities and ADRs. The Fund will invest primarily in a diversified portfolio
of common stocks of issuers that have market capitalizations between $1 billion
and $8 billion that the Sub-Adviser believes to be undervalued relative to the
stock market. The Sub-Adviser selects securities that are undervalued in the
marketplace either in relation to strong fundamentals, such as a low
price-to-earnings ratio, consistent with cash flow, and successful track records
through all parts of the market cycles. 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
invest in derivatives including 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.
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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.
8
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Small Cap Value Fund
Prior to May 1, 2000, the Small Cap Value Fund was named the Small
Capitalization Fund.
The Fund will invest at least 65% of its assets in common stocks and
convertible securities. The Fund will primarily invest in companies with less
than $1.5 billion in market capitalization. The Sub-Adviser may also invest in
companies with market capitalizations above $1.5 billion, non-convertible
preferred stocks and debt securities. The Fund uses a "value" method in managing
the Fund's assets, by identifying and investing in securities of companies which
the Fund believes are trading significantly below its estimate of the company's
current worth, with the expectation that the market price of its securities
should increase over a three- to five-year period. In addition, the Fund may
invest in short-term fixed income securities for temporary defensive purposes.
The Fund may invest up to 5% of its total assets in warrants, rights or options.
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.
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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.
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 Sub-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
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<PAGE>
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 Sub-Adviser.
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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 Fannie Mae,
the 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 lower quality corporate debt.
Investment Grade Corporate Debt Securities. The Limited Maturity Bond and
Quality Bond Funds 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.
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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.
Savings and Loan Obligations. The Limited Maturity Bond, 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 Limited Maturity Bond, Quality Bond and Large
Cap Value 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 Limited Maturity Bond, 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 Large Cap Value 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.
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The Emerging Growth 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.
For information on risks involved in investing in foreign securities, see
information on "Investments in Foreign Equity Securities" below.
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 Limited Maturity Bond, Quality
Bond and High Yield Bond Funds may invest in collateralized mortgage obligations
("CMS"). CMS 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 CMS on the same schedule as they are
received, although certain classes of CMS have priority over others with respect
to the receipt of prepayments on the mortgages. Therefore, depending on the type
of CMS 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. CMS
may also be less marketable than other securities.
Asset-Backed Securities. The Limited Maturity Bond, Quality Bond, High
Yield 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.
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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.
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.
Convertible Securities. The Funds 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.
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Investments in Foreign Equity Securities
The Growth and Income, Growth Equity, Large Cap Value, Mid Cap Growth, Mid
Cap Value, Small Cap Value, 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 and Income - 30%,
Growth Equity - 30%; Large Cap Value - 25%; Small Cap Value Fund - 15%; Mid Cap
Growth Fund -25%; Mid Cap Value Fund - 25%; 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 Cap Value 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
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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.
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 and Income Fund, Growth Equity Fund, Large Cap Value Fund,
Mid Cap Growth Fund, Mid Cap Value Fund, Small Cap Value 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.
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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. 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 and Income, Growth Equity
Fund, Large Cap Value Fund, Small Cap Value Fund, Mid Cap Growth, Mid Cap
Equity, Emerging Growth Fund, Flexibly Managed Fund and High Yield Bond Funds
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 Limited Maturity Bond and Quality
Bond Funds 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 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 has valued 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 Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and
Mid Cap Value Funds may, consistent with their investment objectives and
policies invest an unlimited amount in 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 Large
Cap Value, Small Cap Value, 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 Limited Maturity Bond, Quality Bond, High Yield Bond, Flexibly Managed,
Growth and Income, Large Cap Value, Index 500, Mid Cap Growth, Mid Cap Value,
Emerging Growth, Small Cap Value and International Equity Funds 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
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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 (except
for Small Cap Value Fund) 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.
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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 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: (i) no more than 5% of the Fund's total assets
will be committed to initial margin deposits or premiums on options and (ii)
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.
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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 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.
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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 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.
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Tax Issue. Although the issue is not free from doubt, it is likely that
trade claims would be treated as non-securities 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 fourteen 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 borrows by, a Fund.
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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.
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 borrows 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 borrows, 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
21
<PAGE>
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.
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Limited Maturity Bond Fund
Investment restrictions (1) through (9) have been adopted by the Limited
Maturity Bond Fund as fundamental policies.
The Fund may not: (1) Diversification. With respect to 75% of its assets,
invest more than 5% of the value of the Fund's total assets in the securities of
a single issuer or purchase more than 10% of the outstanding voting securities
of any one issuer, except securities issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities; (2) Industry Concentration.
Purchase securities of any issuer if, as a result, more than twenty-five
percent 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 (i) there are no limitations on the amount that may be
invested in the securities of the U.S. Government and instrumentalities; (ii)
the Fund may invest in the securities of open-end management investment
companies to the extent permitted by applicable law; (iii) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (iv)
financial services companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (v) asset backed
securities will be classified according to the underlying assets securing such
securities; (3) Real Estate. Purchase or sell real estate although it may
purchase or sell securities of companies whose business involves the purchase or
sale of real estate and may purchase and sell securities that are secured by
interests in real estate; (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, unless
acquired as a result of ownership of securities or other instruments (except
this shall not prevent the Fund from entering into interest rate futures
contracts or options thereon or from investing in securities or other
instruments backed by the physical commodities); (6) Borrowing. Borrow money
except to the extent permitted by the 1940 Act, the rules or regulations
thereunder or any exemption therefrom, as such statute, rules or regulations may
be amended from time to time; (7) Underwriting. Act as an underwriter of
securities within the meaning of the Federal securities laws, except insofar as
it might be deemed to be an underwriter upon disposition of certain portfolio
securities acquired within the limitation on purchases of restricted securities;
(8) Senior Securities. Issue senior securities (as defined in the 1940 Act)
except in connection with permitted borrowing as described in (6) above or as
permitted by rule, regulation or order of the SEC. Restrictions on senior
securities do not apply to certain techniques (such as reverse repurchase
agreements) entered into in compliance with applicable laws and interpretations
thereof; and (9) Lending. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements and make loans of
portfolio securities in accordance with its investment objectives and policies.
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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 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
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<PAGE>
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 borrows 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.
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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) 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
23
<PAGE>
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 borrows 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 borrows,
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 Borrows 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.
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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
24
<PAGE>
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 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
(14) 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 (14)
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 borrows will reduce net
investment income. The Fund may enter into futures contracts as set forth in
(14) 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 borrows, 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.
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Growth and Income Fund
Investment restrictions (1) through (9) have been adopted by the Growth and
Income Fund as fundamental policies.
The Fund may not: (1) Diversification. With respect to 75% of its assets,
invest more than 5% of the value of the Fund's total assets in the securities of
a single issuer or purchase more than 10% of the outstanding voting securities
of any one issuer, except securities issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities; (2) Industry Concentration.
Purchase securities of any issuer if, as a result, more than twenty-five
percent of the value of the Fund's total assets would be invested in the
securities of issuers having their
25
<PAGE>
principal activities in the same industry; provided, however, that (i) there are
no limitations on the amount that may be invested in the securities of the U.S.
Government and instrumentalities; (ii) the Fund may invest in the securities of
open-end management investment companies to the extent permitted by applicable
law; (iii) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be considered a
separate industry; (iv) financial services companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry; and (v) asset backed securities will be classified according to the
underlying assets securing such securities; (3) Real Estate. Purchase or sell
real estate although it may purchase or sell securities of companies whose
business involves the purchase or sale of real estate and may purchase and sell
securities that are secured by interests in real estate; (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, unless acquired as a result of ownership of securities or
other instruments (except this shall not prevent the Fund from entering into
interest rate futures contracts or options thereon or from investing in
securities or other instruments backed by the physical commodities); (6)
Borrowing. Borrow money except to the extent permitted by the 1940 Act, the
rules or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended from time to time; (7) Underwriting. Act as
an underwriter of securities within the meaning of the Federal securities laws,
except insofar as it might be deemed to be an underwriter upon disposition of
certain portfolio securities acquired within the limitation on purchases of
restricted securities; (8) Senior Securities. Issue senior securities (as
defined in the 1940 Act) except in connection with permitted borrowing as
described in (6) above or as permitted by rule, regulation or order of the SEC.
Restrictions on senior securities do not apply to certain techniques (such as
reverse repurchase agreements) entered into in compliance with applicable laws
and interpretations thereof; and (9) Lending. Make loans, except that the Fund
may purchase or hold debt instruments and may enter into repurchase agreements
and make loans of portfolio securities in accordance with its investment
objectives and policies.
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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 borrows 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
26
<PAGE>
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 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 borrows, 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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Large Cap Value Fund
Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and
(15) are fundamental policies of the Large Cap Value 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 Large Cap Value 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
27
<PAGE>
to facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities; interest paid on any such borrows 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 borrows,
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.
- --------------------------------------------------------------------------------
Index 500 Fund
Investment restrictions (1) through (9) have been adopted by the Index
500 Fund as fundamental policies.
The Fund may not: (1) Diversification. With respect to 75% of its
assets, invest more than 5% of the value of the Fund's total assets in the
securities of a single issuer or purchase more than 10% of the outstanding
voting securities of any one issuer, except securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities; (2) Industry
Concentration. Purchase securities of any issuer if, as a result, more than
twenty-five percent 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 (i) there are no limitations on the amount
that may be invested in the securities of the U.S. Government and
instrumentalities; (ii) the Fund may invest in the securities of open-end
management investment companies to the extent permitted by applicable law; (iii)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (iv) financial services companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (v) asset
backed securities will be classified according to the underlying assets securing
such securities; (3) Real Estate. Purchase or sell real estate although it may
purchase or sell securities of companies whose business involves the purchase or
sale of real estate and may purchase and sell securities that are secured by
interests in real estate; (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, unless
acquired as a result of ownership of securities or other instruments (except
this shall not prevent the Fund from entering into interest rate futures
contracts or options thereon or from investing in securities or other
instruments backed by the physical commodities); (6) Borrowing. Borrow money
except to the extent permitted by the 1940 Act, the rules or regulations
thereunder or any exemption therefrom, as such statute, rules or regulations may
be amended from time to time; (7) Underwriting. Act as an underwriter of
securities within the meaning of the Federal securities laws, except insofar as
it might be deemed to be an underwriter upon disposition of certain portfolio
securities acquired within the limitation on purchases of restricted securities;
(8) Senior Securities. Issue senior securities (as defined in the 1940 Act)
except in connection with permitted borrowing as described in (6) above or as
permitted by rule, regulation or order of the SEC. Restrictions on senior
securities do not apply to certain techniques (such as reverse repurchase
agreements) entered into in compliance with applicable laws and interpretations
thereof; and (9) Lending. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements and make loans of
portfolio securities in accordance with its investment objectives and policies.
28
<PAGE>
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
Investment restrictions (1) through (9) have been adopted by the Mid
Cap Growth Fund as fundamental policies.
The Fund may not: (1) Diversification. With respect to 75% of its
assets, invest more than 5% of the value of the Fund's total assets in the
securities of a single issuer or purchase more than 10% of the outstanding
voting securities of any one issuer, except securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities; (2) Industry
Concentration. Purchase securities of any issuer if, as a result, more than
twenty-five percent 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 (i) there are no limitations on the amount
that may be invested in the securities of the U.S. Government and
instrumentalities; (ii) the Fund may invest in the securities of open-end
management investment companies to the extent permitted by applicable law; (iii)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (iv) financial services companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (v) asset
backed securities will be classified according to the underlying assets securing
such securities; (3) Real Estate. Purchase or sell real estate although it may
purchase or sell securities of companies whose business involves the purchase or
sale of real estate and may purchase and sell securities that are secured by
interests in real estate; (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, unless
acquired as a result of ownership of securities or other instruments (except
this shall not prevent the Fund from entering into interest rate futures
contracts or options thereon or from investing in securities or other
instruments backed by the physical commodities); (6) Borrowing. Borrow money
except to the extent permitted by the 1940 Act, the rules or regulations
thereunder or any exemption therefrom, as such statute, rules or regulations may
be amended from time to time; (7) Underwriting. Act as an underwriter of
securities within the meaning of the Federal securities laws, except insofar as
it might be deemed to be an underwriter upon disposition of certain portfolio
securities acquired within the limitation on purchases of restricted securities;
(8) Senior Securities. Issue senior securities (as defined in the 1940 Act)
except in connection with permitted borrowing as described in (6) above or as
permitted by rule, regulation or order of the SEC. Restrictions on senior
securities do not apply to certain techniques (such as reverse repurchase
agreements) entered into in compliance with applicable laws and interpretations
thereof; and (9) Lending. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements and make loans of
portfolio securities in accordance with its investment objectives and policies.
- --------------------------------------------------------------------------------
Mid Cap Value Fund
Investment restrictions (1) through (9) have been adopted by the Mid
Cap Value Fund Bond Fund as fundamental policies.
The Fund may not: (1) Diversification. With respect to 75% of its
assets, invest more than 5% of the value of the Fund's total assets in the
securities of a single issuer or purchase more than 10% of the outstanding
voting securities of any one issuer, except securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities; (2) Industry
Concentration. Purchase securities of any issuer if, as a result, more than
twenty-five percent 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 (i) there are no limitations on the amount
that may be invested in the securities of the U.S. Government and
instrumentalities; (ii) the Fund may invest in the securities of open-end
management investment companies to the extent permitted by applicable law; (iii)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (iv) financial services companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (v) asset
backed securities will be classified according to the underlying assets securing
such securities; (3) Real Estate. Purchase or sell real estate although it may
purchase or sell securities of companies whose business involves the purchase or
sale of real estate and may purchase and sell securities that are secured by
interests in real estate; (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, unless
acquired as a result of ownership of securities or other instruments (except
this shall not prevent the Fund from entering into interest rate futures
contracts or options thereon or from investing in securities or other
instruments backed by the physical commodities); (6) Borrowing. Borrow money
except to the extent permitted by the 1940 Act, the rules or
29
<PAGE>
regulations thereunder or any exemption therefrom, as such statute, rules or
regulations may be amended from time to time; (7) Underwriting. Act as an
underwriter of securities within the meaning of the Federal securities laws,
except insofar as it might be deemed to be an underwriter upon disposition of
certain portfolio securities acquired within the limitation on purchases of
restricted securities; (8) Senior Securities. Issue senior securities (as
defined in the 1940 Act) except in connection with permitted borrowing as
described in (6) above or as permitted by rule, regulation or order of the SEC.
Restrictions on senior securities do not apply to certain techniques (such as
reverse repurchase agreements) entered into in compliance with applicable laws
and interpretations thereof; and (9) Lending. Make loans, except that the Fund
may purchase or hold debt instruments and may enter into repurchase agreements
and make loans of portfolio securities in accordance with its investment
objectives and policies.
- --------------------------------------------------------------------------------
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 borrows (including reverse repurchase
agreements), financial options and other hedging activities.
30
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Value Fund
Investment restrictions (1) through (9) are fundamental policies of the
Small Cap Value 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 borrows (including reverse repurchase
agreements), financial options and other hedging activities.
- --------------------------------------------------------------------------------
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
31
<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 borrows 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 borrows, 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.
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.
32
<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.
- --------------------------------------------------------------------------------
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 Money Market, Limited Maturity
Bond, Quality Bond, Growth and Income and Growth Equity Funds. See "INVESTMENT
ADVISER" in the prospectus for information regarding ICMI and investment
advisory and management services provided to the Funds by ICMI.
The Money Market, Limited Maturity Bond, Quality Bond, Growth and Income
and Growth Equity 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: Money
Market Fund, 0.20%; Limited Maturity Bond Fund, 0.30%; Quality Bond Fund, 0.35%;
Growth and Income Fund, 0.50%; and Growth Equity Fund, 0.65%. The advisory fees
for the Money Market, Quality Bond, and Growth Equity Funds will be reduced by
0.05% with respect to average daily net assets in excess of $100,000,000.
For providing investment advisory and management services to the High Yield
Bond, Flexibly Managed, Large Cap Value, Index 500, Mid Cap Growth, Small Cap
Value, and International Equity 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: High Yield Bond, 0.50%; Flexibly Managed, 0.60%; Large Cap Value,
0.60%; Index 500, 0.07%, Mid Cap Growth, 0.70%; Small Cap Value, 0.85%; and
International Equity Fund, 0.85%.
For providing investment advisory and management services to the Mid Cap
Value 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: 0.55% of
the first $250,000,000; 0.525% of the next $250,000,000; 0.50% of the next
$250,000,000; 0.475% of the next $250,000,000; 0.45% of the next $500,000,000;
and 0.425% of average daily net assets in excess of $1,500,000,000.
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.
Wells Capital Management Incorporated. Wells Capital Management
Incorporated ("Wells") serves as sub-adviser to the Index 500 Fund and performs
day-to-day investment management services to the Fund. See "INVESTMENT
SUB-ADVISERS" in the Prospectus for more information regarding the investment
advisory services provided to the Fund. For providing sub-advisory services to
the Index 500 Fund, ICMI pays Wells, on a monthly basis, a sub-advisory fee
based on average daily net assets of the Fund, at an annual rate of 0.07% of the
first $100,000,000 of average daily net assets and 0.03% of average daily net
assets in excess of $100,000,000.
Turner Investment Partners, Inc. Turner Investment Partners, Inc.
("Turner") serves as sub-adviser to the Mid Cap Growth Fund and performs
day-to-day investment management services to the Fund. See "INVESTMENT
SUB-ADVISERS" in the Prospectus for information regarding the investment
advisory services provided to the Fund. For providing sub-advisory services to
the Mid Cap Growth Fund, ICMI pays Turner, on a monthly basis, based on the
average daily net assets of the Fund, a sub-advisory fee at an annual rate of
0.50%.
Neuberger Berman Management, Inc. Neuberger Berman Management, Inc.
("Neuberger Berman") serves as sub-adviser to the Mid Cap Value Fund and
performs day-to-day investment management services to the Fund. See "INVESTMENT
SUB-ADVISERS" in the Prospectus for more information regarding the investment
advisory services provided to the Fund. For providing sub-advisory service to
the Mid Cap Value Fund, ICMI pays
33
<PAGE>
Neuberger Berman, on a monthly basis, a sub-advisory fee based on average daily
net assets of the Fund, at an annual rate of 0.43%.
Putnam Investment Management, Inc. ("Putnam") serves as sub-adviser to
the Large Cap Value Fund and performs day-to-day investment management services
to the Fund. See "INVESTMENT SUB-ADVISERS" in the Prospectus for more
information regarding the investment advisory services provided to the Fund. For
providing sub-advisory services to the Large Cap Value Fund, ICMI pays Putnam,
on a monthly basis, based on the average daily net assets of the Fund, a
sub-advisory fee at an annual rate of 0.475% of the first $150,000,000 of
average daily net assets; 0.425% of the next $150,000,000 of average daily net
assets; and 0.35% of average daily net assets of the Fund in excess of
$300,000,000.
Royce Associates, Inc. Royce Associates Inc.("Royce") serves as
sub-adviser to the Small Cap Value Fund and performs day-to-day investment
management services for the Fund. See "INVESTMENT SUB-ADVISERS" in the
prospectus for more information regarding the sub-advisory services provided to
the Fund. For providing sub-advisory service to the Small Cap Value Fund, ICMI
pays Royce, on a monthly basis, a sub-advisory fee based on average daily net
assets of the Fund, at an annual rate of 0.70% of the first $25,000,000 of
average daily net assets; 0.65% with respect to the next $75,000,000 of average
daily net assets; and 0.60% of average daily net assets in excess of
$100,000,000.
T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. ("Price
Associates") serves as sub-adviser to 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 more information regarding the
sub-advisory services provided to the Funds. For providing sub-advisory
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 as the combined total average daily net assets of the two Funds exceed
$750,000,000.
Vontobel USA Inc. Vontobel USA Inc. ("Vontobel") serves as subadviser
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 the sub-advisory services provided to the
Fund. For providing sub-advisory 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%.
RS Investment Management, Inc. RS Investment Management, Inc. (formerly
"Robertson Stephens Investment Management, Inc.") ("RSIM") serves as sub-adviser
to the Emerging Growth Fund and performs day-to-day investment management
services for the Fund. See "INVESTMENT SUB-ADVISERS" in the prospectus for more
information regarding the sub-advisory services provided to the Fund. ICMI pays
RSIM, 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.
In the years 1999, 1998, and 1997, the Funds paid advisory fees to each
Fund's investment adviser as set forth in the following table.
<TABLE>
<CAPTION>
Fund 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $ 263,557 $ 181,722 $ 148,226
- -------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 251,361 206,065 164,758
- -------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 355,521 326,267(2) 254,474
- -------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 2,531,597 2,719,881(3) 2,310,427
- -------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 1,076,233 753,060 600,772
- -------------------------------------------------------------------------------------------------------------------------
Large Cap Value Fund 1,591,815 1,651,501(4) 1,279,429
- -------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund(1) 623,468 208,963(5) 50,608(8)
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 214,871 210,456(6) 137,566
- -------------------------------------------------------------------------------------------------------------------------
International Equity Fund 1,234,994 1,071,377(7) 912,368
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
- ------------------
(1) The Emerging Growth Fund commenced operations on May 1, 1997.
(2) For the period from January 1, 1998 to April 30, 1998, the High Yield Bond
Fund paid $102,744 to Price Associates. For the period from May 1, 1998 to
December 31, 1998, the High Yield Bond Fund paid $223,523 to ICMI. For the
period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory fees of
$197,064 to Price Associates.
(3) For the period January 1, 1998 to April 30, 1998, the Flexibly Managed Fund
paid $887,116 to Price Associates. For the period from May 1, 1998 to
December 31, 1998, the Flexibly Managed Fund paid $1,832,765 to ICMI. For
the period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory
fees of $1,615,755 to Price Associates.
(4) For the period from January 1, 1998 to April 30, 1998, the Large Cap Value
Fund paid $534,722 to OpCap Advisors. For the period from May 1, 1998 to
December 31, 1998, the Large Cap Value Fund paid $1,116,779 to ICMI. For
the period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory
fees of $759,501 to OpCap.
(5) For the period ended December 31, 1998, ICMI paid subadvisory fees of
$175,491 to R.S. Investment Management.
(6) For the period from January 1, 1998 to April 30, 1998, the Small Cap Value
Fund paid $69,824 to OpCap. For the period from May 1, 1998 to December 31,
1998, the Small Cap Value Fund paid $140,632 to ICMI. For the period from
May 1, 1998 to December 31, 1998, ICMI paid subadvisory fees of $95,631 to
OpCap.
(7) For the period from January 1, 1998 to April 30, 1998, the International
Equity Fund paid $342,141 to Vontobel. For the period from May 1, 1998 to
December 31, 1998, the International Equity Fund paid $729,236 to ICMI. For
the period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory
fees of $486,157 to Vontobel.
(8) For the eight months ended December 31, 1997, ICMI paid subadvisory fees
to RSIM in the amount of $45,346.
In 1999, High Yield Bond, Flexibly Managed, Large Cap Value, Emerging
Growth, Small Cap Value and International Funds paid subadvisory fees of
$315,214, $2,244,480, $1,087,228, $539,665, $146,784 and $823,329, respectively.
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 1998, ICMI paid subadvisory 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
subadvisory fees to RSIM in the amount of $45,346.
The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and
Mid Cap Value Funds were not in existence during the fiscal years ended December
31, 1999, 1998 or 1997.
- --------------------------------------------------------------------------------
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.
35
<PAGE>
For fiscal years 1999, 1998, and 1997 the administrative fees paid to Penn
Mutual by each of the Funds then in existence were as follows:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $ 98,834 $ 68,174 $ 56,455
- -----------------------------------------------------------------------------------------------------
Quality Bond Fund 83,787 68,688 56,299
- -----------------------------------------------------------------------------------------------------
High Yield Bond Fund 106,656 97,880 76,344
- -----------------------------------------------------------------------------------------------------
Flexibly Managed Fund 759,479 815,964 693,190
- -----------------------------------------------------------------------------------------------------
Growth Equity Fund 342,077 234,353 186,580
- -----------------------------------------------------------------------------------------------------
Large Cap Value Fund 477,544 495,450 383,864
- -----------------------------------------------------------------------------------------------------
Emerging Growth Fund* 125,665 39,416 1,483
- -----------------------------------------------------------------------------------------------------
Small Cap Value Fund 64,461 63,137 41,270
- -----------------------------------------------------------------------------------------------------
International Equity Fund 246,999 214,275 182,487
- -----------------------------------------------------------------------------------------------------
* The Emerging Growth Fund commenced operations on May 1, 1997.
- -----------------------------------------------------------------------------------------------------
</TABLE>
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.
The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and
Mid Cap Value Funds were not active in the fiscal year ended December 31, 1999.
- --------------------------------------------------------------------------------
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's 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 of all records for each Fund 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.
<PAGE>
For fiscal years 1999, 1998, and 1997, the accounting fees paid by each of
the Funds then in existence were as follows:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $ 49,417 $ 34,073 $ 28,227
- -----------------------------------------------------------------------------------------------------
Quality Bond Fund 41,893 34,344 28,211
- -----------------------------------------------------------------------------------------------------
High Yield Bond Fund 53,328 48,940 38,169
- -----------------------------------------------------------------------------------------------------
Flexibly Managed Fund 236,896 248,193 223,627
- -----------------------------------------------------------------------------------------------------
Growth Equity Fund 139,026 103,118 87,177
- -----------------------------------------------------------------------------------------------------
Large Cap Value Fund 180,216 183,900 152,928
- -----------------------------------------------------------------------------------------------------
Emerging Growth Fund* 60,554 26,161 6,127
- -----------------------------------------------------------------------------------------------------
Small Cap Value Fund 32,231 31,608 27,518
- -----------------------------------------------------------------------------------------------------
International Equity Fund 123,799 110,710 97,981
- -----------------------------------------------------------------------------------------------------
* The Emerging Growth Fund commenced operations on May 1, 1997.
</TABLE>
The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and Mid
Cap Value Funds were not in existence during the fiscal years ended December 31,
1999, 1998 and 1997.
- --------------------------------------------------------------------------------
Limitation on Fund Expenses
See "EXPENSES AND LIMITATIONS" in the prospectus for information on
limitations on expenses of the Funds.
36
<PAGE>
- --------------------------------------------------------------------------------
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
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
37
<PAGE>
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 1999, 1998, and 1997, the Quality Bond Fund engaged in
portfolio transactions involving broker-dealers totaling $1,285,970,834,
$1,548,170,055 and $1,504,902,144, respectively. For fiscal years 1999, 1998,
and 1997, the High Yield Bond Fund engaged in portfolio transactions involving
broker-dealers totaling $404,166,000, $737,865, and $362,910,185, respectively,
and the Money Market Fund engaged in portfolio transactions involving
broker-dealers totaling $308,916,271, $479,932,894, and $337,784,744,
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.
For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Flexibly Managed Fund, including the discounts received by securities
dealers in connection with underwritings, were $798,529, $1,259,520 and
$368,415, respectively. During 1999, the adviser directed transactions of
$25,676,793 (with related commissions of $41,017) to brokers who provided
research services.
For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Growth Equity Fund, including the discounts received by securities
dealers in connection with underwritings, were $1,142,502, $731,672, and
$595,881, respectively. During 1999, the adviser directed transactions of
$307,126, 361(with related commissions of $1,142,502) to brokers who provided
research services.
For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Large Cap Value Fund, including discounts received by securities dealers
in connection with underwritings, were $507,935, $195,772 and $111,699,
respectively. During 1999, the adviser directed transactions of $65,500,991
(with related commissions of $86,255) to brokers who provided research services.
For fiscal years 1999, 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 $859,021, $112,916 and $32,800.
During 1999, the adviser directed transactions of $23,178,627 (with related
commissions of $51,740) to brokers who provide research services.
For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Small Cap Value Fund, including the discounts received by the Securities
division in connection with underwritings, were $164,484, $107,030 and $82,820,
respectively. During 1999, the adviser directed transactions of $1,890,754 (with
related commissions of $5,005) to brokers who provided research services.
For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the International Equity Fund, including the discounts received by the
securities dealers in connection with underwritings, were $350,279, $305,099,
and $248,517, respectively. During 1999, the adviser allocated transactions of
$15,247,793 (with related commissions of $30,227) to brokers who provided
research services.
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
38
<PAGE>
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.
- --------------------------------------------------------------------------------
Directors and Officers
The affairs of Penn Series are managed under the direction of its Board of
Directors. The directors decide upon matters of general policy and review the
actions of Penn Series' investment advisers and sub-advisers and its
administrative and corporate services agent, as set forth below. The Penn
Series' officers conduct and supervise the daily business operations of Penn
Series.
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
The Penn Mutual Life and Chief Executive Officer (April 1995 - December 1996), President and Chief
Insurance Company Operating Officer (prior thereto), The Penn Mutual Life Insurance Company.
600 Dresher Road
Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
Larry L. Mast* Director Executive Vice President, The Penn Mutual Life Insurance Company May 1997 to present;
The Penn Mutual Life formerly Senior Vice President, Lafayette Life Insurance Company September 1994 to
Insurance Company May 1997; prior thereto Vice President, Security Benefit Insurance Company May 1993
600 Dresher Road to September 1994.
Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter M. Sherman President Chairman and President of Independence Capital Management Inc.; Executive Vice
600 Dresher Road President and Chief Investment Officer (since 1998), Senior Vice President and Chief
Horsham, PA 19044 Investment Officer (from 1996 to 1998), Head of Fixed Income Investments (from 1995
to 1996) of The Penn Mutual Life Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard F. Plush Vice President Vice President and Senior Actuary, The Penn Mutual Life Insurance Company (1973 to
600 Dresher Road 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, (December 1997 to present); Director of
600 Dresher Road Financial Planning and Treasurer (November 1995 to December 1997): Director, Cost and
Horsham, PA 19044 Budget (November 1991 to November 1995); Director, Benefits Administration, (prior
thereto), The Penn Mutual Life Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
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 Accounting
Horsham, PA 19044 (prior thereto), The Penn Mutual Life Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
* Director is an "interested person" of Penn Series, as defined in the Investment Company Act of 1940, as amended.
</TABLE>
39
<PAGE>
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 1999, Penn Series paid directors' fees in the aggregate
amount of $32,513 to directors who are not "interested persons" of Penn Series.
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.
- --------------------------------------------------------------------------------
Code of Ethics
Rule 17j-1 under the 1940 Act governs personal securities activities of
directors, officers and employees ("access persons") of investment companies,
its investment advisers and/or sub-advisers. Under amended Rule 17j-1, Penn
Series, ICMI and each sub-adviser are required to adopt Codes of Ethics in order
to ensure that the interests of shareholders are placed ahead of personal
interests. Penn Series has revised its Code of Ethics to comply with amended
Rule 17j-1. This revised Code of Ethics is designed to prevent unlawful
practices in connection with the purchase and sale of securities by access
persons. Access persons are permitted to engage in personal securities
transactions, but are required to report their personal securities transactions
for monitoring purposes. In addition, certain access persons are required to
obtain approval before investing in initial public offerings or private
placements.
Penn Series, ICMI and the sub-advisers each propose to submit their
revised Code of Ethics to the Penn Series' Board in the coming months for
adoption of these Codes of Ethics by the Board. Copies of the current Codes of
Ethics for Penn Series, ICMI and each sub-adviser are on file with the SEC.
- --------------------------------------------------------------------------------
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. Their
offices are located at 2001 Market Street, Suite 4000, Philadelphia, PA 19103.
Ernst & Young LLP also serves as the independent auditors of Penn Mutual.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
40
<PAGE>
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
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
Penn Mutual and its subsidiary, PIA and are held in their Separate Accounts
pursuant to variable annuity contracts and variable life insurance policies.
On April 5, 2000, the outstanding shares of Penn Series were owned as
follows:*
<TABLE>
<CAPTION>
Money Quality Flexibly Growth Large Cap Emerging Small
Market Bond High Yield Managed Equity Value Growth Cap Value International
Fund Fund Bond Fund Fund Fund Fund Fund Fund Equity 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 55.3% 66.7% 67.8% 70.5% 80.1% 72.0% 67.6% 54.7% 71.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Shares Owned by PIA and
Held in a Separate Account
Pursuant to Variable Annuity
Contracts 14.5% 17.5% 17.6% 16.4% 9.1% 13.3% 15.1% 21.5% 12.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Shares Owned by Penn
Mutual and Held in a Separate
Account Pursuant to Variable
Life Insurance Contracts 30.2% 15.8% 14.6% 13.1% 10.8% 14.7% 17.3% 23.8% 16.6%
- ------------------------------------------------------------------------------------------------------------------------------------
* Unaudited.
</TABLE>
41
<PAGE>
- --------------------------------------------------------------------------------
Tax Status
The following is only a summary of certain federal income and excise 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 and excise 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.
Each Fund within the Series is generally treated as a separate corporation
for federal income tax purposes, and thus the provisions of the Code generally
will be applied to each Fund separately, rather than to the Series as a whole.
Shares of the Funds will be purchased by Penn Mutual and PIA for their
separate accounts under variable annuity contracts and variable life insurance
policies. Under the provisions of the Code currently in effect, 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 a Fund
and federal income taxation of owners of variable life insurance contracts or
variable life insurance policies, please refer to the contract prospectus.
It is the policy of each of the Funds to continue to qualify for and to
elect the favorable tax treatment accorded regulated investment companies under
Subchapter M of the Code. By following such policy, each of the Funds expects
that it will not be subject to Federal income taxes on net investment income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to shareholders.
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 or of two or more issuers that
the Fund controls and that are engaged in the same, similar, or related trades
or businesses. For purposes of the 90% of gross income requirement described
above, foreign currency gains which are not directly related to a Fund's
principal business of investing in stock or securities (or options or futures
with respect to stock or securities) may be excluded from income that qualifies
under the 90% requirement. 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 under the Code, it
will not be subject to Federal income tax on the part of its 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 net
investment income (generally, dividends, taxable interest, and the excess, if
any, of net short-term capital gains over net long-term capital losses less
certain operating expenses) and (b) 90% of its net tax exempt interest income
(the excess of its tax-exempt interest income over certain deductions
attributable to that income) (the "Distribution Requirement").
Although each Fund intends to distribute substantially all of its net
investment income and capital gains for any taxable year, a Fund will be subject
to federal income taxation to the extent any such income or gains are not
distributed.
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 treated as
ordinary dividends to the extent of the fund's current or accumulated earnings
and profits.
42
<PAGE>
No Fund will be subject to the 4% excise tax normally imposed on regulated
investment companies that do not distribute substantially all of their income
and gains each calendar year, because that tax does not apply to a regulated
investment company whose only shareholders are segregated asset accounts of life
insurance companies held in connection with variable annuity accounts and/or
variable life insurance policies.
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 income earned and in turn, affect the application of
the Distribution Requirement to a particular Fund. Further, because a Fund may
be required to recognize income without a corresponding receipt of cash, a Fund
may be required, in order to satisfy the Distribution Requirement, to dispose of
portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources. 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.
Each Fund that invests in foreign securities may be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, thus reducing the net amount available for distribution to a Fund's
shareholders. The United States has entered into tax treaties with many foreign
countries that may entitle a Fund to a reduced rate of, or exemption from, taxes
on such income. It is impossible to determine the effective rate of foreign tax
in advance because the amount of a Fund's assets to be invested within various
countries is not known.
Rules relating to U.S. state and local taxation of dividend and capital
gains distributions from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult with their tax advisers as to the consequences of these and other
U.S. state and local tax rules regarding an investment in a Fund.
- --------------------------------------------------------------------------------
Voting Rights
Penn Series is an open end management investment company. Each Fund is
"diversified" as defined in the 1940 Act. The shares of the Funds have equal
voting rights, except that certain issues will be voted on separately by the
shareholders of each Fund. Penn Mutual and PIA own all the outstanding shares of
Penn Series, either in their separate accounts registered under the 1940 Act or
in their unregistered separate accounts or general accounts. Pursuant to the
1940 Act, however, Penn Mutual and PIA will vote the shares held in registered
separate accounts in accordance with voting instructions received from variable
contract owners or payees having the right to give such instructions. Fund
shares for which contract owners or payees are entitled to give voting
instructions, but as to which no voting instructions are received, and shares
owned by Penn Mutual and PIA in their general and unregistered separate
accounts, will be voted in proportion to the shares for which voting
instructions have been received. Under state insurance law and federal
regulations, there are certain circumstances under which Penn Mutual and PIA may
disregard such voting instructions. If voting instructions are ever so ignored,
contract owners will be advised of that action in the next semiannual report.
Penn Series currently does not intend to hold annual meetings of
shareholders unless required to do so under applicable law. The law provides
shareholders with the right under certain circumstances to call a meeting of
shareholders to consider removal of one or more directors. As required by law,
Penn Series will assist in variable contract owner and payee communication on
such matters.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the Commission, which require the use of standardized performance quotations.
In the case of total return, non-standardized performance quotations may be
furnished by the Fund but must be accompanied by certain standardized
performance information computed as required by the Commission. Current yield
and average annual compounded total return quotations
43
<PAGE>
used by the Fund are based on the standardized methods of computing performance
mandated by the Commission. An explanation of those and other methods used by
the Company to compute or express performance follows.
- --------------------------------------------------------------------------------
Total Return
From time to time each Fund, except the Money Market Fund, may advertise
total return. Total return figures are based on historical earnings and are not
intended to indicate future performance. The average annual total return is
determined by finding the average annual compounded rates of return over 1-, 5-,
and 10-year periods (or over the life of the Fund) that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes that all dividends and distributions are reinvested when paid. The
quotation assumes the amount was completely redeemed at the end of each 1-, 5-,
and 10-year period (or over the life of the Fund) and the deduction of all
applicable Company expenses on an annual basis.
The average annual compounded rates of return (unless otherwise noted) for
the Funds for the periods ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Average Average Average
Inception One Annual Annual Annual Since
Name of Fund Date Year Five Years Ten Years Inception
- ------------ ---------- ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Quality Bond 11/1/92* 0.00% 8.29% N/A 6.82%
High Yield Bond 7/23/84 4.24% 10.87% 10.38% 10.04%
Flexibly Managed 7/23/84 7.15% 13.34% 11.54% 14.08%
Growth Equity 11/1/92* 34.10% 29.53% N/A 21.41%
Large Cap Value 11/1/92** -0.80% 18.52% N/A 14.75%
Emerging Growth 5/1/97 185.03% N/A N/A 87.87%
Small Cap Value 3/1/95 -1.33% N/A N/A 8.58%
International Equity 11/2/92 45.78% 20.53% N/A 18.42%
- ------------------------------------------------------------------------------------------------------------------
* Date ICMI began managing the Fund's investments.
** Date OpCap Advisors, the Fund's previous manager, began managing the Fund's investments.
</TABLE>
These figures were calculated according to the following formula:
P(1 +T)n=ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical
$1,000 payment made at the beginning of the
l-, 5-, or 10-year periods at the end of the
l-, 5-, or 10-year periods (or fractional
portion thereof).
- --------------------------------------------------------------------------------
The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth
and Mid Cap Value Funds were not in existence during the fiscal years ending
December 31, 1999, 1998 and 1997.
44
<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.
45
<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 the following speculative
elements: their future cannot be considered as well-assured; 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; and 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.
46
<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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF PENN SERIES
- --------------------------------------------------------------------------------
The following pages include audited financial statements and financial
highlights as of December 31, 1999 for the Money Market Fund, Quality Bond Fund,
High Yield Bond Fund, Flexibility Managed Fund, Growth Equity Fund, Large Cap
Value Fund, Emerging Growth Fund, Small Cap Value Fund, and International Equity
Fund.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
47
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS -- DECEMBER 31, 1999
THE MONEY MARKET FUND
Par
(000) Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 50.9%
- --------------------------------------------------------------------------------
Albertson's, Inc.
5.850%, 01/18/00 2,000 $ 1,994,475
American Express Credit Corp.
6.500%, 01/26/00 500 497,743
AT&T Corp.
6.380%, 01/11/00 2,000 1,996,456
5.750%, 01/27/00 555 552,695
Carolina Power & Light Co.
6.070%, 01/28/00 2,000 1,990,895
Caterpillar Financial Service Corp.
5.900%, 01/14/00 2,500 2,494,674
5.550%, 03/06/00 1,000 989,979
Coca-Cola Co.
5.850%, 01/14/00 493 491,959
5.850%, 02/11/00 500 496,669
Countrywide Home Loans
5.500%, 01/06/00 1,000 999,236
Daimlerchrysler NA Holdings Corp.
5.680%, 02/04/00 1,475 1,467,087
5.850%, 02/08/00 500 496,912
Disney (Walt) Co.
5.750%, 03/15/00 186 183,802
Duke Capital Corp.
6.250%, 01/14/00 500 498,872
5.850%, 01/25/00 1,000 996,100
Duke Energy Corp.
5.100%, 01/05/00 271 270,846
Fleet Funding Corp.
6.000%, 01/31/00 367 365,165
5.930%, 02/16/00 1,000 992,423
Ford Motor Credit Corp.
5.720%, 01/03/00 314 313,900
General Electric Capital Corp.
6.500%, 01/18/00 981 977,989
5.980%, 01/20/00 500 498,422
5.550%, 01/25/00 100 996,300
5.930%, 01/31/00 500 497,529
General Electric Capital Services
5.840%, 01/21/00 500 498,378
General Mills, Inc.
5.870%, 01/05/00 1,000 999,348
General Motors Acceptance Corp.
5.950%, 01/27/00 800 796,562
5.680%, 02/04/00 178 177,045
Gillette Co.
6.400%, 01/14/00 2,200 2,194,916
5.850%, 01/28/00 1,000 995,612
GTE Corp.
5.980%, 01/18/00 1,000 997,176
6.000%, 01/18/00 1,000 997,167
6.060%, 01/24/00 1,000 996,128
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hasbro, Inc.
5.000%, 01/03/00 735 $ 734,796
IBM Credit Corp.
5.720%, 02/09/00 1,000 993,803
Kimberly-Clark WW
5.830%, 01/21/00 1,000 996,761
Merrill Lynch & Co.
6.000%, 01/18/00 500 498,583
5.600%, 01/26/00 260 258,989
5.990%, 01/31/00 302 300,493
5.930%, 02/01/00 2,000 1,989,787
Monsanto Co.
5.550%, 03/06/00 1,250 1,237,474
Motorola Credit Corp.
5.820%, 03/17/00 599 591,640
New York, New York
6.150%, 03/01/00 1,000 1,000,000
6.150%, 03/01/00 600 600,000
PG&E Corp.
5.750%, 01/19/00 480 478,620
5.770%, 01/19/00 1,000 997,115
5.770%, 01/25/00 261 259,996
Procter & Gamble Co.
5.860%, 01/25/00 2,000 1,992,187
5.550%, 02/29/00 200 198,181
5.870%, 01/18/00 1,250 1,246,535
--------------
TOTAL COMMERCIAL PAPER
(Cost $44,087,420) 44,087,420
--------------
- --------------------------------------------------------------------------------
CORPORATE BONDS --19.0%
- --------------------------------------------------------------------------------
Alabama Power Co.
6.000%, 03/01/00 200 200,329
Albertson's, Inc.
6.375%, 06/01/00 250 250,445
Associates Corp. NA
6.000%, 03/15/00 1,170 1,169,377
5.250%, 03/30/00 646 644,617
6.000%, 06/15/00 160 159,779
6.250%, 09/15/00 250 249,873
BellSouth Telecommunications
6.500%, 02/01/00 150 150,165
Carolina Power & Light Co.
6.125%, 02/01/00 525 525,270
Chrysler Financial Co., LLC
6.375%, 01/28/00 200 200,175
6.625%, 08/15/00 562 563,204
Duke Energy Corp.
7.000%, 06/01/00 250 250,742
Fleet Mortgage Group, Inc.
6.500%, 06/15/00 575 576,711
FleetBoston Financial Corp.
7.125%, 05/01/00 1,000 1,006,322
1
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS -- DECEMBER 31, 1999 (Continued)
THE MONEY MARKET FUND
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ford Motor Credit Corp.
8.375%, 01/15/00 1,000 $ 1,001,162
6.850%, 08/15/00 1,000 1,004,046
6.250%, 11/08/00 310 310,077
General Motors Acceptance Corp.
7.000%, 03/01/00 592 593,537
IBM Corp.
6.375%, 06/15/00 2,195 2,198,933
International Lease Finance Corp.
6.375%, 01/18/00 365 365,038
6.200%, 05/01/00 210 210,313
6.625%, 08/15/00 250 250,816
Mellon Financial Co.
6.300%, 06/01/00 205 205,452
Merrill Lynch & Co., Inc.
6.000%, 01/15/01 100 99,243
Morgan Stanley Dean Witter
6.250%, 03/15/00 980 981,744
Norwest Financial, Inc.
7.250%, 03/15/00 1,000 1,003,949
Sherwin-Williams Co.
6.250%, 02/01/00 875 875,521
Southwestern Bell Telephone Co.
6.125%, 03/01/00 495 494,978
Wells Fargo Co.
6.000%, 03/15/00 894 894,741
--------------
TOTAL CORPORATE BONDS
(Cost $16,436,559) 16,436,559
--------------
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES** -- 13.3%
- --------------------------------------------------------------------------------
Alabama State Industrial Development Authority
6.750%, 01/07/00 500 500,000
Barton Healthcare, LLC
6.600%, 01/05/00 410 410,000
Berks County, Pennsylvania,
Industrial Development Authority
6.800%, 01/07/00 535 535,000
Bloomfield, New Mexico
6.600%, 01/07/00 600 600,000
Columbia County, Georgia,
Development Authority
6.600%, 01/07/00 1,290 1,290,000
Community Health Systems, Inc.
6.050%, 01/07/00 1,065 1,065,000
6.050%, 01/07/00 255 255,000
Durham, North Carolina,
Certificates of Participation
5.950%, 01/07/00 500 500,000
Fairview Hospital & Healthcare Services
6.500%, 01/07/00 500 500,000
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GMG Warehouse, LLC
6.600%, 01/05/00 800 $ 800,000
Health Insurance Plan of Greater NY
6.000%, 01/07/00 500 500,000
Illinois Development Finance Authority
6.600%, 01/07/00 600 600,000
Liliha Parking LP
6.050%, 01/05/00 1,755 1,755,000
Montgomery County, Pennsylvania,
Industrial Development Authority
6.800%, 01/07/00 1,060 1,060,000
Silver City, New Mexico
6.600%, 01/07/00 600 600,000
St. Francis Healthcare Foundation
6.050%, 01/07/00 490 490,000
----------
TOTAL VARIABLE RATE DEMAND NOTES
(Cost $11,460,000) 11,460,000
----------
- --------------------------------------------------------------------------------
MEDIUM TERM NOTES -- 7.7%
- --------------------------------------------------------------------------------
Associates Corp. NA
7.750%, 03/14/00 50 50,260
Caterpillar Financial Service Corp.
8.750%, 05/12/00 40 40,411
Chrysler Financial Co., LLC
5.700%, 01/13/00 300 299,965
6.610%, 06/16/00 280 280,655
General Electric Capital Corp.
5.600%, 01/14/00 650 649,988
5.835%, 04/28/00 100 100,200
6.000%, 09/13/00 150 149,625
General Motors Acceptance Corp.
5.750%, 01/05/00 200 200,011
6.250%, 01/06/00 1,040 1,040,153
6.650%, 05/05/00 415 415,742
6.650%, 05/24/00 100 100,542
6.900%, 06/06/00 300 301,963
Honeywell, Inc.
7.350%, 06/01/00 360 362,843
IBM Corp.
6.037%, 08/07/00 300 299,614
International Lease Finance Corp.
6.050%, 02/01/00 150 150,104
6.450%, 09/11/00 100 100,134
6.200%, 11/06/00 150 149,736
Merrill Lynch & Co.
6.475%, 03/01/00 250 250,330
Morgan (JP) & Co., Inc.
5.875%, 05/01/00 419 419,896
Pepsico, Inc.
5.875%, 06/01/00 1,075 1,074,145
2
<PAGE>
Par
(000) Value
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Southwestern Bell Communication
Capital Corp.
6.750%, 02/02/00 250 $ 250,127
-----------
TOTAL MEDIUM TERM NOTES
(Cost $6,686,444) 6,686,444
-----------
Number
of Shares Value
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 9.0%
- ------------------------------------------------------------------------
Janus Money Market Fund, Inc. 4,134,044 4,134,044
Provident Institutional Fund, Inc. 3,664,721 3,664,721
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $7,798,765) 7,798,765
-----------
TOTAL INVESTMENTS--99.9% 86,469,188
(Cost $86,469,188) (a)
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% 112,116
-----------
NET ASSETS APPLICABLE TO 86,584,064
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING-- 100.0% $86,581,304
===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $1.00
===================
- ------------------------------------------------------------------------
(a) Cost for Federal income tax purposes.
** The rate shown is the rate as of December 31, 1999, and the
maturity is the next interest readjustment date.
Percentage of Portfolio
Maturity Amount ----------------------------------
Schedule Par (cum)
- -------------------------------- -----
1 - 7 days $16,020,000 20.3% 20.3%
8 - 14 days 8,643,000 11.0% 31.3%
15 - 30 days 22,152,000 28.1% 59.4%
31 - 60 days 9,972,000 12.7% 72.1%
61 - 90 days 10,912,000 13.8% 85.9%
91 - 120 days 100,000 0.1% 86.0%
121 - 150 days 2,184,000 2.8% 88.8%
over 150 days 8,822,000 11.2% 100.0%
---------------- -------------
$78,805,000 100.0%
Average Weighted Maturity -- 48 days
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE QUALITY BOND FUND
Par
(000) Value
- --------------------------------------------------------------------------------
CORPORATE BONDS-- 20.5%
- --------------------------------------------------------------------------------
Canadian Government Agency--2.1%
Hydro-Quebec
8.050%, 07/07/24 1,000 $1,200,312
-----------
Computers--1.7%
IBM Corp.
6.220%, 08/01/27 1,000 966,250
-----------
Diversified Financial Services--2.7%
Associates Corp. N.A.
7.750%, 02/15/05 500 509,375
General Electric Capital Corp.
6.660%, 05/01/00 1,000 1,001,250
-----------
1,510,625
-----------
Electrical Equipment--4.3%
Cleveland Electric Illuminating Co.
7.880%, 11/01/17 2,500 2,384,375
-----------
Gas Transmission--0.4%
Williams Gas Pipeline
7.375%, 11/15/06 250 244,062
-----------
Retail--0.3%
Penney (J.C.) Co., Inc.
9.450%, 07/15/02 175 176,531
-----------
Services-Equipment Renting & Leasing--0.2%
Service Corp. International
7.000%, 06/01/15 100 83,125
-----------
Telecommunications--7.6%
Qwest Communications International, Inc.
7.250%, 11/01/08 3,000 2,876,250
Teleglobe, Inc.
7.700%, 07/20/29 1,500 1,353,750
-----------
4,230,000
-----------
Transportation--1.2%
CSX Corp.
7.050%, 05/01/02 660 657,525
-----------
TOTAL CORPORATE BONDS
(Cost $11,578,851) 11,452,805
-----------
- ---------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--15.4%
- ---------------------------------------------------------------
Treasury Bonds--8.3%
7.250%, 05/15/16 1,750 1,830,366
5.250%, 02/15/29 3,380 2,800,274
------------
4,630,640
------------
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Treasury Notes--7.1%
4.750%, 02/15/04 700 $ 660,625
7.250%, 05/15/04 380 391,510
6.500%, 10/15/06 1,250 1,247,136
5.625%, 05/15/08 350 329,370
4.750%, 11/15/08 1,550 1,368,307
--------------
3,996,948
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $8,971,012) 8,627,588
--------------
- --------------------------------------------------------------------------------
AGENCY OBLIGATIONS--85.0%
- --------------------------------------------------------------------------------
Federal Home Loan Bank Discount Note--35.7%
1.950%, 01/03/00 20,000 19,997,833
--------------
Federal Home Loan Mortgage Corporation--9.2%
8.000%, 12/01/19 5,100 5,149,419
--------------
Federal National Mortgage Association Bonds--40.1%
5.625%, 03/15/01 3,100 3,071,636
8.000%, 04/13/05 3,050 3,074,797
6.825%, 09/01/07 2,660 2,595,501
6.500%, 12/01/26 5,950 5,606,031
7.500%, 12/01/26 5,250 5,192,565
7.000%, 05/01/29 3,000 2,900,610
--------------
22,441,140
--------------
TOTAL AGENCY OBLIGATIONS
(Cost $47,908,675) 47,588,392
--------------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.6%
- --------------------------------------------------------------------------------
Morgan Stanley
6.950%, 12/10/07 455 418,610
Sasco, Series 1996-CFL
6.303%, 02/25/28 500 498,942
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $955,097) 917,552
--------------
- --------------------------------------------------------------------------------
COMMERCIAL ASSET BACKED SECURITIES--6.0%
- --------------------------------------------------------------------------------
Illinois Power Special Purpose Trust
5.380%, 06/25/07 2,500 2,345,600
Railcar Leasing, LLC
7.125%, 01/15/13 1,000 985,000
--------------
TOTAL COMMERCIAL ASSET BACKED SECURITIES
(Cost $3,429,610) 3,330,600
--------------
4
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE QUALITY BOND FUND
Number
of Shares Value
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS--9.3%
- ---------------------------------------------------------------
Janus Money Market Fund 2,776,573 $2,776,573
Provident Institutional Fund 2,456,221 2,456,221
-------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,232,794) 5,232,794
-------------
TOTAL INVESTMENTS--137.8%
(Cost $78,076,039) (a) 77,149,731
PAYABLE FOR SECURITIES
PURCHASED--(39.7%) (22,215,203)
OTHER ASSETS IN EXCESS
OF OTHER LIABILITIES--1.9% 1,040,007
------------
NET ASSETS APPLICABLE TO 5,383,024
SHARES OF COMMON STOCK ISSUED
AND OUTSTANDING--100.0% $ 55,974,535
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 10.40
============
- -------------------------------------------
(a) At December 31, 1999, the cost for Federal income tax purposes was
$78,162,913. Net unrealized depreciation was $1,013,182. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $56,594 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $1,069,776.
The accompanying notes are an integral part of these financial statements
5
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE HIGH YIELD BOND FUND
Par
(000) Value
- -----------------------------------------------------------
CORPORATE BONDS--86.5%
- -----------------------------------------------------------
Aerospace & Defense--1.4%
Communications & Power Industries
12.000%, 08/01/05 550 $ 448,250
Dyncorp, Inc.
9.500%, 03/01/07 425 376,125
IT Group, Inc.
11.250%, 04/01/09 125 121,875
-------------
946,250
-------------
Automobiles & Related--1.2%
Advance Stores Co., Inc.
10.250%, 04/15/08 150 129,750
Hayes Lemmerz International, Inc.
8.250%, 12/15/08 200 184,000
MSX International, Inc.
11.375%, 01/15/08 200 192,000
Venture Holdings Trust
9.500%, 07/01/05 350 320,250
--------------
826,000
--------------
Broadcast/Media--2.9%
Benedek Communications Corp.
14.153%**, 05/15/06 360 324,000
Chancellor Media Corp.
8.750%, 06/15/07 150 152,250
8.125%, 12/15/07 100 100,625
Citadel Broadcasting Company
9.250%, 11/15/08 350 351,750
Cumulus Media, Inc.
10.375%, 07/01/08 300 315,000
Radio Unica Corp.
13.443%**, 08/01/06 500 323,750
Sinclair Broadcast Group
10.000%, 09/30/05 200 200,000
Spanish Broadcasting System
9.625%, 11/01/09 275 277,750
--------------
2,045,125
--------------
Building Products--1.9%
American Builders & Contractors
Supply Co., Inc.
10.625%, 05/15/07 375 346,875
Associated Materials, Inc.
9.250%, 03/01/08 600 579,750
ISG Resources, Inc.
10.000%, 04/15/08 500 427,500
--------------
1,354,125
--------------
Cable Operators--6.2%
Adelphia Communications Corp.
9.875%, 03/01/07 250 255,000
7.875%, 05/01/09 350 317,625
Century Communications
17.46%**, 01/15/08 500 220,000
Charter Communications
Holdings L.L.C.
9.915%**, 04/01/11 250 147,813
Coaxial Communications, Inc.
10.000%, 08/15/06 200 197,000
Coaxial L.L.C.
11.820%**, 08/15/08 300 193,500
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Falcon Holding Group L.P.
9.857%**, 04/15/10 450 $ 327,938
Frontiervision Holdings L.P.
10.852%**, 09/15/07 400 358,000
Insight Midwest
9.750%, 10/01/09 250 258,125
International Cabletel, Inc.
10.106%**, 02/01/06 200 184,000
Northland Cable Television
10.250%, 11/15/07 250 251,875
NTL, Inc.
9.549%**, 04/01/08 250 176,250
4.302%**, 04/15/09 500 472,475
United International Holdings
11.944%**, 02/15/08 1,150 741,750
United Pan-Europe Com NV
10.875%, 08/01/09 200 203,000
------------
4,304,351
------------
Containers--2.3%
Anchor Advanced Products, Inc.
11.750%, 04/01/04 600 513,000
Consolidated Container Co. L.L.C.
10.125%, 07/15/09 750 766,875
U.S. Can Corp.
10.125%, 10/15/06 350 358,750
------------
1,638,625
------------
Electronic Components--0.7%
Amkor Technologies, Inc.
9.250%, 05/01/06 500 497,500
------------
Energy Services--7.1%
Amerigas Partners L.P.
10.125%, 04/15/07 400 408,000
Canadian Forest Oil Ltd.
8.750%, 09/15/07 300 286,500
Comstock Resources, Inc.
11.250%, 05/01/07 475 489,250
Continental Resources, Inc.
10.250%, 08/01/08 275 243,375
Cross Timbers Oil Co.
8.750%, 11/01/09 100 96,000
Denbury Management, Inc.
9.000%, 03/01/08 250 230,312
Energy Corp. of America
9.500%, 05/15/07 600 423,000
Eott Energy Partners
11.000%, 10/01/09 100 105,000
Forest Oil Corp.
10.500%, 01/15/06 200 205,500
Frontier Oil Corp.
11.750%, 11/15/09 350 346,500
Nuevo Energy Co.
9.500%, 06/01/08 250 247,500
Plains Resources, Inc.
10.250%, 03/15/06 150 147,000
6
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE HIGH YIELD BOND FUND
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pride Petroleum Services, Inc.
9.375%, 05/01/07 425 $ 427,125
Stone Energy Corp.
8.750%, 09/15/07 500 497,500
Swift Energy Corp.
10.250%, 08/01/09 250 255,000
Vintage Petroleum
9.750%, 06/30/09 250 257,500
YPF Sociedad Anonima
10.000%, 11/02/28 300 330,279
------------
4,995,341
------------
Entertainment & Leisure--2.2%
AMC Entertainment, Inc.
9.500%, 02/01/11 325 284,375
Bally Total Fitness Holdings
9.875%, 10/15/07 500 492,500
Cinemark USA, Inc.
8.500%, 08/01/08 150 131,250
Premier Parks, Inc.
9.750%, 06/15/07 250 251,562
9.444%**, 04/01/08 500 347,500
------------
1,507,187
------------
Finance--1.0%
Lodgian Finance Corp.
12.250%, 07/15/09 250 250,000
RBF Finance Co.
11.000%, 03/15/06 400 431,000
------------
681,000
------------
Financial Services--0.2%
Euronet Services, Inc.@
34.891%**, 07/01/06 500 135,174
------------
Food/Tobacco--3.6%
B&G Foods, Inc.
9.625%, 08/01/07 600 543,000
Doane Pet Care Co.
9.750%, 05/15/07 500 501,250
International Home Foods, Inc.
10.375%, 11/01/06 300 312,750
Luigino's, Inc.
10.000%, 02/01/06 150 135,937
Mrs. Fields Original
Cookies, Inc.
10.125%, 12/01/04 75 61,125
New World Pasta Company
9.250%, 02/15/09 500 467,500
Southern Foods Group
9.875%, 09/01/07 500 506,250
------------
2,527,812
------------
Healthcare--3.4%
Dade International, Inc.
11.125%, 05/01/06 525 517,125
Hanger Othopedic Group, Inc.
11.250%, 06/15/09 150 154,875
King Pharmaceutical, Inc.
10.750%, 02/15/09 300 319,500
Lifepoint Hospitals
Holdings, Inc.
10.750%, 05/15/09 350 364,875
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mariner Post-Accute Network, Inc.#
18.591%**, 11/01/07 650 $ 6,500
Quest Diagnostic, Inc.
10.750%, 12/15/06 350 369,250
Tenet Healthcare Corp.
8.000%, 01/15/05 300 290,250
Triad Hospitals Holdings, Inc.
11.000%, 05/15/09 375 390,000
-----------
2,412,375
-----------
Hotels & Gaming--5.6%
Argosy Gaming Co.
10.750%, 06/01/09 375 397,500
Courtyard by Marriott II
10.750%, 02/01/08 600 592,500
Harrahs Operating Co., Inc.
7.875%, 12/15/05 250 245,625
Hollywood Casino Shreveport
13.000%, 08/01/06 350 376,250
Hollywood Park, Inc.
9.250%, 02/15/07 500 498,750
Horseshoe Gaming L.L.C.
9.375%, 06/15/07 300 300,000
8.625%, 05/15/09 350 338,625
Host Marriott Travel Plaza
9.500%, 05/15/05 600 629,484
Isle of Capri Casinos, Inc.
8.750%, 04/15/09 250 233,125
Players International, Inc.
10.875%, 04/15/05 150 158,250
Venetian Casino
14.250%, 11/15/05 200 127,000
-----------
3,897,109
-----------
Internet Service Providers--2.6%
Covad Communications Group
14.715%**, 03/15/08 400 254,000
12.500%, 02/15/09 150 156,750
Cybernet Internet Services
14.000%, 07/01/09 150 130,500
Exodus Communications, Inc.
11.250%, 07/01/08 150 156,375
10.750%, 12/15/09 200 204,500
PSINet, Inc.
10.000%, 02/15/05 150 149,250
11.500%, 11/01/08 450 472,500
Verio, Inc.
11.250%, 12/01/08 300 316,500
-----------
1,840,375
-----------
Long Distance Telecommunication--3.9%
Global Telesystem
11.000%, 12/01/09 250 254,306
Hermes Europe Rail
10.375%, 01/15/09 250 248,125
Metromedia Fiber Network, Inc.
10.000%, 11/15/08 450 463,500
Primus Telecomm Group
12.750%, 10/15/09 250 261,250
7
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE HIGH YIELD BOND FUND
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RSL Communications PLC Co.
9.125%, 03/01/08 200 $ 177,000
12.000%, 11/01/08 400 405,000
Viatel, Inc.
12.220%**, 04/15/08 100 63,500
11.500%, 03/15/09 300 306,000
Williams Communications Group, Inc.
10.875%, 10/01/09 500 526,250
------------
2,704,931
------------
Manufacturing--2.3%
Hawk Corp.
10.250%, 12/01/03 500 487,500
HCC Industries, Inc.@
10.750%, 05/15/07 400 234,000
International Wire Group, Inc.
11.750%, 06/01/05 600 622,500
Panolam Industries Intl
11.500%, 02/15/09 200 205,500
Paragon Corp. Holdings, Inc.@
9.625%, 04/01/08 125 40,625
------------
1,590,125
------------
Metals--0.5%
Golden Northwest Aluminum
12.000%, 12/15/06 350 369,250
------------
Metals & Mining--0.3%
Better Minerals & Aggreg
13.000%, 09/15/09 200 201,500
------------
Miscellaneous Consumer Products--0.7%
Corning Consumer Product
9.625%, 05/01/08 300 237,000
Hedstrom Holdings, Inc.@
14.951%**, 06/01/09 50 750
Holmes Products Corp.
9.875%, 11/15/07 275 202,125
9.875%, 11/15/07 50 36,750
------------
476,625
------------
Paper & Paper Products--4.6%
Kappa Beheer BV
11.360%**, 07/15/09 350 220,314
10.625%, 07/15/09 500 523,750
Packaging Corp. of America
9.625%, 04/01/09 300 309,000
Paperboard Industries
International, Inc.
8.375%, 09/15/07 250 238,750
Repap New Brunswick
9.000%, 06/01/04 125 122,500
11.500%, 06/01/04 375 390,000
10.625%, 04/15/05 400 374,000
Riverwood International Co.
10.250%, 04/01/06 125 128,125
10.625%, 08/01/07 125 130,000
10.875%, 04/01/08 300 298,500
U.S. Timberlands Klam/ Finance
9.625%, 11/15/07 500 468,125
------------
3,203,064
------------
Petroleum--0.3%
PDVSA Finance Ltd.
7.500%, 11/15/28 300 210,501
------------
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Printing & Publishing--1.5%
Hollinger International
Publishing Inc.
9.250%, 03/15/07 400 $ 398,000
Sun Media Corp.
9.500%, 02/15/07 275 274,312
TDL Infomedia Group Ltd.
12.125%, 10/15/09 125 201,660
Transwestern Holdings, L.P.
13.456%**, 11/15/08 100 72,500
Transwestern Publishing
9.625%, 11/15/07 100 100,000
-----------
1,046,472
-----------
Rental Auto - Equipment--1.4%
Avis Rent A Car, Inc.
11.000%, 05/01/09 500 527,500
Universal Compression, Inc.
11.883%**, 02/15/08 700 434,875
-----------
962,375
-----------
Restaurants--0.4%
Sbarro, Inc.
11.000%, 09/15/09 250 260,000
-----------
Retail--1.1%
Petro Shopping Centers
10.500%, 02/01/07 300 279,750
Safelite Glass Corp.
9.875%, 12/15/06 100 5,500
9.875%, 12/15/06 200 11,000
Sleepmaster, Inc.
11.000%, 05/15/09 500 503,125
-----------
799,375
-----------
Satellites--0.5%
Orbital Imaging Corp.
11.625%, 03/01/05 100 67,500
Pegasus Communications Corp.
9.625%, 10/15/05 200 203,000
9.750%, 12/01/06 100 102,250
-----------
372,750
-----------
Savings & Loan--0.3%
Bank United Capital Trust @
10.250%, 12/31/26 250 220,625
-----------
Services--3.2%
AP Holdings, Inc. @
12.473%**, 03/15/08 200 77,000
Coinmach Corp.
11.750%, 11/15/05 307 317,745
Global Imaging Systems
10.750%, 02/15/07 300 291,000
Group Maintenance America Corp.
9.750%, 01/15/09 300 300,000
Intertek Finance PLC
10.250%, 11/01/06 500 462,500
Iron Mountain, Inc.
8.750%, 09/30/09 500 478,750
Mastec, Inc.
7.750%, 02/01/08 200 189,000
8
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE HIGH YIELD BOND FUND
Par
(000) Value
- -----------------------------------------------------------
- -----------------------------------------------------------
Protection One Alarm
13.625%, 06/30/05 200 $ 127,000
-----------
2,242,995
-----------
Specialty Chemicals--3.3%
American Pacific Corp. @
9.250%, 03/01/05 500 505,000
ISP Holdings, Inc.
9.750%, 02/15/02 500 503,750
Koppers Industry, Inc.
9.875%, 12/01/07 500 462,500
Lyondell Chemical Co.
10.875%, 05/01/09 175 185,500
Octel Developments PLC
10.000%, 05/01/06 400 398,000
Sovereign Specialty Chemicals
9.500%, 08/01/07 250 252,500
-----------
2,307,250
-----------
Supermarkets--0.8%
Jitney-Jungle Stores of America, Inc. #
12.000%, 03/01/06 250 51,250
10.375%, 09/15/07 250 3,125
Pantry, Inc.
10.250%, 10/15/07 500 490,000
Pathmark Stores
10.750%, 11/01/03 400 46,000
-----------
590,375
-----------
Textiles & Apparel--0.4%
Delta Mills, Inc.
9.625%, 09/01/07 125 88,125
Dyersburg Corp.
9.750%, 09/01/07 450 182,250
-----------
270,375
-----------
Transportation--1.7%
Greyhound Lines
11.500%, 04/15/07 500 563,125
Travelcenters of America
10.250%, 04/01/07 600 600,000
-----------
1,163,125
-----------
Wireless Telecommunications--9.5%
Airgate PCS, Inc.
12.157%**, 10/01/09 850 476,000
American Cellular Corp.
10.500%, 05/15/08 150 166,125
Centennial Cellular Corp.
10.750%, 12/15/08 500 538,750
Clearnet Communications, Inc.
12.567%, 12/15/05 350 346,500
10.125%, 07/07/07 500 500,156
17.311%**, 02/15/09 250 98,718
10.683%**, 05/01/09 250 150,625
Dobson Communications
11.750%, 04/15/07 100 115,750
Microcell Telecommunications
12.507%**, 06/01/06 250 222,500
Nextel Communications, Inc.
9.993%**, 10/31/07 350 254,625
10.300%**, 02/15/08 370 262,700
Nextel International, Inc.
13.741%**, 04/15/08 450 265,325
<PAGE>
Par
(000) Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Orange PLC
8.750%, 06/01/06 150 $ 157,875
8.000%, 08/01/08 150 151,500
Rogers Cantel, Inc.
9.375%, 06/01/08 250 263,750
9.750%, 06/01/16 350 392,000
Telecorp PCS, Inc.
11.869%**, 04/15/09 950 603,250
Tritel PCS, Inc.
12.428%**, 05/15/09 250 158,750
Triton PCS, Inc.
12.339%**, 05/01/08 1,100 786,500
Voicestream Wireless Holding
11.866%**, 11/15/09 1,000 607,500
10.375%, 11/15/09 150 155,250
-----------
6,674,149
-----------
Wireline Telecommunications--7.5%
21st Century Telecom Group
17.460%**, 02/15/08 450 303,750
Alaska Communications
9.375%, 05/15/09 350 340,375
Allegiance Telecom, Inc.
11.798%**, 02/15/08 525 380,625
Colt Telecom Group PLC
12.219%**, 12/15/06 750 658,125
GST Network Funding, Inc.
11.574%**, 05/01/08 250 122,500
Hyperion Telecommunications, Inc.
12.256%**, 04/15/03 175 158,375
12.000%, 11/01/07 250 267,500
ICG Holdings, Inc.
14.461%**, 09/15/05 350 306,551
Intermedia Communications, Inc.
8.600%, 06/01/08 200 185,500
9.500%, 03/01/09 100 96,750
11.122%**, 03/01/09 250 151,250
Jazztel PLC
13.250%, 12/15/09 150 151,828
KMC Telecom Holdings, Inc.
13.782%**, 02/15/08 350 194,250
McLeodUSA, Inc.
11.276%**, 03/01/07 100 82,500
8.125%, 02/15/09 75 69,938
MetroNet Communications Corp.
12.507%**, 11/01/07 50 41,875
8.723%**, 06/15/08 250 201,875
Netia Holdings II B.V.
13.125%, 06/15/09 200 200,000
NEXTLINK Communications, Inc.
12.500%, 04/15/06 250 268,750
12.248%**, 06/01/09 350 217,000
Tele1 Europe BV
11.875%, 12/01/09 350 356,028
13.000%, 05/15/09 150 158,250
Teligent Inc.
11.500%, 12/01/07 225 221,625
12.898%**, 03/01/08 175 105,875
-----------
5,241,095
-----------
9
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE HIGH YIELD BOND FUND
Par
(000) Value
- -----------------------------------------------------------
- -----------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $63,051,096) $ 60,515,306
------------
- -----------------------------------------------------------
CONVERTIBLE BOND--0.3%
- -----------------------------------------------------------
Hospital Supplies & Hospital Management
Omnicare, Inc.
5.000%, 12/01/07
(Cost $157,500) 250 168,805
------------
- -----------------------------------------------------------
AGENCY OBLIGATION--0.6%
- -----------------------------------------------------------
Federal Farm Credit Banks
5.150%, 01/28/00
(Cost $440,293) 442 440,293
------------
- -----------------------------------------------------------
COMMERCIAL PAPER--0.3%
- -----------------------------------------------------------
AIG Funding, Inc.
4.800%, 01/15/00
(Cost $177,905) 178 177,905
------------
- -----------------------------------------------------------
Number
COMMON STOCK--0.8% of Shares
- -----------------------------------------------------------
AT&T Canada, Inc.--*@ 514 18,591
Dr. Pepper Bottling
Holdings, Inc.*@ 14,800 370,000
Gaylord Container Corp. * 7,500 51,094
Hedstrom Holdings, Inc. * @ 6,065 60
Nextel Communications, Inc. * 232 23,918
Premier Parks, Inc. * 2,800 80,850
Protection One, Inc. * 8,400 16,275
------------
TOTAL COMMON STOCK
(Cost $331,081) 560,788
------------
- -----------------------------------------------------------
PREFERRED STOCK--8.0%
- -----------------------------------------------------------
Broadcast/Media--1.7%
Capstar Broadcasting Partners 4,031 472,656
Citadel Broadcasting Co. 1,788 199,407
Cumulus Media, Inc. 126 141,968
Sinclair Capital 3,250 331,500
------------
1,145,531
------------
Cable Operators--1.9%
CSC Holdings, Inc. 12,179 1,338,203
------------
Computer Services & Software--0.2%
PSINET, Inc. 2,500 146,250
------------
Industrial- Other--0.2%
Anvil Holdings, Inc.@ 5,163 20,652
Clarke USA, Inc. 3,110 141,506
------------
162,158
------------
Long Distance--0.3%
Global Crossing Holdings, LTD. 2,250 227,250
------------
Metals & Mining--0.4%
International Utility
Structures, Inc.* 275 228,938
------------
Satellites--0.1%
Pegasus Communications Corp. 81 89,735
------------
Wireless Communications--2.7%
Dobson Communications Corp.* 563 594,926
Number
of Shares Value
- --------------------------------------------------------------------------------
Nextel Communications, Inc. 4,617 947,568
Rural Cellular Corp. 348 357,570
------------
1,900,064
------------
Wireline Communications--0.5%
E. Spire Communications Inc. 1,963 34,357
Intermedia Communications, Inc. 12,566 123,774
Nextlink Communications 3,748 208,014
------------
366,145
------------
TOTAL PREFERRED STOCK
(Cost $5,887,936) 5,604,274
------------
- --------------------------------------------------------------------------------
Number
WARRANTS--0.3% of Warrants Value
- --------------------------------------------------------------------------------
Allegiance Telecom, Inc. * @ 250 2,250
Cybernet Internet Services* 150 12,000
Globalstar Inc * 350 75,338
ICF Kaiser International, Inc. * 1,575 16
Intermedia Communications, Inc. *@ 50 5,612
KMC Telecom Holdings, Inc. * @ 200 500
Microcell Telecom * @ 800 55,426
Tele1 Europe BV* 250 42,563
UIH Australia *@ 175 5250
Wireless One, Inc.*@ 450 4
Wright Medical Technology, Inc. *@ 2,676 3
-----------
TOTAL WARRANTS (Cost $78,176) 198,962
------------
TOTAL INVESTMENTS--96.8%
(Cost $70,373,987) (a) 67,666,333
OTHER ASSETS IN EXCESS
OF LIABILITIES--3.2% 2,261,587
------------
NET ASSETS APPLICABLE TO 7,300,867
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING--100.0% $69,927,920
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.58
============
- ---------------------------------------
* Non-Income Producing Security
** Effective Yield
@ Restricted Security
# Security in Default
(a) At December 31, 1999, the cost for Federal income tax purposes was
$70,502,908. Net unrealized depreciation was $2,836,574. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $1,660,638 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $4,497,212.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS-- DECEMBER 31, 1999
THE GROWTH EQUITY FUND
Number
of Shares Value
- --------------------------------------------------------
COMMON STOCK--98.4%
- --------------------------------------------------------
Computer - Internet -
Services & Software--1.6%
America Online, Inc. * 60,000 $ 4,526,250
-----------
Computer Services & Software--19.7%
Cisco Systems, Inc. * 160,000 17,135,000
EMC Corp. * 75,000 8,193,750
Microsoft Corp. * 150,000 17,507,812
Sun Microsystems, Inc. * 170,000 13,159,062
-----------
55,995,624
-----------
Computer Systems--2.3%
International Business
Machines Corp. 60,000 6,480,000
-----------
Diversified Operations--12.6%
General Electric Co. 100,000 15,475,000
Procter & Gamble Co. 80,000 8,765,000
Tyco International Ltd. 300,000 11,662,500
-----------
35,902,500
-----------
Electronics--5.1%
Texas Instruments, Inc. 150,000 14,531,250
-----------
Electronics--Semiconductors--4.2%
Intel Corp. 35,000 2,879,844
Xilinx, Inc. * 200,000 9,093,750
-----------
11,973,594
-----------
Financial Services--8.2%
Chase Manhattan Corp. 120,000 9,322,500
Citigroup, Inc. 250,000 13,890,625
-----------
23,213,125
-----------
Insurance--2.9%
American International
Group, Inc. 75,000 8,109,375
-----------
Machinery--3.6%
Applied Materials, Inc. * 80,000 10,132,500
-----------
Media & Communications--4.4%
Clear Channel Communications,
Inc.* 140,000 12,495,000
-----------
Pharmaceuticals--1.6%
Johnson & Johnson 50,000 4,656,250
-----------
Retail--9.1%
The Home Depot, Inc. 225,000 15,426,563
Wal-Mart Stores, Inc. 150,000 10,368,750
-----------
25,795,313
-----------
<PAGE>
Number
of Shares Value
- -----------------------------------------------------------
- -----------------------------------------------------------
Telecommunications--18.9%
General Instrument Corp. * 150,000 $ 12,750,000
Lucent Technologies, Inc. 30,000 2,244,375
MCI WorldCom, Inc. * 225,000 11,932,031
Nextel Communications, Inc. 50,000 5,154,688
Nokia Corp. (ADR) 40,000 7,600,000
QUALCOMM, Inc.* 80,000 14,087,500
------------
53,768,594
------------
Therapeutics--4.2%
Amgen, Inc.* 200,000 12,006,250
------------
TOTAL COMMON STOCK
(Cost $174,186,869) 279,585,625
------------
- -----------------------------------------------------------
SHORT-TERM INVESTMENTS--2.1%
- -----------------------------------------------------------
Temporary Cash Investment
Fund, Inc. 2,918,086 2,918,086
Temporary Investment
Fund, Inc. 2,918,085 2,918,085
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,836,171) 5,836,171
------------
TOTAL INVESTMENTS--100.5%
(Cost $180,023,040) (a) 285,421,796
LIABILITIES IN EXCESS
OF OTHER ASSETS--(0.5)% (1,159,252)
------------
NET ASSETS APPLICABLE TO 6,864,202
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING--100.0% $ 284,262,544
=============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 41.41
=============
- ------------------------------------------
* Non-Income Producing Security
ADR - American Depository Receipt
(a) At December 31, 1999, the cost for Federal income tax purposes was
$181,255,311. Net unrealized appreciation was $104,166,485. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess market value over tax cost of $105,083,689 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $917,204.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE VALUE EQUITY FUND
Number
of Shares Value
- ------------------------------------------------------------
COMMON STOCK--97.6%
- ------------------------------------------------------------
Agricultural Products--1.7%
Monsanto Co. 139,000 $ 4,951,875
-----------
Air Transportation--3.2%
AMR Corp. 139,000 9,313,000
-----------
Broadcast/Media--4.2%
AMFM, Inc.* 74,000 5,790,500
The News Corp., Ltd (ADR) 190,000 6,353,125
-----------
12,143,625
-----------
Chemicals--2.9%
Du Pont (E. I.) de Nemours
and Co. 130,000 8,563,750
-----------
Computer Services & Software--7.5%
Compaq Corp. 210,000 5,683,125
Computer Associates
International, Inc. 231,000 16,155,562
-----------
21,838,687
-----------
Cosmetics & Toiletries--1.1%
Avon Products, Inc. 98,000 3,234,000
-----------
Diversified Operations--4.7%
Canadian Pacific Ltd. 110,000 2,371,875
Minnesota Mining
& Manufacturing Co. (3M) 115,000 11,255,625
-----------
13,627,500
-----------
Electronic Systems--3.4%
Emerson Electric Co. 115,000 6,598,125
Rockwell International Corp. 71,000 3,399,125
-----------
9,997,250
-----------
Financial Services--18.5%
Chase Manhattan Corp. 31,000 2,408,312
Citigroup, Inc. 226,250 12,571,016
Countrywide Credit
Industries, Inc. 190,000 4,797,500
Fleet Boston Financial Corp. 197,794 6,885,704
Freddie Mac 232,000 10,918,500
Household International, Inc. 190,000 7,077,500
Wells Fargo, Co. 228,330 9,233,094
-----------
53,891,626
-----------
Food and Beverages--2.4%
Diageo PLC (ADR) 220,000 7,040,000
-----------
Food & Drug Retailers--4.1%
CVS Corp. 100,000 3,993,750
Kroger Co. 418,000 7,889,750
-----------
11,883,500
-----------
<PAGE>
Number
of Shares Value
- ------------------------------------------------------------
- ------------------------------------------------------------
Insurance--12.6%
Ace Limited 235,000 $ 3,921,562
AFLAC, Inc. 144,750 6,830,391
Conseco, Inc. 311,610 5,570,029
Everest Reinsurance
Holdings, Inc. 250,000 5,578,125
XL Capital Ltd. 283,196 14,690,792
-----------
36,590,899
-----------
Integrated Petrolium -
International--0.5%
Unocal Corp. 45,400 1,523,738
-----------
Machinery-Diversified--2.2%
Caterpillar, Inc. 137,000 6,447,563
-----------
Medical Wholesale Drug
Distribution--1.7%
Cardinal Health, Inc. 100,000 4,787,500
-----------
Medical Supplies & Equipment--1.5%
Becton, Dickinson & Co. 159,000 4,253,250
-----------
Metals--2.9%
Alcoa, Inc. 100,000 8,300,000
-----------
Oil--0.2%
Anadarko Petroleum Corp. 20,000 682,500
-----------
Pharmaceuticals--2.6%
American Home Products Corp. 195,000 7,690,313
-----------
Printing & Publishing--1.2%
Donnelley (R.R.) & Sons Co. 140,000 3,473,750
-----------
Restaurants--3.5%
McDonald's Corp. 252,000 10,158,750
-----------
Retail--1.8%
The May Department Stores Co. 162,000 5,224,500
-----------
Telecommunications--10.9%
Bell Atlantic Corp. 120,000 7,387,500
Ericsson AB (ADR) 105,000 6,893,906
MCI WorldCom, Inc.* 144,450 7,660,364
Sprint Corp. 144,500 9,726,656
-----------
31,668,426
-----------
Waste Management--2.3%
Waste Management, Inc. 394,000 6,771,875
-----------
TOTAL COMMON STOCK
(Cost $245,153,786) 284,057,877
-----------
12
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE VALUE EQUITY FUND
Number
of Shares Value
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.7%
- ------------------------------------------------------------
Temporary Cash Investment
Fund, Inc. 2,492,526 $ 2,492,526
Temporary Investment Fund, Inc. 2,492,526 2,492,526
---------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,985,052) 4,985,052
---------------
TOTAL INVESTMENTS--99.3%
(Cost $250,138,838) (a) 289,042,929
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.7% 1,894,160
---------------
NET ASSETS APPLICABLE TO 13,099,798
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING--100.0% $290,937,089
==============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 22.21
==============
- ---------------------------------------
* Non-Income Producing Security
ADR - American Depository Receipt
(a) At December 31, 1999, the cost for Federal income tax purposes was
$250,434,422. Net unrealized appreciation was $38,608,507. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $67,122,363 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $28,513,856.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE FLEXIBLY MANAGED FUND
Number
of Shares Value
- ----------------------------------------------------------------
COMMON STOCK--53.7%
- ----------------------------------------------------------------
Banking--0.2%
Bank Fuer International Zahlungs 180 $ 1,017,396
------------
Building & Building Supplies--0.8%
Johns Manville Corp. 279,000 3,906,000
------------
Building & Real Estate--1.0%
Rouse Co. 226,900 4,821,625
------------
Chemicals--4.4%
Cabot Corp. 237,000 4,828,875
Great Lakes Chemical Corp. 173,000 6,606,438
Imperial Chemical Industries
PLC (ADR) 123,000 5,235,187
Octel Corp. * 454,000 4,710,250
------------
21,380,750
------------
Consumer Non-Durable--0.5%
Reebok International, Ltd. * 275,000 2,251,562
------------
Electric Utilities--7.0%
FirstEnergy Corp. 330,000 7,486,875
Kansas City Power & Light Co. 187,000 4,125,687
Niagara Mohawk Holdings, Inc. 1,216,100 16,949,394
UniSource Energy Corp. 460,000 5,146,250
------------
33,708,206
------------
Energy & Resources--0.3%
Questar Corp. 88,000 1,320,000
------------
Exploration & Production--1.7%
Mitchell Energy & Development Corp. 373,600 8,056,050
------------
Food Processing--0.4%
McCormick & Co., Inc. 67,000 1,993,250
------------
Holdings Company Diversified--3.7%
Loews Corp. 295,000 17,902,812
Lonrho Africa PLC 305,000 152,727
------------
18,055,539
------------
Hotels & Gaming--1.3%
Mandalay Resort Group * 308,000 6,198,500
------------
Insurance--2.7%
Aetna, Inc. 21,000 1,172,062
Berkley (W.R.) Corp. 35,000 735,000
Leucadia National Corp. 217,000 5,018,125
Unitrin, Inc. 56,000 2,110,500
White Mountains Insurance Group, Inc. 32,500 3,916,250
------------
12,951,937
------------
Media and Communications--3.9%
Chris-Craft Industries, Inc. * 216,300 15,600,638
Meredith Corp. 77,000 3,209,937
------------
18,810,575
------------
Medical--1.1%
Smith and Nephew PLC 1,568,000 5,318,860
------------
Mining--Gold--3.3%
Homestake Mining Co. 372,000 2,906,250
<PAGE>
Number
of Shares Value
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Newmont Mining Corp. 526,000 $ 12,887,000
------------
15,793,250
------------
Oil & Gas--9.7%
Amerada Hess Corp. 430,000 24,402,500
Kerr-McGee Corp. 31,000 1,922,000
Murphy Oil Corp. 184,000 10,557,000
Texaco, Inc. 179,000 9,721,938
------------
46,603,438
------------
Paper & Forest Products--1.7%
Domtar, Inc. 104,000 1,222,000
Plum Creek Timber Co., Inc. 14,000 350,000
Potlatch Corp. 4,600 205,275
Weyerhaeuser Co. 91,000 6,534,937
============
8,312,212
------------
Photography Equipment & Supplies--0.5%
Polaroid Corp. 115,000 2,163,438
------------
Publishing - Newspapers--5.1%
New York Times Co. 226,000 11,102,250
Washington Post Co. 24,700 13,730,113
------------
24,832,363
------------
Publishing- Periodicals--0.1%
Reader's Digest Assn., Inc. 18,000 477,000
------------
Railroads--0.7%
Canadian Pacific, Ltd. 164,000 3,536,250
------------
Real Estate--0.0%
HomeFed Corp.* 130,732 116,433
------------
Retail--1.7%
J.C. Penney Company, Inc. 67,500 1,345,781
Petrie Stores Corp. * 1,373,000 3,432,500
Toys "R" Us, Inc. * 251,000 3,592,438
------------
8,370,719
------------
Tobacco--1.0%
Philip Morris Cos., Inc. 198,000 4,591,125
------------
Transportation-Sea Freight--0.9%
Overseas Shipholding Group, Inc. 303,000 4,488,188
------------
TOTAL COMMON STOCK
(Cost $234,962,329) 259,074,666
------------
- -----------------------------------------------------------------
PREFERRED STOCK--5.5%
- -----------------------------------------------------------------
Cleveland Electric Illum. 7.00% 10,500 1,052,625
Entergy Gulf States, Inc. 7.00% 12,965 645,009
Kemper Corp. 5.75% 79,000 4,175,939
Niagara Mohawk Power Co. 6.50% 16,000 400,000
Niagara Mohawk Power Co. 7.50% 1,500 38,156
Niagara Mohawk Power Co. 7.00% 3,000 74,531
Owens- Illinois, Inc., 4.75% 55,000 1,718,750
Reckson Associates Realty Corp.
7.625% 20,500 407,438
Rouse Co. $3 295,000 9,624,375
Union Pacific Capital Trust 6.25% 202,500 8,429,063
-----------
TOTAL PREFERRED STOCK
(Cost $31,114,414) 26,565,886
-----------
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE FLEXIBLY MANAGED FUND
Number of
Contracts Value
- -------------------------------------------------------------------
OPTIONS--0.0%
- -------------------------------------------------------------------
Motorola, Inc. $110, 01/22/00* 130 $ 5,687
Motorola, Inc. $130, 04/22/00* 60 48,750
Motorola, Inc. $95, 01/22/00* 130 1,625
Weyerhaeuser Co. $65, Call 01/22/00* (135) (104,625)
Weyerhaeuser Co. $75, 01/22/00* 130 56,063
-----------
TOTAL OPTIONS (Cost $628,008) 7,500
-----------
Par
(000)
- -------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--4.8%
- -------------------------------------------------------------------
U.S. Treasury Notes
5.875% [+] 02/15/00 12,900 12,911,868
6.125%, 07/31/00 1,250 1,252,400
6.250%, 04/30/01 2,500 2,503,175
6.250%, 10/31/01 2,500 2,501,300
5.875%, 09/30/02 4,275 4,231,780
TOTAL U.S. TREASURY OBLIGATIONS
-----------
(Cost $23,636,398) 23,400,523
-----------
- -------------------------------------------------------------------
AGENCY OBLIGATIONS--7.1%
- -------------------------------------------------------------------
FNMA
6.375%, 01/16/02 3,200 3,187,712
-----------
Tennessee Valley Authority
5.880%, 04/01/36 17,900 16,826,716
5.980%, 04/01/36 4,600 4,311,856
6.235%, 07/15/45 9,950 9,928,210
-----------
31,066,782
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $36,238,664) 34,254,494
-----------
- ------------------------------------------------------------------
MEDIUM TERM NOTES--0.3%
- ------------------------------------------------------------------
FNMA
5.370%, 02/07/01
(Cost $1,576,000) 1,600 1,581,840
-----------
Value
- ------------------------------------------------------------------
MUNICIPAL BONDS--0.6%
- ------------------------------------------------------------------
California State
5.250%, 10/01/11
(Cost $3,266,640) 2,925 2,949,014
-----------
- ------------------------------------------------------------------
CORPORATE BONDS--0.8%
- ------------------------------------------------------------------
BellSouth Telecommunications
5.850%, 11/15/45
(Cost $3,776,250) 3,800 3,780,088
-----------
<PAGE>
- ------------------------------------------------------------------
CONVERTIBLE BONDS--15.8%
- ------------------------------------------------------------------
Arbor Software
4.500%, 03/15/05 1,350 1,282,500
Ciba Specialty Chemicals
1.250%, 07/24/03 1,630 1,342,713
Exide Corp.
2.900%, 12/15/05 1,250 643,763
Par
(000) Value
- ------------------------------------------------------------------
- ------------------------------------------------------------------
HealthSouth Corp.
3.250%, 04/01/03 6,000 $ 4,650,960
Hilton Hotels Corp.
5.000%, 05/15/06 12,845 9,890,650
Homestake Mining Co.
5.500%, 06/23/00 7,325 7,091,699
5.500%, 06/23/00 2,385 2,309,038
Inco Ltd.
5.750%, 07/01/04 11,475 11,001,656
7.750%, 03/15/16 835 719,144
Kerr-McGee Corp.
7.500%, 05/15/14 540 505,575
Loews Corp.
3.125%, 09/15/07 8,750 7,201,862
Lonmin Finance PLC
6.000%, 02/27/04 4,070 6,685,377
McKesson Corp.
4.500%, 03/01/04 1,500 1,282,500
Ogden Corp.
5.750%, 10/20/02 250 206,562
Phycor, Inc.
4.500%, 02/15/03 3,250 1,706,250
Potomac Electric Power Co.
5.000%, 09/01/02 2,700 2,531,250
Rite Aid Corp.
5.250%, 09/15/02 820 562,208
Sepracor, Inc.
7.000%, 12/15/05 1,650 1,763,206
Teck Corp.
3.750%, 07/15/06 7,250 5,365,000
Texaco Capital, Inc.
3.500%, 08/05/04 1,450 1,432,774
Waste Management, Inc.
4.000%, 02/01/02 9,025 7,903,373
TOTAL CONVERTIBLE BONDS
--------------
(Cost $78,669,146) 76,078,060
--------------
- ------------------------------------------------------------------
ZERO COUPON BONDS **--5.0%
- ------------------------------------------------------------------
Lennar Corp.
4.496%, 07/29/18 4,900 1,885,030
Motorola, Inc.
2.244%, 09/27/13 1,700 2,811,783
Pep Boys, Inc.
4.927%, 09/20/11 5,650 2,853,250
Roche Holdings, Inc. 144A
5.510%, 05/06/12 11,800 6,003,250
Times Mirror Co.
4.461%, 04/15/17 21,800 10,763,750
TOTAL ZERO COUPON BONDS
--------------
(Cost $22,784,871) 24,317,063
--------------
15
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE FLEXIBLY MANAGED FUND
Par
(000) Value
- -------------------------------------------------------------------
COMMERCIAL PAPER--4.6%
- -------------------------------------------------------------------
Ciesco LP
6.050%, 01/18/00 1,300 $ 1,296,286
Fcar Owner Trust
6.400%, 01/11/00 10,000 9,982,222
6.460%, 01/12/00 1,150 1,147,730
General Electric Capital Corp.
6.100%, 01/26/00 5,000 4,978,819
Minnesota Mining & Manufacturing Co.
6.100%, 01/19/00 4,570 4,556,062
-------------
TOTAL COMMERCIAL PAPER
(Cost $21,961,119) 21,961,119
-------------
Number
of Rights
- -------------------------------------------------------------------
RIGHTS--0.0%
- -------------------------------------------------------------------
Hills Stores Co.* (Cost $0) 93,000 --
-------------
Number
of Shares
- -------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.1%
- -------------------------------------------------------------------
Temporary Investment Fund, Inc.
(Cost $667,464) 667,464 667,464
-------------
TOTAL INVESTMENTS--98.3%
(Cost $459,281,303) (a) 474,637,717
OTHER ASSETS IN EXCESS
OF LIABILITIES--1.7% 8,217,799
-------------
NET ASSETS APPLICABLE TO 24,612,237
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING--100.0% $482,855,516
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 19.62
============
- ----------------------------------------------
* Non-Income Producing Security
** Effective Yield
[+] - $1,101,012 market value held as collateral for the open option contracts
ADR - American Depository Receipt
(a) At December 31, 1999, the cost for Federal income tax purposes was
$460,216,727. Net unrealized appreciation was $14,420,990. This consisted
of aggregated gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $54,230,510 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $39,809,520.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE INTERNATIONAL EQUITY FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK--96.2%
- --------------------------------------------------------------------------------
Australia--0.5%
Telstra Corporation, Ltd. 188,000 $ 1,022,712
-----------
Finland--3.5%
Nokia Corp. (ADR) 27,800 5,282,000
Sonera Oyj 32,000 2,193,171
-----------
7,475,171
-----------
France--8.6%
Altran Technologies SA 6,500 3,927,888
AXA 17,800 2,481,136
Compagnie Generale D'Industrie
Et de Participations 35,200 2,304,361
Dassault Systemes SA 26,000 1,694,229
L'OREAL 2,000 1,604,391
LVMH (Louis Vuitton Moet Hennessy) 3,520 1,576,537
Scor SA 44,000 1,940,981
Total Fina SA-B 15,035 2,006,383
Valeo SA 14,000 1,080,068
-----------
18,615,974
-----------
Germany--4.0%
Allianz AG 5,508 1,850,053
Bayerische Motoren
Werke (BMW) AG 41,600 1,275,778
Mannesmann AG 17,000 4,116,024
Muenchener Rueckversicherungs
Gesellschaft AG * 5,604 1,427,951
-----------
8,669,806
-----------
Hong Kong--2.0%
Dah Sing Financial Group 172,100 686,319
Smartone Telecommunications
Holdings, Ltd. 315,000 1,519,586
Sun Hung Kai Properties, Ltd. 195,000 2,031,903
-----------
4,237,808
-----------
Ireland--1.7%
Allied Irish Banks PLC 100,290 1,143,401
CRH PLC 49,021 1,055,563
Elan Corp. PLC (ADR) * 50,000 1,475,000
-----------
3,673,964
-----------
Italy--2.4%
ENI SpA 240,000 1,319,771
Pirelli SpA 315,000 864,513
Telecom Italia Mobile SpA 150,000 1,675,395
Telecom Italia SpA 100,000 1,410,011
-----------
5,269,690
-----------
Japan--28.5%
Asatsu-DK, Inc. 22,000 1,485,759
Fuji Photo Film Co. 18,000 657,140
Hikari Tsushin, Inc. 2,000 4,012,920
Honda Motor Co., Ltd. 27,000 1,004,209
Hoya Corp. 20,000 1,575,805
Mikuni Coca-Cola Bottling Co., Ltd . 34,000 595,674
Murata Manufacturing Co., Ltd. 30,000 7,047,078
Nichiei Co., Ltd. 31,800 690,966
Nintendo Co., Ltd. 15,500 2,576,001
Nippon Telegraph & Telephone Corp. 20,000 342,566
Nomura Securities Co., Ltd. 38,000 686,209
NTT Data Corp. 170,000 3,910,150
<PAGE>
Number
of Shares Value
- ----------------------------------------------------------------
- ----------------------------------------------------------------
NTT Mobile Communications
Network, Inc. 180,000 $ 6,923,754
Rohm Co. Ltd. 19,000 7,810,512
Ryohin Keikaku Co., Ltd. 11,500 2,308,554
Secom Co., Ltd. 13,000 1,431,438
Seven-Eleven Japan Co., Ltd. 15,000 2,378,389
Shohkoh Fund & Co.., Ltd. 4,300 1,702,408
Sony Corp. 16,000 4,745,033
Takeda Chemical Industries 62,000 3,064,500
Tokyo Broadcasting System, Inc .62,000 2,099,638
Tokyo Electronics, Ltd. 26,000 3,562,690
Yasuda Fire & Marine
Insurance Co. Ltd. 145,000 820,299
-----------
61,431,692
-----------
Malaysia--0.3%
Malayan Banking Berhad 160,000 568,414
-----------
Netherlands--8.8%
Aegon N.V. 32,840 3,171,876
Aegon N.V. (ARS) 21,126 2,017,533
ASM Lithography Holding N.V. * 31,500 3,499,295
Getronics N.V. 36,400 2,903,495
Heineken N.V. 32,000 1,560,520
Kempen & Co. N.V. 27,000 1,074,126
Philips Electronics N.V. 15,780 2,145,533
Vendex N.V. 46,933 1,247,891
Wolters Kluwer N.V. 39,600 1,340,075
-----------
18,960,344
-----------
Norway--0.5%
Tomra Systems ASA 57,900 982,397
-----------
Singapore--1.7%
Datacraft Asia, Ltd. 110,000 913,000
Singapore Press Holdings, Ltd. 125,000 2,709,397
-----------
3,622,397
-----------
Spain--0.6%
Telefonica SA 50,000 1,248,867
-----------
Sweden--7.3%
A-Com AB* 51,600 1,176,587
Assa Abloy AB 233,580 3,280,772
Connecta AB* 15,000 511,283
Ericsson AB-B 37,600 2,417,395
Framtidsfabriken AB* 7,000 1,267,043
Hennes & Mauritz AB - B 102,000 3,416,784
Modern Times Group MTG AB-B* 25,900 1,284,650
Securitas AB-B 79,700 1,442,619
Svenska Handelsbanken AB-A 72,600 913,047
-----------
15,710,180
-----------
Switzerland--7.4%
Credit Suisse Group 23,000 4,571,689
Nestle SA 1,040 1,905,219
Pharma Vision 2000 AG * 1,000 709,665
Roche Holding AG 83 1,355,272
Roche Holding AG - Genusschein 475 5,638,071
Schweizerische Rueckversicherungs
Gesellschaft 900 1,848,835
-----------
16,028,751
-----------
17
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE INTERNATIONAL EQUITY FUND
Number
of Shares Value
- ------------------------------------------------------------
- ------------------------------------------------------------
United Kingdom--18.4%
Amvescap PLC 200,000 $ 2,326,032
BP Amoco PLC (ADR) 26,934 1,597,523
British Telecommunications PLC 90,000 2,199,554
Capita Group PLC 107,000 1,953,059
CGU PLC 53,941 869,131
Compass Group PLC 272,000 3,734,574
Diageo PLC 76,000 611,359
Dixons Group PLC 95,000 2,284,923
Hays PLC 125,000 1,990,857
HSBC Holdings PLC 190,000 2,648,608
Invensys PLC 296,360 1,613,254
Lloyds TSB Group PLC 125,000 1,563,812
Misys PLC 190,640 2,971,629
Next PLC 113,000 1,084,222
Provident Financial PLC 81,334 893,376
Rentokil Initial PLC 570,000 2,078,528
Schroders PLC 65,000 1,308,232
Securicor PLC 104,000 267,106
Smithkline Beecham PLC 100,000 1,276,087
Vodafone Group PLC 485,095 2,403,613
WPP Group PLC 245,000 3,882,293
------------
39,557,772
TOTAL COMMON STOCK
(Cost $120,614,601) 207,075,939
------------
- ------------------------------------------------------------
PREFERRED STOCK--1.3%
- ------------------------------------------------------------
Germany
SAP AG (Cost $1,335,841) 4,600 2,805,217
-----------
Par
(000) Value
- ------------------------------------------------------------
CONVERTIBLE BONDS--0.4%
- ------------------------------------------------------------
Salomon Smith Barney
0.00%, 05/09/00
(Cost $770,000) 770 771,925
-----------
Number
of Warrants Value
- ------------------------------------------------------------
WARRANTS--0.3%
- ------------------------------------------------------------
Muenchener Rueckversicherungs* 104 5,551
Zuercher Kantonalbank* 900,000 700,873
-----------
TOTAL WARRANTS (Cost $575,866) 706,424
-----------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--2.2%
- ------------------------------------------------------------
Temporary Cash Investment
Fund, Inc. 2,386,695 2,386,695
Temporary Investment Fund, Inc. 2,386,695 2,386,695
----------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,773,390) 4,773,390
----------------
TOTAL INVESTMENTS--100.4%
(Cost $128,069,698) (a) 216,132,895
LIABILITIES IN EXCESS
OF OTHER ASSETS--(0.4)% (821,200)
----------------
<PAGE>
Value
- ------------------------------------------------------------
- ------------------------------------------------------------
NET ASSETS APPLICABLE TO 8,039,879
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING--100.0% $ 215,311,695
=============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 26.78
=============
- --------------------------------------
*- Non-Income Producing Security
ADR - American Depository Receipt
ARS - American Registered Share
(a) At December 31, 1999, the cost for Federal income tax purposes was
$128,069,698. Net unrealized appreciation was $88,063,197. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $91,007,056 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $2,943,859.
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
% of Market Value
Value (000's)
- --------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK
SECTOR DIVERSIFICATION
- --------------------------------------------------------------------------------
Telecommunications 17.8% $ 37,475
Electronics 12.0% 25,311
Financial Services 8.8% 18,451
Insurance 7.8% 16,428
Pharmaceuticals 6.1% 12,809
Retail Diversified 6.1% 12,721
Computer Services 4.7% 9,886
Computer Software 2.7% 5,766
Metal Processors & Fabricators 2.7% 5,585
Advertising 2.6% 5,368
Oil 2.3% 4,924
Media Communications 2.2% 4,561
Beverages 2.1% 4,344
Diversified Commercial Services 2.1% 4,336
Machinery - General Industry 2.0% 4,116
Publishing 1.9% 4,049
Engineering Services 1.9% 3,928
Catering Services 1.8% 3,735
Automobile Manufacturing 1.6% 3,360
Investment Companies 1.4% 3,036
Toys 1.2% 2,576
Real Estate Development 1.0% 2,032
Human Resources 0.9% 1,953
Diversified Food Products 0.9% 1,905
Diversified Operations 0.8% 1,613
Cosmetics 0.8% 1,604
Optical Equipment 0.8% 1,576
Security Services 0.7% 1,443
Identification Services 0.7% 1,431
Building Materials 0.5% 1,056
Recycling 0.4% 982
Tire & Rubber 0.4% 864
Photographic Equipment 0.3% 657
----- ---------
100.0% $ 209,881
===== =========
18
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE SMALL CAPITALIZATION FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK--86.6%
- --------------------------------------------------------------------------------
Aerospace & Defense--0.7%
Alliant Techsystems, Inc.* 5,000 $ 311,562
----------
Chemicals--5.4%
Cambrex Corp. 53,100 1,828,631
H.B. Fuller Company 3,600 201,937
McWhorter Technologies, Inc.* 24,000 384,000
----------
2,414,568
----------
Computer Services & Software--4.7%
Analysts International Corp. 12,600 157,500
Deltek Systems, Inc.* 800 10,850
Policy Management Systems Corp.* 22,100 564,931
Shared Medical Systems Corp. 27,100 1,380,406
----------
2,113,687
----------
Diversified Operations--1.4%
GP Strategies Corp.* 20,600 126,175
Ruddick Corp. 15,000 232,500
Teleflex, Inc. 9,500 297,469
----------
656,144
----------
Electronic Components--10.3%
BMC Industries, Inc. 91,000 443,625
General Semiconductor, Inc.* 52,600 746,262
Harman International Industries, Inc. 29,400 1,650,075
L-3 Communications Holdings, Inc.* 12,900 536,963
Pioneer-Standard Electronics, Inc. 27,100 392,103
Technitrol, Inc. 7,000 311,500
UCAR International, Inc.* 29,900 532,594
----------
4,613,122
----------
Foods--5.8%
Del Monte Foods Co.* 97,700 1,202,931
Earthgrains Co. 40,700 656,288
International Home Foods, Inc. 14,000 243,250
Performance Food Group Co. 20,700 503,269
----------
2,605,738
----------
Gas Transmission--0.6%
Eastern Enterprises 4,500 258,469
----------
Healthcare--7.4%
Corvel Corp.* 44,200 1,041,463
First Health Group Corp.* 62,400 1,688,700
Trigon Healthcare, Inc.* 21,000 619,500
----------
3,349,663
----------
Human Resources--0.9%
Staff Leasing, Inc.* 44,100 416,194
----------
Insurance--8.1%
E. W. Blanch Holdings, Inc. 7,600 465,500
Horace Mann Educators Corp. 44,700 877,238
RenaissanceRe Holdings Ltd. 44,500 1,818,938
Trenwick Group, Inc. 28,380 480,686
----------
3,642,362
----------
<PAGE>
Number
of Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Insurance - Life--1.6%
Annuity and Life Re (Holdings), Ltd. 27,400 $ 714,113
----------
Machinery--6.6%
Albany International Corp.* 26,933 417,463
Baldor Electric Co. 43,700 792,062
Lindsay Manufacturing Co. 51,100 932,575
SPS Technologies, Inc.* 25,900 827,181
----------
2,969,281
----------
Manufacturing--3.5%
Carlisle Companies, Inc. 14,400 518,400
Flowserve Corp. 16,200 275,400
Paxar Corp.* 92,350 779,203
----------
1,573,003
----------
Medical Supplies and Equipment--7.2%
AmeriSource Health Corp.* 90,700 1,377,506
DENTSPLY International, Inc. 70,600 1,672,338
Vital Signs, Inc. 7,700 175,175
----------
3,225,019
----------
Metal Components & Products--4.1%
Kaydon Corp. 24,700 662,269
Precision Castparts Corp. 44,600 1,170,750
----------
1,833,019
----------
Office Equipment & Services--2.4%
Wallace Computer Services, Inc. 64,400 1,070,650
----------
Oil & Gas--3.4%
Cabot Oil & Gas Corp. 42,500 682,656
St. Mary Land & Exploration Co. 34,800 837,375
----------
1,520,031
----------
Publishing--1.1%
Houghton Mifflin Co. 11,500 485,156
----------
Retail--6.9%
MSC Industrial Direct Co. Inc.* 114,500 1,517,125
Regis Corp. 26,400 496,650
ShopKo Stores, Inc.* 48,500 1,115,500
----------
3,129,275
----------
Services--1.3%
Tetra Tech, Inc.* 39,225 605,536
----------
Textiles & Apparel--2.2%
G & K Services, Inc. 30,600 982,069
----------
Transportation--1.0%
Interpool, Inc. 59,200 440,300
----------
TOTAL COMMON STOCK
(Cost $39,596,739) 38,928,961
----------
19
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE SMALL CAPITALIZATION FUND
Par
(000) Value
- --------------------------------------------------------------------------------
AGENCY OBLIGATIONS--6.4%
- --------------------------------------------------------------------------------
Federal Home Loan Bank Discount Notes
5.600%, 01/21/00 1,400 $ 1,395,644
-----------
Freddie Mac Discount Note
5.590%, 01/27/00 1,500 1,493,944
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $2,889,588) 2,889,588
-----------
Number
of Shares
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--4.5%
- --------------------------------------------------------------------------------
Temporary Investment Fund, Inc.
(Cost $1,997,796) 1,997,796 1,997,796
------------
TOTAL INVESTMENTS--97.5%
(Cost $44,484,123) (a) 43,816,345
OTHER ASSETS IN EXCESS
OF LIABILITIES--2.5% 1,122,473
------------
NET ASSETS APPLICABLE TO 3,554,827
SHARES OF COMMON STOCK ISSUED
AND OUTSTANDING--100.0% $ 44,938,818
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 12.64
============
- -------------------------------------------------------------
* Non-Income Producing Security
(a) At December 31, 1999, the cost for Federal income tax purposes was
$44,585,053. Net unrealized depreciation was $768,708. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $3,992,717 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $4,761,425.
The accompanying notes are an integral part of these financial statements
20
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999
THE EMERGING GROWTH FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK--98.4%
- --------------------------------------------------------------------------------
Advertising--0.8%
Lamar Advertising Co.* 23,500 $ 1,421,016
-----------
Broadcast/Media--7.8%
AMFM, Inc.* 15,700 1,228,525
Citadel Communications Corp.* 24,600 1,595,925
Classic Communications, Inc.* 100 3,669
Cox Radio, Inc. * 16,000 1,596,000
Cumulus Media, Inc. * 3,900 197,681
Entercom Communications Corp. * 24,700 1,630,200
Emmis Communications Corp.* 9,000 1,121,906
Hispanic Broadcasting Corp.* 14,800 1,364,837
Infinity Broadcasting Corp. * 70,600 2,554,837
Spanish Broadcasting System, Inc.* 39,000 1,562,437
Univision Communications, Inc.* 11,500 1,175,156
Wink Communications, Inc. * 2,100 126,066
XM Satellite Radio Holdings, Inc.* 2,250 86,203
-----------
14,243,442
-----------
Brokerage--2.0%
Knight/Trimark Group, Inc.* 79,900 3,672,903
Web Street, Inc.* 2,550 31,556
-----------
3,704,459
-----------
Communications Services--1.5%
American Tower Corp.* 62,700 1,916,269
Metromedia Fiber Network, Inc.* 19,000 910,219
Tritel, Inc. * 200 6,338
-----------
2,832,826
-----------
Computer - Data Processing--0.9%
Acxiom Corp.* 46,700 1,122,259
Fiserv, Inc.* 11,800 451,350
-----------
1,573,609
-----------
Computer - Internet - Content Service--7.0%
Autoweb.com, Inc. * 70,200 763,425
24/7 Media, Inc.* 42,100 2,362,862
About.com, Inc.* 14,750 1,321,047
CMGI, Inc. * 1,800 498,319
Egreetings Network, Inc.* 350 3,555
El Sitio, Inc.* 3,600 132,525
InfoSpace.com, Inc. * 13,300 2,845,784
The Knot, Inc.* 300 2,531
MedicaLogic, Inc.* 400 8,462
MyPoints.com, Inc. * 3,600 267,187
NaviSite, Inc.* 17,350 1,733,916
NBC Internet, Inc.* 7,500 579,375
NetCreations, Inc. * 2,900 125,516
SportsLine USA, Inc.* 43,400 2,172,712
Webstakes.com, Inc. * 4,400 87,313
-----------
12,904,529
-----------
Computer - Internet - Services & Software--20.7%
AppliedTheory Corp. * 10,300 285,181
Bluestone Software, Inc. * 16,400 1,878,312
<PAGE>
Number
of Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Brio Technology, Inc. * 30,700 $ 1,285,562
BroadVision, Inc. * 11,500 1,955,719
C-bridge Internet Solutions, Inc. * 1,400 68,687
Clarent Corp. * 15,700 1,219,694
Concentric Network Corp.* 49,100 1,509,825
Covad Communications Group, Inc.* 23,500 1,310,859
CyberSource Corp.* 8,700 451,856
DSL.net, Inc.* 31,850 460,830
EarthLink Network, Inc.* 13,300 566,497
eCollege.com, Inc.* 1,300 14,259
eSPEED, Inc. * 5,700 203,241
GRIC Communications, Inc.* 2,050 52,083
Internap Network Services Corp. * 5,400 933,525
Intraware, Inc. * 14,900 1,189,206
ITXC Corp.* 26,700 891,112
Liquid Audio, Inc. * 28,900 758,625
Keynote Systems, Inc.* 7,500 545,625
National Information Consortium, Inc. 27,450 885,262
Netcentives, Inc. * 9,600 598,800
Netopia, Inc.* 11,300 616,909
Network Solutions, Inc.* 30,100 6,549,572
pcOrder.com, Inc. * 14,900 758,969
Primus Knowledge Solutions, Inc.* 9,650 436,964
PC-Tel, Inc.* 20,750 1,090,672
Proxicom, Inc. * 15,400 1,912,969
PSINet, Inc.* 15,700 970,947
Ramp Networks, Inc.* 45,800 701,313
RealNetworks, Inc.* 10,600 1,276,306
RSA Security, Inc.* 8,100 627,497
Scient Corp.* 13,800 1,188,094
Silknet Software, Inc. * 13,900 2,291,762
Verio, Inc.* 29,200 1,349,587
Vignette Corp. * 7,050 1,148,930
Xpedior, Inc. * 1,550 44,611
--------------
38,029,862
--------------
Computer - Network Services & Software--2.7%
Cobalt Networks, Inc.* 800 86,150
Extreme Networks, Inc.* 12,300 1,028,587
Foundry Networks, Inc. * 3,300 995,362
Legato Systems, Inc.* 20,800 1,430,650
Network Appliance, Inc.* 11,400 946,556
SanDisk Corp.* 5,100 488,962
--------------
4,976,267
--------------
Computer - Prepackaged Software--1.2%
Informatica Corp. * 12,400 1,305,100
Scientific Learning Corp. * 23,650 867,659
--------------
2,172,759
--------------
Computer Services & Software--23.9%
Activision, Inc. * 109,700 1,686,637
Aspect Development, Inc. * 23,500 1,612,687
21
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE EMERGING GROWTH FUND
Number
of Shares Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BEA Systems, Inc.* 70,600 $ 4,944,206
The BISYS Group, Inc. * 12,400 808,325
Broadbase Software, Inc * 15,700 1,756,437
Business Objects S.A. (ADR)* 15,200 2,020,650
Check Point Software Technologies, Ltd.* 4,900 973,875
Digex, Inc. * 27,300 1,870,050
Exchange Applications, Inc.* 47,900 2,655,456
Extended Systems, Inc. * 6,500 309,156
FileNET Corp.* 13,900 357,925
HNC Software, Inc. * 12,100 1,282,222
Immersion Corporation* 3,350 128,766
Interactive Intelligence, Inc. * 26,500 703,906
ISS Group, Inc.* 32,600 2,316,637
Macromedia, Inc.* 29,200 2,135,250
McAfee.Com Corp. * 450 20,475
Mercury Interactive Corp.* 15,100 1,630,328
NetIQ Corp. * 62,550 3,303,422
NetScout Systems, Inc. * 50,900 1,584,262
OnDisplay, Inc. * 500 45,188
Peregrine Systems, Inc.* 25,600 2,152,800
Research in Motion Ltd. * 6,800 313,438
Sagent Technology, Inc.* 41,000 1,226,156
Sapient Corp. * 9,300 1,310,428
Segue Software, Inc. * 6,600 166,650
Siebel Systems, Inc. * 15,100 1,270,288
Silicon Storage Technology, Inc.* 30,400 1,256,850
TIBCO Software, Inc. * 6,300 964,294
TSI International Software Ltd.* 24,100 1,363,156
VA Linux Systems, Inc. * 600 124,163
VERITAS Software Corp.* 9,900 1,416,628
Vitria Technology, Inc. * 950 222,597
-------------
43,933,308
-------------
Electronic Components--6.0%
Applied Micro Circuits Corp.* 5,300 675,088
Caliper Technologies Corp. * 200 13,338
Conexant Systems, Inc.* 26,200 1,734,931
Cree Research, Inc.* 21,400 1,821,675
Gemstar International Group, Ltd.* 13,200 939,675
Lattice Semiconductor Corp. * 12,900 610,734
Macrovision Corp.* 12,100 892,375
Metalink Ltd. * 950 19,000
MIPS Technologies, Inc.* 19,900 1,036,666
Power Integrations, Inc.* 25,600 1,215,200
RF Micro Devices, Inc.* 6,800 464,313
Sawtek, Inc.* 20,500 1,365,172
Zoran Corp. * 3,250 182,711
-------------
10,970,878
-------------
Financial Services--0.7%
Financial Federal Corp.* 32,300 736,844
NextCard, Inc.* 20,600 593,538
-------------
1,330,382
-------------
<PAGE>
Number
of Shares Value
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Hotels & Motels--0.7%
Four Seasons Hotels, Inc. 24,400 $ 1,299,300
-------------
Human Resources--0.5%
HotJobs.com, Ltd. * 8,050 353,194
On Assignment, Inc.* 21,100 627,066
-------------
980,260
-------------
Manufacturing--0.8%
SurModics, Inc.* 49,400 1,506,700
-------------
Medical - Biomedical--1.4%
Maxygen , Inc. * 150 10,706
Protein Design Labs, Inc. * 15,400 1,078,963
Visible Genetics, Inc. * 50,300 1,496,425
-------------
2,586,094
-------------
Medical Supplies & Equipment--2.8%
Cytyc Corp.* 28,300 1,730,722
MedImmune, Inc.* 11,500 1,906,844
ResMed, Inc. * 34,700 1,448,725
-------------
5,086,291
-------------
Real Estate--0.7%
Pinnacle Holdings, Inc.* 28,600 1,222,650
-------------
Retail--1.7%
American Eagle Outfitters, Inc. * 21,100 949,500
Factory 2-U Stores, Inc. * 33,500 961,031
ValueVision International, Inc.* 19,600 1,123,938
-------------
3,034,469
-------------
Retail - Internet--1.1%
Expedia, Inc. * 11,300 396,206
FreeMarkets, Inc. * 100 34,141
MotherNature.com, Inc. * 2,700 19,575
Ticketmaster Online-CitySearch, Inc 30,400 1,169,450
VitaminShoppe.com, Inc. * 38,700 348,300
-------------
1,967,672
-------------
Retail Merchandising--0.6%
Bed, Bath & Beyond, Inc.* 33,500 1,160,984
-------------
Semiconductors--0.5%
Integrated Device Technology, Inc. 29,500 854,578
-------------
Service - Commercial--1.2%
eBenX, Inc. * 3,000 135,938
MemberWorks, Inc. * 18,400 610,075
Student Advantage, Inc.* 63,500 1,398,984
-------------
2,144,997
-------------
Telecommunications--9.7%
Allegiance Telecom, Inc.* 23,200 2,131,500
Aware, Inc. * 28,200 1,034,588
CapRock Communications Corp.* 26,500 859,594
Copper Mountain Networks, Inc.* 31,400 1,526,825
22
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF NET ASSETS--DECEMBER 31, 1999 (Continued)
THE EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Crown Castle International Corp. * 27,500 $ 881,719
Digital Lightwave, Inc.* 20,200 1,291,538
Ditech Communications Corp.* 11,050 1,031,794
EchoStar Communications Corp.* 19,900 1,937,763
Efficient Networks, Inc.* 12,000 815,625
Electric Lightwave, Inc.* 56,100 1,037,850
iBasis, Inc. * 1,650 47,644
Infonet Services Corp. * 1,300 34,125
Korea Thrunet Co., Ltd. * 150 10,181
KPNQwest N.V.* 150 9,581
McLeodUSA, Inc.* 28,900 1,699,681
PanAmSat Corp.* 17,800 1,054,094
Primus Telecommunications Group, Inc. 26,200 1,002,150
Viatel, Inc.* 19,000 1,017,688
Z-Tel Technologies, Inc. * 8,150 324,472
-------------
17,748,412
-------------
Therapeutics--1.0%
Medarex, Inc. * 27,400 1,021,506
Pharmacyclics, Inc. * 19,300 798,538
Tularik, Inc. * 100 3,241
-------------
1,823,285
-------------
Transportation Services--0.5%
Forward Air Corp. * 22,000 953,563
-------------
TOTAL COMMON STOCK
(Cost $95,631,022) 180,462,592
-------------
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--4.0%
- --------------------------------------------------------------------------------
Temporary Cash Investment Fund, Inc. 3,661,370 3,661,370
Temporary Investment Fund, Inc. 3,661,369 3,661,369
-------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $7,332,739) 7,322,739
-------------
TOTAL INVESTMENTS --102.4%
(Cost $102,953,761) (a) 187,785,331
LIABILITIES IN EXCESS
OF OTHER ASSETS --(2.4)% (4,371,839)
-------------
NET ASSETS APPLICABLE TO 3,692,212
SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING-- 100.0% $ 183,413,492
=============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 49.68
=============
- ----------------------------------------
* Non-Income Producing Security
ADR - American Depository Receipt
(a) At December 31, 1999, the cost for Federal income tax purposes was
$103,285,947. Net unrealized appreciation was $84,499,385. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $85,634,432 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $1,135,047.
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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Quality High Yield
Market Fund Bond Fund Bond Fund
------------- ------------- --------------
<S> <C> <C> <C>
Investment Income:
Dividends 0 0 $ 641,974
Interest 3,502,830 3,341,966 6,437,357
Foreign tax withheld -- -- --
----------- ----------- -----------
Total investment income 3,502,830 3,341,966 7,079,331
----------- ----------- -----------
Expenses:
Investment advisory fees 263,557 251,361 355,521
Administration fees 98,834 83,787 106,656
Accounting fees 49,417 41,893 53,328
Custodian fees and expenses 33,233 32,438 30,059
Other expenses 29,346 23,180 56,859
----------- ----------- -----------
Total expenses 474,387 432,659 602,423
----------- ----------- -----------
Net investment income
(loss) 3,028,443 2,909,307 6,476,908
----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investment transactions (11) (1,147,059) (966,001)
Net realized foreign exchange gain (loss) -- -- 10,452
Change in net unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items -- (1,766,359) (2,556,873)
----------- ----------- -----------
Net realized and unrealized gain (loss) on investments (11) (2,913,418) (3,512,422)
----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 3,028,432 ($ 4,111) $ 2,964,486
=========== =========== ===========
</TABLE>
24
<PAGE>
PENN SERIES FUNDS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Flexibly
Growth Value Managed
Equity Fund Equity Fund Fund
-------------- -------------- --------------
<S> <C> <C> <C>
Investment Income:
Dividends $ 1,021,901 $ 4,160,521 $ 9,391,491
Interest 331,859 1,104,024 11,002,237
Foreign tax withheld -- (29,256) (87,779)
------------- ------------- -------------
Total investment income 1,353,760 5,235,289 20,305,949
------------- ------------- -------------
Expenses:
Investment advisory fees 1,076,233 1,591,815 2,531,597
Administration fees 342,077 477,544 759,479
Accounting fees 139,026 180,216 236,896
Custodian fees and expenses 38,645 45,422 98,702
Other expenses 75,037 128,443 214,394
------------- ------------- -------------
Total expenses 1,671,018 2,423,440 3,841,068
------------- ------------- -------------
Net investment income (loss) (317,258) 2,811,849 16,464,881
------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investment transactions 36,418,555 42,805,661 39,424,852
Net realized foreign exchange gain (loss) -- -- (124,109)
Change in net unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items 35,595,833 (47,874,025) (20,796,482)
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 72,014,388 (5,068,364) 18,504,261
------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 71,697,130 ($ 2,256,515) $ 34,969,142
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Small Emerging
International Capitalization Growth
Equity Fund Fund Fund
-------------- -------------- ------------
<S> <C> <C> <C>
Investment Income:
Dividends $ 2,008,615 $ 356,273 $ 33,100
Interest 211,793 274,668 265,653
Foreign tax withheld (126,000) -- (442)
------------- ------------- -------------
Total investment income 2,094,408 630,941 298,311
------------- ------------- -------------
Expenses:
Investment advisory fees 1,234,994 214,871 623,468
Administration fees 246,999 64,461 125,665
Accounting fees 123,799 32,231 60,554
Custodian fees and expenses 94,627 18,303 39,302
Other expenses 71,645 19,883 22,586
------------- ------------- -------------
Total expenses 1,772,064 349,749 871,575
------------- ------------- -------------
Net investment income
(loss) 322,344 281,192 (573,264)
------------- ------------- -------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investment transactions 19,001,539 (1,244,532) 32,707,632
Net realized foreign exchange gain (loss) 1,126,546 -- --
Change in net unrealized appreciation/depreciation of investments,
futures contracts and foreign currency related items 49,269,342 447,493 73,393,403
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 69,397,427 (797,039) 106,101,035
------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 69,719,771 ($ 515,847) $ 105,527,771
============= ============= =============
</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
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 3,028,443 $ 2,216,043 $ 2,909,307 $ 2,407,257
Net realized gain (loss) on investment transactions (11) ($ 992) ($ 1,147,059) $ 1,533,022
Net realized foreign exchange gain (loss) -- -- -- --
Net change in unrealized appreciation/depreciation of
investments, futures contracts and
foreign currency related items -- -- ($ 1,766,359) $ 487,720
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 3,028,432 $ 2,215,051 ($ 4,111) $ 4,427,999
------------ ------------ ------------ ------------
Distributions to Shareholders from:
Net investment income ($ 3,028,443) ($ 2,216,043) -- ($ 2,407,257)
Net realized capital gains -- -- -- ($ 1,568,759)
In excess of net investment income -- -- -- ($ 1,623)
------------ ------------ ------------ ------------
Total distributions ($ 3,028,443) ($ 2,216,043) $ -- ($ 3,977,639)
------------ ------------ ------------ ------------
Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transaction $ 32,954,893 $ 16,151,030 $ 2,473,540 $ 12,977,718
------------ ------------ ------------ ------------
Total Increase/Decrease in Net Assets $ 32,954,882 $ 16,150,038 $ 2,469,429 $ 13,428,078
Net Assets, beginning of year $ 53,626,422 $ 37,476,384 $ 53,505,106 $ 40,077,028
------------ ------------ ------------ ------------
Net Assets, end of year $ 86,581,304 $ 53,626,422 $ 55,974,535 $ 53,505,106
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Value Equity Fund Flexibly Managed Fund
---------------------------------- -----------------------------------
Year Year Year Year
ended ended ended ended
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 2,811,849 $ 4,186,893 $ 16,464,881 $ 15,107,764
Net realized gain (loss) on investment transactions $ 42,805,661 $ 27,331,911 $ 39,424,852 $ 55,261,526
Net realized foreign exchange gain (loss) -- -- ($ 124,109) ($ 7,284)
Net change in unrealized appreciation/depreciation of
investments, futures contracts and
foreign currency related items ($47,874,025) ($ 3,543,595) ($ 20,796,482) ($ 39,212,128)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ($2,256,515 ) $ 27,975,209 $ 34,969,142 $ 31,149,878
------------- ------------- ------------- -------------
Distributions to Shareholders from:
Net investment income -- ($ 4,186,893) -- ($ 15,107,764)
Net realized capital gains -- ($ 27,362,963) -- ($ 55,129,786)
In excess of net investment income -- -- -- ($ 363,128)
------------- ------------- ------------- -------------
Total distributions $ -- ($ 31,549,856) $ -- ($ 70,600,678)
------------- ------------- ------------- -------------
Capital Share Transactions:
Net increase/(decrease) in net assets
from capital share transactions ($42,284,926 ) $ 36,092,709 ($ 97,599,198) $ 68,797,648
------------- ------------- ------------- -------------
Total Increase/Decrease in Net Assets ($44,541,441 ) $ 32,518,062 ($ 62,630,056) $ 29,346,848
Net Assets, beginning of year $ 335,478,530 $ 302,960,468 $ 545,485,572 $ 516,138,724
------------- ------------- ------------- -------------
Net Assets, end of year $ 290,937,089 $ 335,478,530 $ 482,855,516 $ 545,485,572
============= ============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Yield Bond Fund Growth Equity Fund
------------------------------------- ------------------------------
Year Year Year Year
ended ended ended ended
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 6,476,908 $ 5,413,458 ($ 317,258) $ 131,289
Net realized gain (loss) on investment transactions ($ 966,001) ($ 34,795) $ 36,418,555 $ 20,481,154
Net realized foreign exchange gain (loss) $ 10,452 -- -- --
Net change in unrealized appreciation/depreciation of
investments, futures contracts and
foreign currency related items ($ 2,556,873) ($ 2,434,085) $ 35,595,833 $ 36,064,087
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations $ 2,964,486 $ 2,944,578 $ 71,697,130 $ 56,676,530
------------- ------------- ------------- -------------
Distributions to Shareholders from:
Net investment income -- ($ 5,413,458) -- ($ 131,289)
Net realized capital gains -- -- -- ($ 20,497,332)
In excess of net investment income -- ($ 6,598) -- --
------------- ------------- ------------- -------------
Total distributions $ -- ($ 5,420,056) $ -- ($ 20,628,621)
------------- ------------- ------------- -------------
Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions ($ 2,039,800) $ 12,341,048 $ 16,873,525 $ 23,585,734
------------- ------------- ------------- -------------
Total Increase in Net Assets $ 924,686 $ 9,865,570 $ 88,570,655 $ 59,633,643
Net Assets, beginning of year $ 69,003,234 $ 59,137,664 $ 195,691,889 $ 136,058,246
------------- ------------- ------------- -------------
Net Assets, end of year $ 69,927,920 $ 69,003,234 $ 284,262,544 $ 195,691,889
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
International Equity Fund Small Capitalization Fund
--------------------------------- -------------------------------
Year Year Year Year
ended ended ended ended
12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income(loss) $ 322,344 $ 647,444 $ 281,192 $ 274,511
Net realized gain (loss) on investment transactions $ 19,001,539 $ 5,177,853 ($ 1,244,532) $ 712,102
Net realized foreign exchange gain (loss) $ 1,126,546 $ 114,386 -- --
Net change in unrealized appreciation/depreciation of
investments, futures contracts and
foreign currency related items $ 49,269,342 $ 18,456,661 $ 447,493 ($ 5,286,799)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations $ 69,719,771 $ 24,396,344 ($ 515,847) ($ 4,300,186)
------------- ------------- ------------- -------------
Distributions to Shareholders from:
Net investment income -- ($ 647,444) -- ($ 274,511)
Net realized capital gains -- ($ 4,938,505) -- ($ 711,962)
In excess of net investment income -- ($ 769,506) -- --
------------- ------------- ------------- -------------
Total distributions $ -- ($ 6,355,455) $ -- ($ 986,473)
------------- ------------- ------------- -------------
Capital Share Transactions:
Net increase/(decrease) in net assets
from capital share transactions ($ 8,230,284) $ 6,143,763 $ 1,819,825 $ 10,195,405
------------- ------------- ------------- -------------
Total Increase in Net Assets $ 61,489,487 $ 24,184,652 $ 1,303,978 $ 4,908,746
Net Assets, beginning of year $ 153,822,208 $ 129,637,556 $ 43,634,840 $ 38,726,094
------------- ------------- ------------- -------------
Net Assets, end of year $ 215,311,695 $ 153,822,208 $ 44,938,818 $ 43,634,840
============= ============= ============= =============
<PAGE>
Emerging Growth Fund
----------------------------------
Year Year
ended ended
12/31/99 12/31/98
-------- --------
Increase (Decrease) in Net Assets:
Operations:
<S> <C> <C>
Net investment income(loss) ($ 573,264) ($ 174,741)
Net realized gain (loss) on investment transactions $ 32,707,632 ($ 2,191,288)
Net realized foreign exchange gain (loss) -- --
Net change in unrealized appreciation/depreciation of
investments, futures contracts and
foreign currency related items $ 73,393,403 $ 10,934,484
------------- -------------
Net increase (decrease) in net assets
resulting from operations $ 105,527,771 $ 8,568,455
------------- -------------
Distributions to Shareholders from:
Net investment income -- --
Net realized capital gains -- ($ 8,966)
In excess of net investment income -- --
------------- -------------
Total distributions $ -- ($ 8,966)
------------- -------------
Capital Share Transactions:
Net increase/(decrease) in net assets from
capital share transactions $ 39,222,039 $ 12,162,475
------------- -------------
Total Increase in Net Assets $ 144,749,810 $ 20,721,964
Net Assets, beginning of year $ 38,663,682 $ 17,941,718
------------- -------------
Net Assets, end of year $ 183,413,492 $ 38,663,682
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26 & 27
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE MONEY MARKET FUND
For a Share Outstanding During the Year
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<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 0.0456 0.0489 0.0503 0.0489 0.0538
------- ------- ------- ------- -------
Total from investment operations 0.0456 0.0489 0.0503 0.0489 0.0538
------- ------- ------- ------- -------
Less dividends:
Dividends from net investment income (0.0456) (0.0489) (0.0503) (0.0489) (0.0538)
------- ------- ------- ------- -------
Total dividends (0.0456) (0.0489) (0.0503) (0.0489) (0.0538)
------- ------- ------- ------- -------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return 4.66% 5.00% 5.15% 5.00% 5.51%
Ratios/Supplemental data:
Net assets, end of year (in
thousands) $86,581 $53,626 $37,476 $34,501 $24,726
======= ======= ======= ======= =======
Ratio of expenses to average net assets 0.72% 0.72% 0.70% 0.73%(a) 0.69%(a)
======= ======= ======= ======= =======
Ratio of net investment income
to average net assets 4.60% 4.88% 5.04% 4.88%(a) 5.37%(a)
======= ======= ======= ======= =======
</TABLE>
- ---------------------------------------------------------------------------
(a) Had fees not been waived by the investment adviser and administrator of
the Fund, the ratio of expenses to average net assets would have been
0.74% and 0.74%, and the ratio of net investment income to average net
assets would have been 4.87% and 5.32% for the years ended December 31,
1996 and 1995, respectively.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE QUALITY BOND FUND
For a Share Outstanding During the Year
Year ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.40 $10.20 $10.00 $10.24 $ 9.04
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.54 0.51 0.60 0.66 0.61
Net realized and unrealized gain (loss)
on investment transactions (0.54) 0.53 0.20 (0.24) 1.21
------- ------- ------- ------- -------
Total from investment operations 0.00 1.04 0.80 0.42 1.82
------- ------- ------- ------- -------
Less distributions:
Dividend from net investment income 0.00 (0.51) (0.60) (0.66) (0.61)
Distribution from net realized gain 0.00 (0.33) 0.00 0.00 0.00
Distribution in excess of net realized
gain 0.00 0.00 0.00 0.00 (0.01)
------- ------- ------- ------- -------
Total distributions 0.00 (0.84) (0.60) (0.66) (0.62)
------- ------- ------- ------- -------
Net asset value, end of year $10.40 $10.40 $10.20 $10.00 $10.24
======= ======= ======= ======= =======
Total return 0.00% 10.17% 8.03% 4.14% 20.14%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $55,975 $53,505 $40,077 $37,611 $38,048
======= ======= ======= ======= =======
Ratio of expenses to average net assets 0.77% 0.77% 0.75% 0.77%(a) 0.73%(a)
======= ======= ======= ======= =======
Ratio of net investment income
to average net assets 5.21% 5.26% 5.87% 6.03%(a) 6.20%(a)
======= ======= ======= ======= =======
Portfolio turnover rate 815.1% 477.2% 317.3% 107.6% 449.2%
======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------
(a) Had fees not been waived by the investment adviser and administrator of the
Fund, the ratio of expenses to average net assets would have been 0.78% and
0.78%, and the ratio of net investment income to average net assets would
have been 6.02% and 6.15% for the years ended December 31, 1996 and 1995,
respectively.
28
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND
For a Share Outstanding During the Year
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.19 $9.52 $8.91 $8.44 $7.94
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.89 0.79 0.80 0.70 0.80
Net realized and unrealized gain
(loss) on investments
and foreign currency related transactions (0.50) (0.33) 0.61 0.47 0.50
------- ------- ------- ------- -------
Total from investment operations 0.39 0.46 1.41 1.17 1.30
------- ------- ------- ------- -------
Less distributions:
Dividend from net investment income 0.00 (0.79) (0.80) (0.70) (0.80)
Distribution in excess of net
investment income 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Total distributions 0.00 (0.79) (0.80) (0.70) (0.80)
------- ------- ------- ------- -------
Net asset value, end of year $9.58 $9.19 $9.52 $8.91 $8.44
======= ======= ======= ======= =======
Total return 4.24% 4.79% 15.78% 13.87% 16.41%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $69,928 $69,003 $59,138 $44,042 $36,442
======= ======= ======= ======= =======
Ratio of expenses to average net assets 0.85% 0.82% 0.81% 0.84% 0.87%
======= ======= ======= ======= =======
Ratio of net investment income
to average net assets 9.11% 8.30% 8.96% 8.14% 9.20%
======= ======= ======= ======= =======
Portfolio turnover rate 78.2% 82.7% 111.3% 118.5% 84.3%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE GROWTH EQUITY FUND
For a Share Outstanding During the Year
Year ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $30.88 $24.37 $21.46 $20.00 $18.30
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income (loss) (0.05) 0.02 0.10 0.11 0.09
Net realized and unrealized gain
on investment transactions 10.58 10.12 5.64 3.85 4.75
-------- -------- -------- -------- -------
Total from investment operations 10.53 10.14 5.74 3.96 4.84
-------- -------- -------- -------- -------
Less distributions:
Dividend from net investment income 0.00 (0.02) (0.10) (0.11) (0.09)
Distribution from net realized gains 0.00 (3.61) (2.73) (2.39) (3.05)
-------- -------- -------- -------- -------
Total distributions 0.00 (3.63) (2.83) (2.50) (3.14)
-------- -------- -------- -------- -------
Net asset value, end of year $41.41 $30.88 $24.37 $21.46 $20.00
======== ======== ======== ======== =======
Total return 34.10% 41.67% 26.74% 19.76% 26.45%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $284,263 $195,692 $136,058 $106,039 $95,593
======== ======== ======== ======== =======
Ratio of expenses to average net assets 0.73% 0.76% 0.77% 0.80%(a) 0.77%(a)
======== ======== ======== ======== =======
Ratio of net investment income (loss)
to average net assets (0.14%) 0.08% 0.39% 0.48%(a) 0.43%(a)
======== ======== ======== ======== =======
Portfolio turnover rate 209.1% 161.3% 169.1% 177.1% 169.8%
======== ======== ======== ======== =======
</TABLE>
- -------------------------------------------------------
(a) Had fees not been waived by the investment adviser and administrator of
the Fund, the ratio of expenses to average net assets would have been
0.81% and 0.82% and the ratio of net investment income to average net
assets would have been 0.47% and 0.38% for the years ended December 31,
1996 and 1995, respectively.
29
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE VALUE EQUITY FUND
For a Share Outstanding During the Year
Year ended December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $22.39 $22.55 $19.32 $16.28 $12.67
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.21 0.31 0.29 0.22 0.25
Net realized and unrealized gain (loss)
on investment transactions (0.39) 1.85 4.53 3.88 4.50
-------- -------- -------- -------- --------
Total from investment operations (0.18) 2.16 4.82 4.10 4.75
-------- -------- -------- -------- --------
Less distributions:
Dividend from net investment income 0.00 (0.31) (0.29) (0.22) (0.25)
Distribution from net realized gains 0.00 (2.01) (1.30) (0.84) (0.89)
-------- -------- -------- -------- --------
Total distributions 0.00 (2.32) (1.59) (1.06) (1.14)
-------- -------- -------- -------- --------
Net asset value, end of year $22.21 $22.39 $22.55 $19.32 $16.28
======== ======== ======== ======== ========
Total return (0.80)% 9.59% 24.98% 25.19% 37.48%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $290,937 $335,479 $302,960 $200,674 $127,260
======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.76% 0.76% 0.76% 0.78% 0.80%
======== ======== ======== ======== ========
Ratio of net investment income
to average net assets 0.88% 1.27% 1.43% 1.38% 1.71%
======== ======== ======== ======== ========
Portfolio turnover rate 67.6% 24.0% 18.7% 25.0% 34.3%
======== ======== ======== ======== ========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND
For a Share Outstanding During the Year
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.31 $19.83 $18.74 $17.40 $15.19
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.67 0.60 0.61 0.65 0.53
Net realized and unrealized gain on investments
and foreign currency related transactions 0.64 0.61 2.33 2.19 2.86
-------- -------- -------- -------- --------
Total from investment operations 1.31 1.21 2.94 2.84 3.39
-------- -------- -------- -------- --------
Less distributions:
Dividend from net investment income 0.00 (0.60) (0.61) (0.65) (0.53)
Distribution in excess of net
investment income 0.00 0.00 0.00 0.00 (0.01)
Distribution from net realized gains 0.00 (2.13) (1.24) (0.85) (0.64)
-------- -------- -------- -------- --------
Total distributions 0.00 (2.73) (1.85) (1.50) (1.18)
-------- -------- -------- -------- --------
Net asset value, end of year $19.62 $18.31 $19.83 $18.74 $17.40
======== ======== ======== ======== ========
Total return 7.15% 6.09% 15.65% 16.37% 22.28%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $482,856 $545,486 $516,139 $398,544 $266,556
======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.76% 0.76% 0.76% 0.77% 0.79%
======== ======== ======== ======== ========
Ratio of net investment income
to average net assets 3.25% 2.78% 3.10% 3.90% 3.45%
======== ======== ======== ======== ========
Portfolio turnover rate 31.0% 48.0% 37.1% 32.9% 37.2%
======== ======== ======== ======== ========
</TABLE>
30
<PAGE>
- ------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY FUND
For a Share Outstanding During the Year
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.37 $16.13 $15.61 $14.47 $13.01
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income 0.03 0.10 0.58 0.63 0.13
Net realized and unrealized gain on
investments and foreign currency
related transactions 8.38 2.93 1.04 1.81 1.67
-------- -------- -------- -------- -------
Total from investment operations 8.41 3.03 1.62 2.44 1.80
-------- -------- -------- -------- -------
Less distributions:
Dividend from net investment income 0.00 (0.10) (0.53) (0.56) (0.12)
Distribution in excess of net
investment income 0.00 (0.08) 0.00 (0.74) (0.22)
Distribution from net realized gains 0.00 (0.61) (0.57) 0.00 0.00
-------- -------- -------- -------- -------
Total distributions 0.00 (0.79) (1.10) (1.30) (0.34)
-------- -------- -------- -------- -------
Net asset value, end of year $26.78 $18.37 $16.13 $15.61 $14.47
======== ======== ======== ======== =======
Total return 45.78% 18.85% 10.41% 16.87% 13.80%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $215,312 $153,822 $129,638 $104,418 $69,531
======== ======== ======== ======== =======
Ratio of expenses to average net assets 1.08% 1.08% 1.13% 1.17% 1.23%
======== ======== ======== ======== =======
Ratio of net investment income
to average net assets 0.20% 0.45% 0.62% 0.66% 0.91%
======== ======== ======== ======== =======
Portfolio turnover rate 45.0% 43.5% 35.7% 54.8% 62.5%
======== ======== ======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND
For a Share Outstanding During the Year or Period
Year ended December 31, Period ended
------------------------------------------------------- December 31,
1999 1998 1997 1996 1995 *
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year or period $12.81 $14.43 $12.53 $10.96 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 0.08 0.08 0.07 0.07 0.09
Net realized and unrealized gain (loss)
on investment transactions (0.25) (1.41) 2.81 2.09 1.19
------ ------ ------ ------ ------
Total from investment operations (0.17) (1.33) 2.88 2.16 1.28
------ ------ ------ ------ ------
Less distributions:
Dividend from net investment income 0.00 (0.08) (0.07) (0.07) (0.09)
Distribution from net realized gains 0.00 (0.21) (0.91) (0.52) (0.23)
------ ------ ------ ------ ------
Total distributions 0.00 (0.29) (0.98) (0.59) (0.32)
------ ------ ------ ------ ------
Net asset value, end of year or period $12.64 $12.81 $14.43 $12.53 $10.96
====== ====== ====== ====== ======
Total return (1.33)% (9.16)% 23.02% 19.76% 12.76%(c)
Ratios/Supplemental data:
Net assets, end of year or period
(in thousands) $44,939 $43,635 $38,726 $16,134 $4,828
======= ======= ======= ======= ======
Ratio of expenses to average net assets 0.81% 0.82% 0.85% 0.99%(b) 1.00%(a)(b)
====== ====== ====== ====== ======
Ratio of net investment income
to average net assets 0.65% 0.65% 0.66% 0.85%(b) 1.53%(a)(b)
====== ====== ====== ====== ======
Portfolio turnover rate 102.8% 61.9% 71.1% 39.2% 64.3%
====== ====== ====== ====== ======
</TABLE>
- ---------------------------------------------
* For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
(a) Annualized.
(b) Had fees not been waived by the investment adviser and administrator of the
Fund, the ratio of expenses to average net assets would have been 1.06% and
1.29%, and the ratio of net investment income to average net assets would
have been 0.78% and 1.24%, respectively, for the year ended December 31,
1996 and the period ended December 31, 1995.
(c) Not annualized.
31
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE EMERGING GROWTH FUND
For a Share Outstanding During the Year or Period
<TABLE>
<CAPTION>
Year Ended December 31, Period ended
----------------------------- December 31,
1999 1998 1997*
---- ---- -----
<S> <C> <C> <C>
Net asset value, beginning of year or period $17.43 $12.85 $10.00
------- ------- -------
Income from investment operations:
Net investment loss (0.11) (0.06) 0.00
Net realized and unrealized gain
on investment transactions 32.36 4.65 3.92
------- ------- -------
Total from investment operations 32.25 4.59 3.92
------- ------- -------
Less distributions:
Distribution from net realized gains 0.00 (0.01) (1.07)
------- ------- -------
Total distributions 0.00 (0.01) (1.07)
------- ------- -------
Net asset value, end of year or period $49.68 $17.43 $12.85
======= ======= =======
Total return 185.03% 35.70% 39.22%(c)
Ratios/Supplemental data:
Net assets, end of year or period (in thousands) $183,413 $38,664 $17,942
======== ======= =======
Ratio of expenses to average net assets 1.04% 1.15%(b) 1.15%(a)(b)
======= ======= =======
Ratio of net investment loss
to average net assets (0.68)% (0.66)%(b) (0.73)%(a)(b)
======= ======= =======
Portfolio turnover rate 172.4% 240.9% 392.3%
======= ======= =======
</TABLE>
- ---------------------------------------------
* For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
(a) Annualized.
(b) Had fees not been waived by the investment adviser and administrator of the
Fund, the ratio of expenses to average net assets would have been 1.21% and
1.41%, and the ratio of net investment income to average net assets would
have been (0.73)% and (0.99)%, respectively, for the year ended December
31,1998 and the period ended December 31, 1997.
(c) Not annualized.
32
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 -- SIGNIFICANT ACCOUNTING POLICIES
Penn Series Funds, Inc. (Penn Series) was incorporated in Maryland on April
22, 1982. Penn Series is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company.
Penn Series is presently offering shares in its Money Market, Quality Bond,
High Yield Bond, Growth Equity, Value Equity, Flexibly Managed, International
Equity, Small Capitalization and Emerging Growth Funds (the Funds). It is
authorized under its Articles of Incorporation to issue a separate class of
shares in one additional fund. The Fund would have its own investment objective
and policy.
The following is a summary of significant accounting policies followed by
Penn Series in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
INVESTMENT VALUATION:
Money Market Fund -- Investments in securities are valued under the amortized
cost method, which approximates current market value. Under this method,
securities are valued at cost on the date of purchase and thereafter a
proportionate amortization of any discount or premium until maturity is assumed.
Penn Series maintains a dollar weighted average portfolio maturity appropriate
to the objective of maintaining a stable net asset value per share. The Penn
Series Board of Directors (the Board) has established procedures reasonably
designed to stabilize the net asset value per share for purposes of sales and
redemptions at $1.00. The Board performs regular review and monitoring of the
valuation in an attempt to avoid dilution or unfair results to shareholders.
Quality Bond, High Yield Bond, Growth Equity, Value Equity, Flexibly Managed,
International Equity, Small Capitalization and Emerging Growth Funds --
Portfolio securities listed on a national securities exchange are valued at the
last sale price on the securities exchange or securities market on which such
securities primarily are traded or, if there has been no sale on that day, at
the mean between the current closing bid and asked prices. All other securities
for which over-the-counter market quotations are readily available will be
valued on the basis of the mean between the last current bid and asked prices.
When market quotation are not readily available, or when restricted or other
assets are being valued, the securities or assets will be valued at fair value
as determined by the Board.
The high yield securities in which the High Yield Bond Fund may invest are
predominantly speculative as to the issuer's continuing ability to meet
principal and interest payments. The value of the lower quality securities in
which the High Yield Bond Fund may invest will be affected by the credit
worthiness of individual issuers, general economic and specific industry
conditions, and will fluctuate inversely with changes in interest rates. In
addition, the secondary trading market for lower quality bonds may be less
active and less liquid than the trading market for higher quality bonds.
Foreign Currency Translation -- The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis: market value of investment securities, assets
and liabilities at the current rate of exchange, purchases and sales of
investment securities, income and expenses at the relevant rates of exchange
prevailing on the respective dates of such transactions.
The Funds do not isolate the portion of realized and unrealized gains and
losses on investments which is due to changes in the foreign exchange rate from
that which is due to changes in market prices of equity securities. Such
fluctuations are included with net realized and unrealized gain or loss from
investments.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the level of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is accrued as earned. The cost of investment securities
sold is determined by using the specific identification method for both
financial reporting and income tax purposes.
<PAGE>
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 within 30 days of the Funds' year end, December
31, as permitted by federal income tax regulations. Dividends of net investment
income of the Money Market Fund are declared daily and paid monthly.
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; temporary 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, 1999 (Continued)
- --------------------------------------------------------------------------------
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.
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, 1999. There were no open futures contracts at
December 31, 1999.
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 and call options during the year ended December 31, 1999. Purchased put
and call options open and outstanding at December 31, 1999 are disclosed in the
statement of net assets. Losses on options written during the year ended
December 31, 1999 of $411,819 have been included with those from investment
transactions on the Statement of Operations.
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 that 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 High Yield Bond, Flexibly Managed and
International Equity Funds have entered into forward foreign currency contracts
during the year ended December 31, 1999. At December 31, 1999 there were no open
contracts in the High Yield Bond, Flexibly Managed and International Equity
Funds.
<PAGE>
3 -- INVESTMENT ADVISORY AND OTHER CORPORATE SERVICES
Investment Advisory Services
Effective May 1, 1998 Independence Capital Management, Inc. ("ICMI") serves
as investment adviser 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-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.
OpCap Advisers ("OpCap") is sub-adviser to 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.
34
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
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 affiliate of Bank J. Vontobel & Co. Ltd.
RS Investment Management, Inc. (formerly Robertson 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 April
26, 1998. As sub-adviser, RSIM 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: 0.80% 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-advisers, on a monthly basis, a sub-advisory fee.
Administrative and Corporate Services
Under an administrative and corporate service agreement, The Penn Mutual
Life Insurance Company ("Penn Mutual") serves as administrative and corporate
services agent for Penn Series. Each of the Funds pays Penn Mutual, on a
quarterly basis, an annual fee equal to 0.15% of each of the Fund's average
daily net assets.
Expenses and Limitations Thereon
Each Fund bears all expenses of its operations other than those incurred by
the investment adviser and sub-advisers under their respective investment
advisory agreements and those incurred by Penn Mutual under its administrative
and corporate service agreement. The investment adviser, 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 capitalized
expenses, but including investment advisory and administrative and corporate
services fees) exceeds the applicable expense limitation for the Fund. The
expense limitations for the Funds are as follows: Money Market, 0.80%; Quality
Bond: 0.90%; High Yield Bond: 0.90%; Growth Equity: 1.00%; Value Equity: 1.00%;
Flexibly Managed: 1.00%; International Equity: 1.50%; Small Capitalization
1.00%; and Emerging Growth 1.15%.
Fees were paid to non-affiliated Directors of Penn Series for the year
ended December 31, 1999. However, no person received compensation from Penn
Series who is an officer, director, or employee of Penn Series, the investment
adviser, sub-advisers, administrator, accounting agent or any parent or
subsidiary thereof.
4 -- CAPITAL STOCK
At December 31, 1999, 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.
35
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Transactions in capital stock of Penn Series Funds, Inc. were as follows:
<TABLE>
<CAPTION>
The Year Ended December 31, 1999:
----------------------------------------------------------------------------------------
Received for Shares Issued for Paid for
Shares Sold Reinvestment Shares Redeemed
----------- ------------ ---------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 188,665,821 $188,665,821 2,908,631 $2,908,631 158,619,559 $158,619,559
Quality Bond Fund 1,479,129 $15,328,780 - - 1,238,959 $12,855,240
High Yield Bond Fund 1,695,470 $15,956,185 - - 1,904,110 $17,995,985
Growth Equity Fund 1,313,023 $43,594,844 - - 785,882 $26,721,319
Value Equity Fund 1,100,517 $24,742,241 - - 2,981,562 $67,027,167
Flexibly Managed Fund 1,513,092 $29,125,418 - - 6,691,288 $126,724,616
International Equity Fund 4,437,623 $89,853,437 - - 4,769,085 $98,083,721
Small Capitalization Fund 877,699 $10,899,623 - - 730,269 $9,079,798
Emerging Growth Fund 2,066,955 $58,019,088 - - 592,924 $18,797,049
The Year Ended December 31, 1998:
----------------------------------------------------------------------------------------
Received for Shares Issued for Paid for
Shares Sold Reinvestment Shares Redeemed
----------- ------------ ---------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
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>
5 - COMPONENTS OF NET ASSETS
At December 31, 1999, Net Assets consisted of the following:
<TABLE>
<CAPTION>
Money Quality High Yield Growth Value
Market Bond Bond Equity Equity
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Capital paid in $86,584,064 $55,175,954 $68,741,366 $142,814,652 $206,446,540
Undistributed net investment income (loss) -- 2,912,581 6,503,349 -- 2,811,849
Accumulated net realized gain (loss) on investment
transactions and foreign exchange (2,760) (1,187,692) (2,609,085) 36,049,136 42,774,609
Net unrealized appreciation (depreciation)
in value of investments, futures contracts
and foreign currency related items -- (926,308) (2,707,710) 105,398,756 38,904,091
----------- ----------- ----------- ------------ ------------
Total Net Assets $86,581,304 $55,974,535 $69,927,920 $284,262,544 $290,937,089
=========== =========== =========== ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Flexibly International Small Emerging
Managed Equity Capitalization Growth
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Capital paid in $411,999,519 $108,568,106 $46,578,779 $68,687,189
Undistributed net investment income (loss) 18,517,238 (126,981) 281,192 --
Accumulated net realized gain (loss) on investment
transactions and foreign exchange 36,983,400 18,822,424 (1,253,375) 29,894,732
Net unrealized appreciation (depreciation)
in value of investments, futures contracts
and foreign currency related items 15,355,359 88,048,146 (667,778) 84,831,571
------------ ------------ ----------- ------------
Total Net Assets $482,855,516 $215,311,695 $44,938,818 $183,413,492
============ ============ =========== ============
</TABLE>
36
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
6- PURCHASES AND SALES OF INVESTMENTS
During the year ended December 31, 1999, 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 $286,248,897 $280,661,407
High Yield Bond Fund $65,576,368 $53,046,844
Growth Equity Fund $490,176,848 $465,434,113
Value Equity Fund $198,702,033 $212,642,951
Flexibly Managed Fund $147,118,601 $194,271,410
International Equity Fund $72,487,885 $77,111,598
Small Capitalization Fund $40,480,611 $38,756,196
Emerging Growth Fund $175,528,607 $138,094,258
7- CAPITAL LOSS CARRYOVERS
Capital loss carryovers expire as follows:
Money Quality High Yield Small
Market Bond Bond Capitalization
Fund Fund Fund Fund
----------------------------------------------------------------
2000 $ 61 $ 0 $ 0 $ 0
2001 183 0 0 0
2003 416 0 1,052,436 0
2004 0 0 525,647 0
2005 225 0 0 0
2006 992 0 14,558 0
2007 0 965,951 861,638 956,303
------ -------- ---------- --------
Total $1,877 $965,951 $2,454,279 $956,303
37
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
PENN SERIES FUNDS, INC.
We have audited the statements of net assets of Penn Series Funds, Inc.
(comprising, respectively, the Money Market Fund, Quality Bond Fund, High Yield
Bond Fund, Growth Equity Fund, Value Equity Fund, Flexibly Managed Fund,
International Equity Fund, Small Capitalization Fund, and Emerging Growth Fund)
as of December 31, 1999, and the related statements of operations for the year
then ended, and the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, 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 and financial highlights 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, 1999, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended and their
financial highlights for each of the three years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 28, 2000
38
<PAGE>
PART C: OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
<S> <C>
(a)(1) 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 No. 0000950109-97-001341)
on February 14, 1997.
(a)(2) Articles Supplementary to the Articles of Incorporation. -Filed herewith.
(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 No. 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) Form of Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc.- Filed herewith.
(d)(2) 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 No.
0001036050-98-000286) on February 27, 1998.
(d)(3) Form of Sub-Advisory Agreement between Independence Capital
Management, Inc. and Turner Investment Partners, Inc. with respect to the
Mid Cap Growth Fund -Filed herewith.
(d)(4) Form of Sub-Advisory Agreement between Independence
Capital Management, Inc. and Putnam Management, Inc. with
respect to the Large Cap Value Fund - Filed herewith.
(d)(5) Form of Sub-Advisory Agreement between Independence
Capital Management, Inc. and Wells Capital Management,
Incorporated with respect to the Index 500 Fund - Filed herewith.
(d)(6) Form of Sub-Advisory Agreement between Independence
Capital Management and Neuberger Berman Management Inc. with
respect to the Mid Cap Value Fund - Filed herewith.
(d)(7) Form of Sub-Advisory Agreement between Independence
Capital Management, Inc. and Royce & Associates, Inc. with respect
to the Small Cap Value Fund - Filed herewith.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(d)(8) 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 - Incorporated by reference to the Registrant's Post-
Effective Amendment No. 47 as filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-99-000315) on February 26,
1999.
(d)(9) Sub-Advisory Agreement between Independence Capital Management, Inc. and
Vontobel USA Inc. with respect to the International Equity Fund - Incorporated
by reference to the Registrant's Post-Effective Amendment No. 47 as filed with
the Securities and Exchange Commission via EDGAR (Accession No.
000950116-99-000315) on February 26, 1999.
(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)(a) Amended and Restated Custodian Agreement between the Registrant and Provident
National Bank. 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 No.
0001036050-98-000286) on February 27, 1998.
(g)(1)(b) Amended Schedule to the Amended and Restated Custodian Agreement between the
Registrant and Provident National Bank - Filed herewith.
(g)(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 No. 0001036050-98-000286) on
February 27, 1998.
(h)(1)(a) 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 No. 0001036050-97-001341) on February 14, 1997.
(h)(1)(b) Administrative and Corporate Services Agreement between the Registrant and The
Penn Mutual Life Insurance Company with respect to Additional Funds -Filed
herewith.
(h)(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 No. 0000950109-97-001341) on
February 14, 1997.
(h)(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 No. 0000950109-97-001341) on February 14, 1997.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
(i) Opinion and Consent of Morgan, Lewis & Bockius LLP - Filed herewith.
(j) Consent of Ernst & Young LLP - Filed herewith.
(k) None.
(l) None.
(m) None.
(n) Not applicable.
(o) None.
(p)(1) Code of Ethics for the Registrant- Filed herewith.
(p)(2) Code of Ethics for Independence Capital Management, Inc. -Filed herewith.
(p)(3) Code of Ethics for RS Investment Management, Inc.- Filed herewith.
(p)(4) Code of Ethics for Turner Investment Partners, Inc.- Filed herewith.
(p)(5) Code of Ethics for Putnam Management, Inc.- Filed herewith.
(p)(6) Code of Ethics for Wells Capital Management Incorporated.- Filed herewith
(p)(7) Code of Ethics for Neuberger Berman Management, Inc.- Filed herewith.
(p)(8) Code of Ethics for Royce & Associates, Inc.- Filed herewith.
(p)(9) Code of Ethics for T. Rowe Price Associates, Inc.- Filed herewith.
(p)(10) Code of Ethics for Vontobel U.S.A. Inc.-Filed herewith.
(q) Powers of Attorney of Directors - Incorporated by reference to the
Registrant's Post-Effective Amendment No. 47 as filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000950116-99-000315)
on February 26, 1999.
</TABLE>
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: Indepro Corp. 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 LLC, a Delaware corporation, and
Hornor, Townsend & Kent, Inc., a Pennsylvania corporation.
Janney Montgomery Scott LLC is the record and beneficial owner
of 100% of the outstanding common stock of the following
corporations: JMS Resources, Inc., a Pennsylvania corporation;
JMS Investor Services, Inc., a Delaware corporation; and Janney
Montgomery Scott Insurance Agency Inc., a Massachusetts
corporation..
Penn Mutual and Janney Montgomery Scott LLC 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> <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> <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> <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
Executive Officers:
-------------------
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
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> <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>
<TABLE>
<CAPTION>
Managing Directors:
-------------------
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C> <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
Charles A. Morris,
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> <C>
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
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C> <C>
Peter M. Sherman, Chairman, President and Chief Executive Officer of
President, Chief Executive Independence Capital Management, Inc., Horsham, PA;
Officer and Director President and Chief Investment Officer of The Penn
Mutual Life Insurance Company, 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
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
Willard N. Woolbert, Vice President of Independence Capital Management, Inc.,
Vice President Radnor, PA; Senior Vice President and Portfolio Manager
of The Pennsylvania Trust Company, Radnor, PA;
Vice President and Senior Portfolio Manager, PNC
Bank, Philadelphia, PA (from 1990 to 1998).
Barbara S. Wood, Vice President, Controller, Treasurer and Secretary of
Vice President, Independence Capital Management, Inc., Radnor, PA; Vice
Controller, Treasurer and President and Treasurer of The Pennsylvania Trust
Secretary Company, Radnor, PA; Senior Vice President and Treasurer
of Hornor, Townsend & Kent, Inc., Horsham, PA. (July
1995 to December 1999).
</TABLE>
Vontobel USA Inc.
<TABLE>
<S> <C>
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 five fund series for which Vontobel USA Inc. serves as investment adviser.
</TABLE>
C-10
<PAGE>
RS Investment Management, Inc.
<TABLE>
<CAPTION>
Name and Current Position with Other Business Connections During the
RS Investment Management, Inc. Past Two Years
------------------------------ --------------
<S> <C> <C>
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>
Neuberger Berman Management, Inc.
<TABLE>
<CAPTION>
Name and Current Position with Other Business Connections During the
Neuberger Berman Management, Inc. Past Two Years
--------------------------------- --------------
<S> <C> <C>
Philip Ambrosio Senior Vice President and Chief Financial Officer,
Senior Vice President and Chief Neuberger Berman Inc.
Financial Officer, NB Management
Brooke A. Cobb Chief Investment Officer, Bainco International
Vice President, Investors. Senior Vice President and Senior Portfolio
NB Management Manager, Putnam Investments until 1997.
Theodore P. Giuliano President and Trustee, Neuberger Berman Income
Vice President, NB Management; Funds; President and Trustee, Neuberger Berman
Managing Director, Income Trust; President and Trustee, Income
Neuberger Berman Managers Trust.
Michael M. Kassen Executive Vice President, Chief Investment Officer
Executive Vice President and Chief and Director, Neuberger Berman, Inc.
Executive Officer, NB Management
Jeffrey B. Lane President, Chief Executive Officer and Director of
President and Chief Executive Neuberger Berman, Inc.
Officer, Neuberger Berman
Michael F. Malouf Portfolio Manager, Dresdner RCM Global Investors
Vice President, NB Management until 1998.
Robert Matza Executive Vice President, Chief Administrative
Executive Vice President and Chief Officer and Director, Neuberger Berman, Inc.
Administrative Officer,
Neuberger Berman
S. Basu Mullick Portfolio Manager, Ark Asset Management until 1998.
Vice President, NB Management
</TABLE>
C-11
<PAGE>
<TABLE>
<S> <C> <C>
C. Carl Randolph Secretary and General Counsel, Neuberger Berman,
Senior Vice President, General Inc. Assistant Secretary, Neuberger Berman Advisers
Counsel and Secretary, Neuberger Management Trust; Assistant Secretary Advisers
Berman Managers Trust; Assistant Secretary, Neuberger
Berman Income Funds; Assistant Secretary, Neuberger Berman Income
Trust; Assistant Secretary, Neuberger Berman Equity Funds;
Assistant Secretary, Neuberger Berman Equity Trust; Assistant
Secretary, Income Managers Trust; Assistant Secretary, Equity
Managers Trust; Assistant Secretary, Global Managers Trust;
Assistant Secretary, Neuberger Berman Equity Assets; Assistant
Secretary, Neuberger Berman Equity Series.
Ingrid Saukaitis Project Director, Council on Economic Priorities until
Vice President, NB Management 1997.
Heidi L. Schneider Executive Vice President and Director, Neuberger
Executive Vice President, Berman, Inc.
Neuberger Berman
Benjamin E. Segal Assistant Portfolio Manager, GT Global Investment
Vice President, NB Management, Management until 1997; Consultant, Bain &
Managing Director, Company, Inc. until 1997.
Neuberger Berman
Jennifer K. Silver Portfolio Manager and Director, Putnum Investments,
Vice President, NB Management, until 1997.
Managing Director,
Neuberger Berman
Daniel J. Sullivan Vice President, Neuberger Berman Advisers
Senior Vice President, NB Management Trust; Vice President, Advisers
Management Managers Trust; Vice President, Neuberger Berman
Income Funds; Vice President, Neuberger Berman Income Trust; Vice
President, Neuberger Berman Equity Funds; Vice President,
Neuberger Berman Equity Trust; Vice President, Income Managers
Trust; Vice President, Equity Managers Trust; Vice President,
Global Managers Trust; Vice President, Neuberger Berman Equity
Assets; Vice President, Neuberger Berman Equity Series.
Peter E. Sundman Executive Vice President and Director, Neuberger
President, NB Management; Berman Inc.
Executive Vice President,
Neuberger Berman
</TABLE>
C-12
<PAGE>
<TABLE>
<S> <C> <C>
Michael J. Weiner Vice President, Neuberger Berman Adcisers
Senior Vice President, NB Management Trust; Vice President, Advisers
Management; Senior Vice President, Managers Trust; Vice President, Neuberger Berman
Neuberger Berman Income Funds; Vice President, Neuberger Berman
Income Trust; Vice President, Neuberger Berman Equity
Funds; Vice President, Neuberger Berman Equity Trust;
Vice President, Income Managers Trust; Vice President,
Equity Managers Trust; Vice President, Global Managers
Trust; Vice President, Neuberger Berman Equity Assets;
Vice President, Neuberger Berman Equity Series.
Allan R. White, III Portfolio Manager, Salomon Asset Management until
Vice President, NB Management; 1998.
Managing Director,
Neuberger Berman
</TABLE>
The principal address of NB Management, Neuberger Berman, and of each of
the investment companies named above, is 605 Third Avenue, New York, New York,
10158.
Turner Investment Partners, Inc.
<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Turner Investment Partners, Inc. Past Two Years
-------------------------- --------------
<S> <C> <C>
Stephen J. Kneeley Registered Representative, SEI Investments
Chief Operating Officer, Secretary, Distribution Co.
President
Janet Rader Rote Registered Representative, SEI Investments
Director of Compliance Distribution Co.
Thomas R. Trala None
CFO, Treasurer
Mark D. Turner None
Vice Chairman, Director of Fixed
Income
Robert E. Turner, Jr. None
Chairman, CIO
</TABLE>
The principal address of Turner Investment Partners is 1235 Westlakes
Drive, Suite 350, Berwyn, PA, 19312.
Putnam Management, Inc.
<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Management, Inc. Past Two Years
----------------------- --------------
<S> <C> <C>
Pankaj Aggrawal Quantitative Analyst, Vestek Systems, San Francisco,
Vice President CA.
Blake Anderson Trustee, Salem Female Charitable Society, Salem,
Managing Director MA.
</TABLE>
C-13
<PAGE>
<TABLE>
<S> <C> <C>
Barry R. Allen None
Vice President
Michael J. Atkin None
Senior Vice President
Jeffrey B. Augustine None
Senior Vice President
Rowland T. Bankes None
Vice President
Robert R. Beck Director, Charles Bridge Publishing, Watertown, MA;
Senior Vice President Board of Overseers, Beth Israel Deaconess Medical
Center, Boston MA.
Carl. D Bell None
Vice President
Richard L. Block None
Senior Vice President
Jeffrey M. Bray None
Vice President
David J. Buckle None
Vice President
Ronald J. Bukovac None
Vice President
Robert W. Burke Member-Executive Committee, The Ridge Club,
Senior Managing Director Sandwich, MA; Member-Advisory Board, Cathedral
High School, Boston, MA.
Richard P. Cervone None
Vice President
Jack P. Chang None
Senior Vice President
Bihua Chen None
Assistant Vice President
C. Beth Cotner Director, The Lyric Stage Theater, Boston MA.
Senior Vice President
Stephen P. Cotto None
Assistant Vice President
Joseph F. Cushing None
Assistant Vice President
John R.S. Cutler Member, Burst Media, L.L.C., Burlington, MA
Vice President
Kenneth Daly President, Andover River Rd. TMA, River Road
Managing Director Transportation Management Associatoin, Andover MA.
</TABLE>
C-14
<PAGE>
<TABLE>
<S> <C> <C>
Michael W. Davis None
Vice President
Donna M. Daylor None
Vice President
John C. Delano None
Assistant Vice President
Edwin M. Denson None
Vice President
Ralph C. Derbyshire None
Senior Vice President
Michael G. Dolan Chairman-Finance Council. St. Mary's Parish,
Assistant Vice President Melrose, MA; Member, School Advisory Board, St.
Mary's School, Melrose, MA.
Mark E. Dow None
Vice President
Emily Durbin Board of Directors, Family Service, Inc., Lawrence,
Vice President MA.
Karnig H. Durgarian Board Member, EBRI, Suite 600, Washington, DC;
Managing Director Trustee, American Assembly, Washington DC.
Nathan Eigerman Trustee, Flower Hill Trust, Boston MA.
Senior Vice President
Lisa V. Emerick None
Vice President
Irene M. Esteves Board of Director Member, American Management
Managing Director Association Finance Council, New York, NY; Board
of Director Member, First Night Boston, Boston, MA;
Board of Director Member, SC Johnson Commercial Markets,
Stutevant, WI; Board of Director Member, Massachusetts
Taxpayers Foundation, Boston, MA; Board of Director
Member, Mrs. Bairds Bakeries, Fort Worth, TX.
Ian Ferguson Trustee, Park School, Brookline, MA.
Senior Managing Director
John Ferry None
Vice President
Edward R. Finch None
Vice President
Kate Fleisher None
Vice President
Henrietta Fraser Manager, Fleming Investment Management, London,
Vice President U.K.
</TABLE>
C-15
<PAGE>
<TABLE>
<S> <C> <C>
Karen T. Frost None
Senior Vice President
Stephen C. Gibbs None
Vice President
Ken S. Gordon None
Vice President
J. Peter Grant Trustee, The Dover Church, Dover, MA.
Senior Vice President
Patrice Graviere None
Senior Vice President
Paul E. Haagensen Director, Haagensen Research Foundation, New York,
Senior Vice President NY.
Nigel P. Hart None
Senior Vice President
Deborah R. Healey Corporator, New England Baptist Hospital, Boston
Senior Vice President MA; Director, NEB Enterprises, Boston MA.
Yoshiro Iino None
Vice President
Marianne P. Isgur None
Assistant Vice President
Jeffrey Kaufman None
Senior Vice President
Ira C. Kalus-Bystricky None
Vice President
Hiroshi Kato None
Vice President
Kevin Keleher None
Assistant Vice President
Catherine Kennedy None
Vice President
Jeffrey K. Kerrigan None
Assistant Vice President
David R. King None
Vice President
William P. King None
Vice President
Deborah F. Kuenstner Director, Board of Pensions, Presbyterian Church,
Managing Director Philadephia, PA.
Thomas J. Kurey None
Senior Vice President
</TABLE>
C-16
<PAGE>
<TABLE>
<S> <C> <C>
Linda Lane Member, American Society for Training &
Assistant Vice President Development, Stoughton, MA
Coleman N. Lannum, III None
Senior Vice President
Leonard LaPorta, Jr. None
Vice President
Lawrence J. Lasser Director, Marsh & McLennan Companies, Inc., New
President, Director and Chief York, NY; Board of Governors and Executive
Executive Committee, Investment Company Institute,
Washington, DC; Board of Overseers, Museum of Fine Arts,
Boston, MA; Trustee, Beth Israel Deaconess Medical
Center, Boston Ma; Member of the Council on Foreign
Relations, New York, NY; member of the Board of
Directors of the United Way of Massachusetts Bay,
Boston, MA; Trustee of the Vineyard Open Land
Foundation, Vineyard Haven, MA.
Maura W. Leddy None
Vice President
Richard Leibovitch Managing Director, J.P. Morgan, New York, NY.
Managing Director
Craig S. Lewis None
Vice President
Geirulv Lode None
Senior Vice President
Wan Yun Lui Quantitative Analyst, T. Rowe Price Associates, Inc.,
Assistant Vice President Baltimore, MD.
Elizabeth M. MacElwee Jones None
Senior Vice President
Saba S. Malak None
Vice President
Kevin Maloney Institutional Director, Financial Management
Managing Director Association, University of South Florida, College of
Business Administration, Tampa, FL.
Jabaz Mathai None
Assistant Vice President
Bridget McCavoy None
Vice President
Paul McHugh None
Vice President
Krishna Memani Principal, Morgan Stanley & Co., New York, NY.
Managing Director
</TABLE>
C-17
<PAGE>
<TABLE>
<S> <C> <C>
Paul K. Michaud None
Vice President
Christopher G. Miller None
Vice President
William H. Miller None
Senior Vice President
Jeanne L. Mockard Trustee, The Bryn Mawr School, Baltimore, MD.
Senior Vice President
Gerard I. Moore None
Vice President
Donald E. Mullin Corporate Representative and Board Member, Delta
Senior Vice President Dental Plan of Massachusetts, Medford, MA.
Kenneth W. Murphy, Jr. None
Assistant Vice President
Kimberly A.M. Page Nauen None
Vice President
Stephen S. Oler None
Senior Vice President
Stephen M. Oristaglio None
Senior Managing Director
Kerry M. Owens None
Assistant Vice President
Margery C. Parker None
Senior Vice President
William Perry None
Vice President
Randolph Petralia None
Senior Vice President
Keith Plapinger Chairman and Trustee, Adent School, Boston MA.
Vice President
Charles E. Porter Trustee, Anatolia College, Boston MA; Governor,
Executive Vice President Handel & Hayden Society, Boston, MA.
Quintin R.S. Price Corporate Development Director, The Boots Company
Managing Director PLC, Nottingham, England.
</TABLE>
C-18
<PAGE>
<TABLE>
<S> <C> <C>
George Putnam Chairman and Director, Putnam Mutual Funds Corp;
Chairman and Director Director, The Boston Company, Inc., Boston MA;
Director, Boston Safe Deposit & Trust Company, Boston,
MA; Director, Freeport-McMoran, Inc., New York, NY;
Director, General Mills, Inc., Minneapolis, MN;
Director, Houghton Mifflin Company, Boston, MA;
Director, Marsh & McLennan Companies, Inc., New York,
NY; Director, Rockefeller Group, Inc., New York, NY;
Trustee, Massachusetts General Hospital Boston, MA;
McLean Hospital, Belmont, MA; The Colonial Williamsburg
Foundation, Williamsburg VA; The Museum of Fine Arts,
Boston, MA; WGBH Foundation, Boston, MA; The Nature
Conservancy, Boston, MA; Trustee, The Jackson
Laboratory, Bar Harbor, ME.
Robert A. Piepenburg None
Vice President
James A. Polk None
Vice President
Elizabeth Price None
Assistant Vice President
Edward Qian None
Vice President
Keith Quinton Director, Eleazar, Inc., Hanover, NH.
Senior Vice President
Nadine McQueen-Reed Key Account Executive, Fidelity Investments, Kent,
Assistant Vice President England.
Thomas V. Reilly Trustee, Knox College, Galesburg, IL.
Managing Director
Marc J. Ritenhouse None
Vice President
Kevin J. Rogers None
Senior Vice President
Oliver Rudigoz None
Vice President
Michael V. Salm None
Vice President
Preeti Sayana None
Assistant Vice President
Saied Simozar None
Senior Vice President
Robert J. Schoen None
Assistant Vice President
</TABLE>
C-19
<PAGE>
<TABLE>
<S> <C> <C>
Justin M. Scott Director, DSI Proprieties (Neja) Ltd., Reydon, Essex,
Managing Director England.
Max S. Senter General Partner, M.S. Senter & Sons Partnership,
Senior Vice President Raleigh, NC.
Raj Ken Sharma None
Vice President
Jean I. Sievert Vice President, Saloman Smith Barney, New York,
Senior Vice President NY.
Gordon H. Silver Trustee, Wang Center for the Performing Arts, Boston,
Managing Director MA.
David M. Silk Member of the Board of Directors, Jobs for Bay State
Senior Vice President Graduates, North Andover, MA.
Steven Spiegel Director, Ultra Diamond and Gold Outlet, Chicago, IL;
Senior Managing Director Director, FACES New York University Medical
Center, New York, NY; Trustee, Babson College,
Wellesley, MA.
James St. John None
Assistant Vice President
Loren Michael Starr None
Managing Director
Michael P. Stack None
Senior Vice President
Toshifumi Sugimoto None
Senior Vice President
Robert E. Sweeney None
Vice President
Judith H. Swirbalus None
Vice President
John C. Talanian Member of the Board of Directors, the Japan Society
Managing Director of Boston, Boston, MA.
Nicole J. Thorpe None
Assistant Vice President
Robert J. Toner None
Assistant Vice President
John R. Tonkin None
Assistant Vice President
Robert J. Ullman None
Assistant Vice President
</TABLE>
C-20
<PAGE>
<TABLE>
<S> <C> <C>
Scott G. Vierra None
Vice President
Vincent Vliebergh None
Vice President
David L. Waldman None
Managing Director
Dierdre West-Smith Trustee, St. James Condo Association, Roxbury, MA.
Assistant Vice President
Toshifumi Sugimoto None
Senior Vice President
Eric Wetlaufer President and Member of the Board of Directors, The
Managing Director Boston Security Analysts Society, Inc., Boston MA.
Edward F. Whalen Member of the Board of Directors, Hockomock Area
Senior Vice President YMCA, North Attleboro, MA
Richard P. Wyke Director, Salem YMCA, Salem, MA.
Senior Vice President
</TABLE>
The principal address of Putnam Investments is 1 Post Office Square,
Boston, MA, 02109.
Wells Capital Management Incorporated
<TABLE>
<CAPTION>
Name and Position with Other Business Connections During
Wells Capital Management, Incorporated the Past Two Years
-------------------------------------- ------------------
<S> <C> <C>
Allen J. Ayvazian None
Chief Equity Officer
Robert Willis None
President and Chief Investment
Officer
Brigid Breen None
Chief Compliance Officer
Jose Casas None
Chief Operating Officer
Larry Fernandes None
Principal
Jacqueline Anne Flippin Vice Principal and Investment
Principal Portfolio Manager, McMorgan &
Company.
Stephen Galiani None
Senior Principal Director
Madeleine Gish None
Senior Principal
Kelli Ann Lee Group Human Resources Manager,
Managing Director Wells Fargo Bank, N.A.
</TABLE>
C-21
<PAGE>
<TABLE>
<S> <C> <C>
Melvin Lindsey None
Managing Director
Clark Messman None
Chief Legal Officer
Brian Mulligan None
Managing Director
Thomas O'Malley None
Managing Director
Clyde Ostler None
Director
Guy Rounsaville None
Director
Katherine Schapiro None
Senior Principal
Gary Schlossberg None
Economist
</TABLE>
Royce and Associates, Inc.
<TABLE>
<CAPTION>
Name and Position with Other Business Connections During
Royce & Associates, Inc. the Past Two Years
------------------------ ------------------
<S> <C> <C>
Charles Royce None
President, Managing Director & Treasurer
John E. Denneen None
Investment Adviser
Charles R. Dreifus Limited Managing Director
Senior Portfolio Manager and Principal Lazard Freres & Co. LLC
Jack E. Fockler, Jr. None
Managing Director
William W. George None
Managing Director and Senior Portfolio
Manager
Howard Joseph Kashner None
General Counsel
Boniface A. Zaino General Partner,
Managing Director and Senior Portfolio Royce Management Company
Manager
</TABLE>
Item 27. Principal Underwriters
Not Applicable.
C-22
<PAGE>
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
Independence Capital Management, Inc.
600 Dresher Road
Horsham, PA 19044
Vontobel USA Inc.
450 Park Avenue
New York, NY 10022
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-23
<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
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and certifies that it has duly caused this Post-Effective
Amendment No. 49 to the 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 21st day of April, 2000
PENN SERIES FUNDS, INC.
By: /s/ Peter M. Sherman
----------------------------
Peter M. Sherman, 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 21st day of April,
2000.
Signature Title
/s/ Peter M. Sherman President (Principal Executive
- --------------------------------------
Peter M. Sherman Officer)
/s/ Steven M. Herzberg Treasurer (Principal
- --------------------------------------
Steven M. Herzberg Financial Officer)
/s/ Ann M. Strootman Controller (Principal
- --------------------------------------
Ann M. Strootman Accounting Officer)
* 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-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Description
- ------ -----------
<S> <C>
(a)(1) 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 No. 0000950109-97-001341) on February 14, 1997.
(a)(2) Articles Supplementary - Filed herewith.
(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 No. 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).
Ex.99 (d) (1) Form of Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. - Filed herewith.
(2) 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
No. 0001036050-98-000286) on February 27, 1998.
Ex.99 (3) Form of Sub-Advisory Agreement between Independence Capital
Management, Inc. and Turner Investment Partners, Inc. with respect to the
Mid Cap Growth Fund -Filed herewith.
Ex.99 (4) Form of Sub-Advisory Agreement Independence Capital
Management Inc. and Putnam Management, Inc. with respect to the Large
Cap Value Fund - Filed herewith.
Ex.99 (5) Form of Sub-Advisory Agreement between Independence Capital
Management, Inc. and Wells Capital Management Incorporated with respect
to the Index 500 Fund - Filed herewith.
Ex.99 (6) Form of Sub-Advisory Agreement between Independence Capital
Management and Neuberger Berman Management, Inc. with respect to the
Mid Cap Value Fund -Filed herewith.
Ex.99 (7) Form of Sub-Advisory Agreement between Independence Capital
Management, Inc. and Royce & Associates, Inc. with respect to the Small
Cap Value Fund -Filed herewith.
</TABLE>
C-25
<PAGE>
<TABLE>
<S> <C>
(8) 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 - Incoporated by reference to the Registrant's Post-
Effective Amendment No. 46 as filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-99-000315) on
February 26, 1999.
(9) Sub-Advisory Agreement between Independence Capital Management, Inc.
and Vontobel USA Inc. with respect to the International Equity Fund -
Incorporated by reference to the Registrant's Post Effective Amendment No.
47 as filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-99-000315) on February 26, 1999.
(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) (a) 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.
(g) (1) (b) Amended Appendix A to the Amended and Restated Custodian Agreement
between the Registrant and Provident National Bank. - Filed herewith.
(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
No. 0001036050-98-000286) on February 27, 1998.
(h) (1) (a) 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 No. 0001036050-97-001076) on
November 21, 1997.
(h) (1) (b) Administrative and Corporate Services Agreement between the Registrant
and The Penn Mutual Life Insurance Company with respect to additional
funds. -Filed herewith.
(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
No. 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 No. 0000950109-97-001341) on February
14, 1997.
(i) Opinion and Consent of Morgan, Lewis & Bockius LLP - Filed herewith.
(j) Consent of Ernst & Young LLP - Filed herewith.
(k) None.
</TABLE>
C-26
<PAGE>
<TABLE>
<S> <C>
(l) None.
(m) None.
(n) None.
(o) None.
Ex.99 (p) (1) Code of Ethics for the Registratnt- Filed herewith.
Ex.99 (2) Code of Ethics for Independence Capital Management, Inc. -Filed herewith.
Ex.99 (3) Code of Ethics for RS Investment Management, Inc.- Filed herewith.
Ex.99 (4) Code of Ethics for Turner Investment Partners, Inc.- Filed herewith.
Ex.99 (5) Code of Ethics for Putnam Management, Inc.- Filed herewith.
Ex.99 (6) Code of Ethics for Wells Capital Management Incorporated.- Filed herewith
Ex.99 (7) Code of Ethics for Neuberger Berman Management, Inc.- Filed herewith.
Ex.99 (8) Code of Ethics for Royce & Associates, Inc.- Filed herewith.
Ex.99 (9) Code of Ethics for T. Rowe Price Associates, Inc.- Filed herewith.
Ex.99 (10) Code of Ethics for Vontobel USA Inc.-Filed herewith.
(q) Powers of Attorney of Directors - Incorporated by reference to the Registrant's Post-
Effective Amendment No. 47 as filed with the Securities and Exchange Commission via
EDGAR (Accession No. 0000950116-99-000315) on February 26, 1999.
</TABLE>
C-27
<PAGE>
PENN SERIES FUNDS, INC.
FORM OF ARTICLES SUPPLEMENTARY
PENN SERIES FUNDS, INC. (the "Corporation"), a corporation organized
under the laws of the State of Maryland with its principal office at 600 Dresher
Road, Horsham, Pennsylvania, 19044, does hereby file for record with the State
Department of Assessments and Taxation of Maryland the following Articles
Supplementary to its Articles of Incorporation.
FIRST: As permitted by and in accordance with the Articles of
Incorporation of the Corporation and Sections 2-105, 2-208.1 and 2-605 of the
Maryland General Corporation Law, the Board of Directors of the Corporation has
increased the number of authorized shares of capital stock of the Corporation in
each of its ten currently authorized classes of capital stock and has authorized
new shares of capital stock of the Corporation with a new par value for
classification into new classes.
SECOND: As permitted by and in accordance with the Articles of
Incorporation of the Corporation and Section 2-605 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has changed the par
value of the unissued shares in the currently authorized class of capital stock
of the Corporation designated Class I Common Stock from Ten Cents ($0.10) per
share to One Hundredth of One Cent ($0.0001) per share, and has redesignated
Class I Common Stock as S&P Index Fund Common Stock.
THIRD: As permitted by and in accordance with the Articles of
Incorporation of the Corporation and Sections 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has classified newly
authorized capital stock of the Corporation into ten new classes.
FOURTH: Each of the ten newly authorized classes of capital stock of
the Corporation shall have the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption that are set forth in the Articles of Incorporation of
the Corporation with respect to classes of capital stock.
FIFTH: Immediately before the foregoing actions of the Board of
Directors of the Corporation, the Corporation had authority to issue One Billion
(1,000,000,000) shares of the Corporation, of the par value of Ten Cents ($0.10)
per share and of the aggregate par value of One Hundred Million Dollars
($100,000,000), classified and designated as follows:
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------- ------------------------ ----------------------
Number of
Class Par Value Shares
-------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Money Market Fund Common Stock $0.10 100,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Growth Equity Fund Common Stock $0.10 100,000,000
(originally designated Class A Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
Quality Bond Fund Common Stock $0.10 100,000,000
(originally designated Class B Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
High Yield Bond Fund Common Stock $0.10 100,000,000
(originally designated Class C Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
Flexibly Managed Fund Common Stock $0.10 100,000,000
(originally designated Class D Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
Value Equity Fund Common Stock $0.10 100,000,000
(originally designated Class E Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
International Equity Fund Common Stock $0.10 100,000,000
(originally designated Class F Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
Small Capitalization Fund Common Stock $0.10 100,000,000
(originally designated Class G Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
Emerging Growth Fund Common Stock $0.10 100,000,000
(originally designated Class H Common Stock)
-------------------------------------------------------------- ------------------------ ----------------------
Class I Common Stock $0.10 100,000,000
-------------------------------------------------------------- ------------------------ ----------------------
</TABLE>
-2-
<PAGE>
SIXTH: Immediately after the foregoing actions of the Board of
Directors of the Corporation, and upon filing these Articles Supplementary, the
Corporation has authority to issue (a) Two Billion and Five Hundred Million
(2,500,000,000) shares, of the par value of Ten Cents ($0.10) per share and of
the aggregate par value of Two Hundred and Fifty Million Dollars ($250,000,000),
and (b) Two Billion and Seven Hundred and Fifty Million shares (2,750,000,000)
shares, of the par value of One Hundredth of One Cent ($0.0001) per share and of
the aggregate par value of Two Hundred and Seventy-Five Thousand Dollars
($275,000), classified and designated as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------- ------------------------ ----------------------
Number of
Class Par Value Shares
-------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Growth Equity Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Mid Cap Growth Fund Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Emerging Growth Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Large Cap Value Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Small Cap Value Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
International Equity Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Mid Cap Value Fund Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Flexibly Managed Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Growth and Income Fund Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
S&P 500 Index Fund Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Quality Bond Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
High Yield Bond Fund Common Stock $0.10 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Limited Maturity Bond Fund Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Money Market Fund Common Stock $0.10 500,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Class A Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Class B Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Class C Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Class D Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Class E Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
Class F Common Stock $0.0001 250,000,000
-------------------------------------------------------------- ------------------------ ----------------------
</TABLE>
EIGHTH: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
-8-
<PAGE>
IN WITNESS WHEREOF, Penn Series Funds, Inc. has caused these Articles
Supplementary to be executed by Peter M. Sherman and its corporate seal to be
affixed and attested by its Secretary on this____ day of April, 2000.
[CORPORATE SEAL]
PENN SERIES FUNDS, INC.
By:_________________________________
Peter M. Sherman
President
Attest:____________________________
C. Ronald Rubley
Secretary
The undersigned, President of PENN SERIES FUNDS, INC., who executed on
behalf of said corporation the foregoing Articles Supplementary to the Articles
of Incorporation of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said corporation, the foregoing Articles
Supplementary to the Articles of Incorporation to be the corporate act of said
corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
By:_________________________________
Peter M. Sherman
President
-4-
<PAGE>
FORM OF INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISORY AGREEMENT, made as of May 1, 2000 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:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the investment funds
of Penn Series set forth in Schedule A to this Agreement (individually a "Fund"
and collectively the "Funds"), in accordance with the investment objectives,
program and restrictions applicable to the Fund as provided in
<PAGE>
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 Agent. 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. Investment Advisory 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 at the rates set forth in Schedule B to this Agreement.
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.
-2-
<PAGE>
4. Expense Limitations. In the event expenses of certain Funds exceed
the expense limitation set forth in Schedule C to this Agreement, Adviser agrees
to waive its investment advisory fee or remit payments to such Funds in the
manner and to the extent set forth in Schedule C.
5. 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.
6. Use of the Services of Others. Adviser may (at its cost except as
contemplated in Section 5 of this Agreement) employ, retain or otherwise avail
itself of a sub-adviser or sub-advisers to assist it in performing its duties
and meeting its responsibilities under this Agreement, and may delegate to such
sub-adviser or sub-advisers duties assumed by the Adviser under this Agreement.
In addition, Adviser may (at its cost, except as contemplated in Section 5 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.
7. 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.
-3-
<PAGE>
8. 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.
9. 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.
10. 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.
11. 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.
12. 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 from
time to 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.
13. 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
-4-
<PAGE>
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.
14. 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.
15. 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.
16. Instructions, Opinion of Counsel and Signatures. At any time
Adviser may apply to an officer of Penn Series for instructions, and may consult
legal counsel for Penn Series, in respect of any matter arising in connection
with this Agreement, and Adviser shall not be liable for any action taken or
omitted by it or an affiliate in good faith in accordance with such instructions
or with the advice or opinion of Penn Series' legal counsel. Adviser and its
affiliates shall be protected in acting upon any instruction, advice, or opinion
provided by Penn Series or its legal counsel and upon any other paper or
document delivered by Penn Series or its legal counsel believed by Adviser to be
genuine and to have been signed by the proper person or persons and shall not be
held to have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series.
17. 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.
18. 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
-5-
<PAGE>
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.
19. 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.
20. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
service described in this Agreement, upon instructions reasonably believed by
Adviser or any affiliated corporation to have been executed by an individual who
has been identified in writing by Penn Series as a duly authorized officer of
Penn Series; or (ii) any action by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon information provided by
Penn Series in form and under policies agreed to by Adviser and Penn Series.
Adviser shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Adviser or its
affiliates, agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any term of this Agreement. Prior to the confession of
any claim against Adviser which may be subject to this indemnification, Adviser
shall give Penn Series reasonable opportunity to defend against said claim in
its own name or in the name of Adviser.
21. 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 21 and of Section 20 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.
-6-
<PAGE>
22. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
23. 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.
24. 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.
25. Amendment of Agreement. This Agreement may be amended only by
written agreement of Penn Series and the Adviser and only in accordance with the
provisions of the Act, the rules and regulations promulgated under the Act and
the provisions of any other applicable law or regulation.
26. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.
27. 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.
28. 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.
-7-
<PAGE>
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of
Penn Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as used
herein, shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or
order.
D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Penn
Series is Penn Series Funds, Inc., 600 Dresher Road, Horsham, PA
19044, Attention: President, and that of Adviser is Independence
Capital Management, Inc., 600 Dresher Road, Horsham, PA 19044,
Attention: President.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
-8-
<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.
PENN SERIES FUNDS, INC.
By:
---------------------------------
Peter M. Sherman
President
INDEPENDENCE CAPITAL MANAGEMENT, INC.
By:
---------------------------------
Richardson T. Merriman
Senior Vice President
-9-
<PAGE>
Schedule A
to
INVESTMENT ADVISORY AGREEMENT
between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Penn Series Funds
Money Market Fund
Limited Maturity Bond Fund
Quality Bond Fund
High Yield Bond Fund
Flexibly Managed Fund
Growth and Income Fund
Growth Equity Fund
Large Cap Value Fund
Index 500 Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Emerging Growth Fund
Small Cap Value Fund
International Equity Fund
A-1
<PAGE>
Schedule B
to
INVESTMENT ADVISORY AGREEMENT
between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NAME OF FUND INVESTMENT ADVISORY FEES
(As a Percentage of the Average Daily
Net Assets of the Fund)
- ---------------------------------------------- -------------------------------------------------------------
<S> <C>
Money Market Fund 0.20% with respect to the first $100,000,000 of average
daily net assets of the Fund; 0.15% with respect to average
daily net assets of the Fund in excess of $100,000,000.
- ---------------------------------------------- -------------------------------------------------------------
Limited Maturity Bond Fund 0.25%
- ---------------------------------------------- -------------------------------------------------------------
Quality Bond Fund 0.35% with respect to the first $100,000,000 of average
daily net assets of the Fund; 0.30% with respect to average
daily net assets of the Fund in excess of $100,000,000.
- ---------------------------------------------- -------------------------------------------------------------
High Yield Bond Fund 0.50%
- ---------------------------------------------- -------------------------------------------------------------
Flexibly Managed Fund 0.60%
- ---------------------------------------------- -------------------------------------------------------------
Growth and Income Fund 0.50%
- ---------------------------------------------- -------------------------------------------------------------
Growth Equity Fund 0.65% with respect to the first $100,000,000 of average
daily net assets of the Fund; 0.60% with respect to average
daily net assets of the Fund in excess of $100,000,000.
- ---------------------------------------------- -------------------------------------------------------------
Large Cap Value Fund 0.60%
- ---------------------------------------------- -------------------------------------------------------------
Index 500 Fund 0.07%
- ---------------------------------------------- -------------------------------------------------------------
Mid Cap Growth Fund 0.70%
- ---------------------------------------------- -------------------------------------------------------------
Mid Cap Value Fund 0.55% of the first $250 million of average net assets;
0.525% of the next $250 million; 0.50% of next $250 million;
0.475% of the next $250 million; 0.45% of the next $500
million; and 0.425% of average daily net assets in excess
of $1.5 billion.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Emerging Growth Fund 0.80% of the first $25,000,000 of average daily net assets
of the Fund; 0.75% of the next $25,000,000 of average daily
net assets of the Fund; and 0.70% of average daily net
assets of the Fund in excess of $50,000,000.
- ---------------------------------------------- -------------------------------------------------------------
Small Cap Value Fund 0.85%
- ---------------------------------------------- -------------------------------------------------------------
International Equity Fund 0.85%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
Schedule C
to
INVESTMENT ADVISORY AGREEMENT
between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NAME OF FUND EXPENSE LIMITATIONS
(As a Percentage of the Average Daily
Net Assets of the Fund)
- ---------------------------------------------- -------------------------------------------------------------
<S> <C>
Money Market Fund(1) 0.80%
- ---------------------------------------------- -------------------------------------------------------------
Quality Bond Fund(1) 0.90%
- ---------------------------------------------- -------------------------------------------------------------
High Yield Bond Fund(2) 0.90%
- ---------------------------------------------- -------------------------------------------------------------
Flexibly Managed Fund(2) 1.00%
- ---------------------------------------------- -------------------------------------------------------------
Growth Equity Fund(1) 1.00%
- ---------------------------------------------- -------------------------------------------------------------
Large Cap Value Fund(1) 1.00%
- ---------------------------------------------- -------------------------------------------------------------
Emerging Growth Fund(2) 1.15%
- ---------------------------------------------- -------------------------------------------------------------
Small Cap Value Fund(1) 1.15%
- ---------------------------------------------- -------------------------------------------------------------
International Equity Fund(1) 1.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) With respect to each of the Money Market, Quality Bond, Growth Equity,
Large Cap Value, Small Cap Value and International Equity Funds, to the
extent that a Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance with
generally accepted accounting principles, and extraordinary expenses, but
including investment advisory, accounting, and administrative and corporate
services fees before any adjustment pursuant to this provision) exceed the
expense limitation for the Fund in an amount up to and including 0.10% of
the average daily net assets of the Fund, such excess amount shall be a
liability of Adviser to Penn Series. The liability (if any) of Adviser to
pay Penn Series such excess amount shall be determined on a daily basis.
If, at the end of each month, there is any liability of Adviser to pay Penn
Series such excess amount, the advisory fee shall be reduced by such
liability. If, at the end of each month, there is no liability of Adviser
to pay Penn Series such excess amount and if payments of the advisory fee
at the end of prior months during the fiscal year have been reduced in
excess of that required to maintain expenses within the expense limitation,
such excess reduction shall be recaptured by Adviser and shall be payable
by Penn Series to Adviser along with the advisory fee payable to Advisor
for that month.
C-1
<PAGE>
(2) With respect to each of the Emerging Growth, Flexibly Managed and High
Yield Bond Funds, to the extent that a Fund's total expenses for a fiscal
year (excluding interest, taxes, brokerage, other expenses which are
capitalized in accordance with generally accepted accounting principles,
and extraordinary expenses, but including investment advisory, accounting,
and administrative and corporate service fees before any adjustment
pursuant to this provision) exceed the expense limitation for the Fund,
one-half of such excess amount shall be a liability of 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.
C-2
<PAGE>
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
TURNER INVESTMENT PARTNERS, INC.
relating to
MID CAP GROWTH FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and TURNER
INVESTMENT PARTNERS, INC. ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Delaware.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as
investment advisers under the 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
Mid Cap Growth 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 the investment would violate the investment
objectives, investment restrictions or limitations of the 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 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 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.
-2-
<PAGE>
3. Sub-Advisory Fee.
A. Payment of Fee. 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 the Fund.
B. Fee Rate. The fee rate, based on the average daily net
assets of the Fund, is fifty basis points (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.
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
-3-
<PAGE>
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series, as
Sub-Adviser may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of 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,
-4-
<PAGE>
where applicable, or in such other applicable rules that may be adopted from
time to time under the Act. Such records may be inspected by representatives of
Penn Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which Sub-
Adviser, its principals, affiliates or employees may purchase or sell for its
or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when so requested by Adviser and
Penn Series.
13. Proxies. Subject to such oversight by Penn Series as the Board of
Directors of Penn Series shall deem appropriate, Sub-Adviser shall vote proxies
solicited by or with respect to the issuers of securities held in a Fund.
14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Sub-Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Sub-Adviser to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any officer or agent of Penn Series, until receipt of written
-5-
<PAGE>
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 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
-6-
<PAGE>
to comply with any term of this Agreement. Prior to the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years 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 of Agreement. This Agreement may be amended only by
written agreement of the Adviser and the Sub-Adviser and only in accordance with
the provisions of the Act, the rules and regulations promulgated under the Act
and the provisions of any other applicable law or regulation.
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<PAGE>
23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.
24. 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.
25. 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.
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<PAGE>
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 Turner Investment Partners, Inc.,
1235 Westlakes Drive, Suite 350, Berwyn, PA, 19312.
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.
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 Sub-Adviser's investment
professionals who provide investment management services
pursuant to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.
By:
- ------------------------------ ---------------------------------
Secretary Peter M. Sherman
President
Attest: TURNER INVESTMENT PARTNERS, INC.
By:
- ------------------------------ ---------------------------------
Secretary
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<PAGE>
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
PUTNAM INVESTMENT MANAGEMENT, INC.
relating to
LARGE CAP VALUE FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and PUTNAM
INVESTMENT MANAGEMENT, INC. ("Sub-Adviser"), a corporation organized and
existing under the laws of Massachusetts.
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 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
Large Cap Value 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 the investment would violate the investment
objectives, investment restrictions or limitations of the 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 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 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. Sub-Adviser shall provide Penn Series and its Accounting
Services Agent with such portfolio information as may be reasonably necessary to
properly account for financial transactions with respect to the Fund.
Sub-Adviser shall not be responsible for the administrative affairs of the Fund
including but not limited to, accounting for and pricing the Fund.
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<PAGE>
3. Sub-Advisory Fee.
A. Payment of Fee. 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 the Fund.
B. Fee Rate.
(i) Forty-seven and one-half basis points (0.475%) of the
first $150,000,000 of average daily net assets of the
Fund;
(ii) Forty-two and one-half basis points (0.425%) of the next
$150,000,000 of average daily net assets of the Fund; and
(iii) Thirty-five basis points (0.35%) of average daily net
assets of the Fund in excess of $300,000,000.
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.
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, Penn Series or the Adviser may direct the Sub-Adviser to allocate to
brokers or dealers selling variable contracts invested in Penn Series shares
purchase
-3-
<PAGE>
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 lawful instructions with
respect thereto as may be given by Penn Series' Board.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request and as are related to Sub-Adviser's
duties under this Agreement or as Sub-Adviser may deem helpful, to reasonably
ensure compliance with applicable laws and regulations or for any other purpose.
Sub-Adviser 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 relative to the Fund's portfolio
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
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<PAGE>
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 pursuant to the Act 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
from time to time under the Act. Such records may be inspected by
representatives of Penn Series and Adviser at reasonable times and, in the event
of termination of this Agreement, will be promptly delivered to Adviser and Penn
Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which Sub-
Adviser, its principals, affiliates or employees may purchase or sell for its or
their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and except as may be
required by law.
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
-5-
<PAGE>
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 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,
-6-
<PAGE>
with respect to any service described in this Agreement upon information
provided by Penn Series or Adviser in form and under policies agreed to by
Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall not be entitled to
such indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Sub-Adviser or its affiliates, agents or contractors,
or constituting a failure by Sub-Adviser or any affiliate to comply with any
term of this Agreement. Prior to the confession of any claim against Adviser
which may be subject to this indemnification, Sub-Adviser shall give Adviser
reasonable opportunity to defend against said claim in its own name or in the
name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.
20. Information Regarding Sub-Adviser. Adviser may use (and shall cause
all of its affiliates, including Penn Series, to use) the name "Putnam
Investment Management, Inc.", "Putnam Investment Management", "Putnam
Investments" or "Putnam" or any derivation thereof only for so long as this
Agreement or any extension, renewal or amendment remains in effect (except as
may be necessary and appropriate in providing historical information about the
Fund in disclosure documents). At such times as this Agreement shall no longer
be in effect, the Adviser shall cease to use (and shall cause its affiliates to
cease using) any name using any of the foregoing terms or any other name
indicating that the Fund is advised by or otherwise connected with the
Sub-Adviser. The Adviser acknowledges that Fund has included the name "Putnam"
in the Portfolio through permission of the Sub-adviser and the Sub-Adviser
retains all rights to such name. Adviser will not, and will cause its affiliates
to not, refer to or describe the Sub-Adviser in any prospectus, proxy statement,
sales literature or other material except with the written permission of the
Sub-Adviser.
21. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
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<PAGE>
22. 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.
23. Amendment of Agreement. This Agreement may be amended only by
written agreement of the Adviser and the Sub-Adviser and only in accordance with
the provisions of the Act, the rules and regulations promulgated under the Act
and the provisions of any other applicable law or regulation.
24. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.
25. 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.
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.
-8-
<PAGE>
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 Putnam
Investment Management, Inc., One Post Office Square, Boston, MA,
02109, Attention: General Counsel.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.
F. Counterparts. This Agreement may be entered into in counterparts,
each of which when so executed and delivered shall be deemed to be
an original, and together shall constitute one document.
G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity
or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any and all other provisions
hereof.
H. No Third-Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees to
notify the Adviser within a reasonable period of time regarding a
material change
-9-
<PAGE>
in the Sub-Adviser's investment professionals who provide investment
management services pursuant to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.
______________________ By: _________________________________
Secretary Peter M. Sherman
President
Attest: PUTNAM INVESTMENT MANAGEMENT, INC.
______________________ By: _________________________________
Secretary
-10-
<PAGE>
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
WELLS CAPITAL MANAGEMENT INCORPORATED
relating to
INDEX 500 FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and WELLS
CAPITAL MANAGEMENT INCORPORATED. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of California.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser 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 a sub-adviser for
the rendering of investment advisory services by the Sub-Adviser to Adviser;
WHEREAS, Sub-Adviser has provided Adviser with a copy of its Part II of
its Current Form ADV Application for registration on file with the U.S.
Securities and Exchange Commission;
<PAGE>
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Index 500 Fund (the "Fund"), and 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 the investment would violate the investment objectives, investment
restrictions or limitations of the 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 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 objectives, investment program, or restrictions or limitations
of the Fund.
-2-
<PAGE>
2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
3. Sub-Advisory Fee.
A. Payment of Fee. 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 the Fund.
B. Fee Rate.
(i) Seven basis points (0.07%) of the first
$100,000,000 of average daily net assets of the
Fund; and
(ii) Three basis points (0.03%) of average daily net
assets of the Fund in excess of $100,000,000.
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.
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
-3-
<PAGE>
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of variable
contracts which are invested in Penn Series shares in allocating to brokers or
dealers purchase and sale orders for portfolio securities, provided that
Sub-Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Sub-Adviser shall
advise Penn Series' Board of Directors, when requested, as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.
-4-
<PAGE>
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 from
time to time under the Act. Such records may be inspected by representatives of
Penn Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which Sub-
Adviser, its principals, affiliates or employees may purchase or sell for its
or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities.
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.
-5-
<PAGE>
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 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
-6-
<PAGE>
an individual who has been identified in writing by Penn Series or Adviser 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 Adviser; or (iii) 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. 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; 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 the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years 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
-7-
<PAGE>
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 of Agreement. This Agreement may be amended only by
written agreement of the Adviser and the Sub-Adviser and only in accordance with
the provisions of the Act, the rules and regulations promulgated under the Act
and the provisions of any other applicable law or regulation.
23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.
24. 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.
25. 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
-8-
<PAGE>
"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 the address of Sub-Adviser is Wells Capital
Management Incorporated, 6th Street and Marquette Avenue, MAC
N9305-092, Minneapolis, MN, 55479, Attention: Managing
Director.
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.
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 Sub-Adviser's investment
professionals who provide investment management services
pursuant to this Agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.
By:
- ----------------------------- -----------------------------------
Barbara S. Wood Peter M. Sherman
President
Attest: WELLS CAPITAL MANAGEMENT INCORPORATED
By:
- ----------------------------- -----------------------------------
John Slifer Laurie R. White
Managing Director
-10-
<PAGE>
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
NEUBERGER BERMAN MANAGEMENT INC.
relating to
MID CAP VALUE FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and
NEUBERGER BERMAN MANAGEMENT INC. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of Delaware.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as
investment advisers under the 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
Mid Cap Value 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 the investment would violate the investment
objectives, investment restrictions or limitations of the 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 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 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. Sub-Advisory Fee.
A. Payment of Fee. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser a fee at
the rate of 0.43% of the average daily net assets of the Fund.
B. 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.
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, including an affiliated 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. Adviser and Sub-Adviser agree that Sub-Adviser is
authorized to employ an affiliated broker-dealer as the Fund's principal broker,
provided that all securities transactions with such affiliated broker-dealer on
behalf of the Fund are in compliance with applicable federal securities laws and
regulations and with procedures adopted by the Penn Series' Board pursuant to
such laws and regulations.
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<PAGE>
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series, as
Sub-Adviser may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of
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<PAGE>
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 from
time to time under the Act. Such records may be inspected by representatives of
Penn Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which Sub-
Adviser, its principals, affiliates or employees may purchase or sell for its
or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when so requested by Adviser and
Penn Series.
13. Proxies. Subject to such oversight by Penn Series as the Board of
Directors of Penn Series shall deem appropriate, Sub-Adviser shall vote proxies
solicited by or with respect to the issuers of securities held in a Fund.
14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Sub-Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Sub-Adviser to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any officer or agent of Penn Series, until receipt of written
notice thereof from Penn Series. Sub-Adviser shall
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<PAGE>
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 or Adviser
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
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<PAGE>
this Agreement. Prior to the confession of any claim against Adviser which may
be subject to this indemnification, Sub-Adviser shall give Adviser reasonable
opportunity to defend against said claim in its own name or in the name of
Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years 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 of Agreement. This Agreement may be amended only by
written agreement of the Adviser and the Sub-Adviser and only in accordance with
the provisions of the Act, the rules and regulations promulgated under the Act
and the provisions of any other applicable law or regulation.
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<PAGE>
23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.
24. 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.
25. 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.
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<PAGE>
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 Neuberger Berman Management Inc., 605 Third Avenue,
2nd Floor, New York, NY, 10158-0180.
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.
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 Sub-Adviser's investment professionals who
provide investment management services pursuant to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.
______________________ By: _________________________________
Secretary Peter M. Sherman
President
Attest: NEUBERGER BERMAN MANAGEMENT INC.
______________________ By: _________________________________
Secretary
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<PAGE>
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
ROYCE & ASSOCIATES, INC.
relating to
SMALL CAP VALUE FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and ROYCE &
ASSOCIATES, 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 a Maryland
corporation and 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 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
Small Cap Value 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 the investment would violate the investment
objectives, investment restrictions or limitations of the 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 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 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. Sub-Advisory Fee.
A. Payment of Fee. 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 the Fund.
B. Fee Rate.
(i) Seventy basis points (0.70%) of the first $25,000,000 of
average daily net assets of the Fund;
(ii) Sixty-five basis points (0.65%) of the next $75,000,000 of
average daily net assets of the Fund; and
(iii) Sixty basis points (0.60%) of average daily net assets of
the Fund in excess of $100,000,000.
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.
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 execution of its orders. In assessing the best price and the 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. In determining whether it is receiving best price and
execution, the Sub-Adviser may take into account the research and related
services that the broker has provided to Penn Series, the Sub-Adviser and/or
other clients of the Sub-Adviser. The Sub-Adviser may pay certain brokers a
higher commission than may be charged by other brokers, in return for research
and brokerage advice, provided that payment of such commission is in accord with
the provisions of Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"). 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 1934 Act, or as described from time to time in the Penn Series'
Prospectus and Statement of Additional Information. In addition, Sub-Adviser is
authorized (but shall not be required) to take into
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<PAGE>
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. Penn Series has provided Sub-Adviser with a letter
identifying all broker-dealers affiliated with either Penn Series or Adviser,
other than those whose sole business is the distribution of mutual fund shares,
who effect securities transactions for customers. Adviser shall promptly furnish
a written notice to Sub-Adviser if any representations made in such letter are
no longer accurate.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.
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<PAGE>
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 from
time to 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 advisory, supervisory and other services to other investment
companies, to act as investment adviser or investment counselor to other
persons, firms or corporations or to engage in other business activities; but so
long as this Agreement or any extension, renewal or amendment hereof shall
remain in effect as to Fund, or until Sub-Adviser shall otherwise consent,
Sub-Adviser shall be the only investment sub-adviser to the Fund. It is
understood that Sub-Adviser may give advice and take action for its other
clients which may differ from advice given, or the timing or nature of action
taken, for a Fund. Sub-Adviser is not obligated to initiate transactions for a
Fund in any security which Sub-Adviser, its principals, affiliates or
employees may purchase or sell for its or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Adviser and Sub-Adviser, on behalf of themselves and
their affiliates and representatives, agree to keep confidential all records and
other information relating to the other party or Penn Series (as the case may
be), except after prior notification to and approval in writing by Adviser,
Sub-Adviser or Penn Series (as the case may be), which approval shall not be
unreasonably withheld, and may not be withheld, where Adviser, 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, Sub-Adviser or 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.
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<PAGE>
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 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
-6-
<PAGE>
counsel, incurred by Sub-Adviser resulting from: (i) any action or omission of
Sub-Adviser or any affiliate, with respect to any service described in this
Agreement, upon instructions reasonably believed by Sub-Adviser or any affiliate
to have been executed by an individual who has been identified in writing by
Penn Series or Adviser as a duly authorized officer of Penn Series or Adviser;
(ii) any action of Sub-Adviser or any affiliate, 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 Adviser; or (iii) 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. 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; 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 the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years 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
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<PAGE>
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 of Agreement. This Agreement may be amended only by
written agreement of the Adviser and the Sub-Adviser and only in accordance with
the provisions of the Act, the rules and regulations promulgated under the Act
and the provisions of any other applicable law or regulation.
23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.
24. 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. Notwithstanding any
such termination, the provisions of Sections 18 and 19 of this Agreement shall
remain in full force and effect and both the Adviser and the Sub-Adviser shall
remain entitled to the benefit of such provisions.
25. 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., Attention: President, 600
Dresher Road, Horsham, PA 19044, and that of Sub-Adviser is Royce &
Associates, Inc., Attention: John D. Diederich, 1414 Avenue of the
Americas, New York, NY 10019.
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.
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.
___________________________ By:_______________________________
Barbara S. Wood Peter M. Sherman
Secretary President
Attest: ROYCE & ASSOCIATES, INC.
___________________________ By:_______________________________
Diane A. O'Byrne Charles M. Royce
Vice President President
-10-
<PAGE>
APPENDIX A
PORTFOLIOS
----------
Penn Series Money Market Fund
Penn Series Limited Maturity Bond Fund
Penn Series Quality Bond Fund
Penn Series High Yield Bond Fund
Penn Series Flexibly Managed Fund
Penn Series Growth and Income Fund
Penn Series Growth Equity Fund
Penn Series Large Cap Value Fund
Penn Series Index 500 Fund
Penn Series Mid Cap Growth Fund
Penn Series Mid Cap Value Fund
Penn Series Emerging Growth Fund
Penn Series Small Cap Value Fund
Penn Series International Equity Fund
<PAGE>
Exhibit h(1)
ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT
AGREEMENT, made and entered into as of May 1, 2000, by and between PENN
SERIES FUNDS, INC., a Maryland corporation ("Penn Series"), and THE PENN MUTUAL
LIFE INSURANCE COMPANY, a Pennsylvania mutual life insurance company ("Penn
Mutual").
WITNESSETH:
WHEREAS, Penn Series is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), offering multiple classes of capital stock, and each
class of capital stock represents interests in a separate fund or portfolios of
investments ("Fund or Funds"); and
WHEREAS, Penn Mutual currently serves as Administrative and Corporate
Services Agent for Penn Series, and in such capacity provides administrative and
corporate services to Penn Series with respect to certain Penn Series Funds; and
WHEREAS Penn Series desires Penn Mutual to provide administrative and
corporate services with respect to additional Penn Series Funds identified in
Schedule A ("Additional Funds"), and Penn Mutual desires to provide such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Penn Series hereby appoints Penn Mutual its Administrative and
Corporate Services Agent to administer its corporate affairs, subject to the
overall supervision of the Board of Directors of Penn Series, with respect to
the Additional Funds, for the period and on the terms set forth in this
Agreement. Penn Mutual accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in
Paragraph 7 of this Agreement.
2. With respect to the Additional Funds, Penn Mutual will administer
all aspects of Penn Series' operations other than administrative services
provided by Penn Series' Investment Adviser, Accounting Services Agent,
Custodian and Transfer Agent. In performing its duties as Administrative and
Corporate Services Agent, Penn Mutual will act in conformity with the Articles
of Incorporation, By-Laws, and 1940 Act Registration Statement of Penn Series
and with the instructions and direction of the Board of Directors of Penn
Series. In performing its duties, Penn Mutual will conform to and comply with
the requirements of the 1940 Act and all other applicable Federal or state laws
and regulations.
<PAGE>
3. The services which Penn Mutual shall provide as Administrative and
Corporate Services Agent include but are not limited to:
(a) the maintenance of all books and 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) the preparation of such annual, semi-annual or other
reports or proxy statements as Penn Series may be required to file with
the Securities and Exchange Commission or to distribute to its
shareholders;
(c) the preparation of any registration statements or
amendments to registration statements which Penn Series may be required
or may desire to file with the Securities and Exchange Commission;
(d) the preparation of such filings as may be required for
compliance with the securities laws of any state or other jurisdiction;
(e) the preparation of such applications or requests as Penn
Series may desire to make to the Securities and Exchange Commission or
its staff for exemption from, or interpretation of any provision of the
1940 Act or any other applicable Federal securities statute;
(f) the preparation of Penn Series' Federal and state tax
returns and any other filings required for tax purposes other than
those required to be prepared by Penn Series' Investment Adviser,
Custodian, Transfer Agent or Accounting Services Agent;
(g) 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;
(h) the organization of all meetings of Penn Series' Board of
Directors;
(i) the organization of all meetings of Penn Series'
shareholders;
(j) the collection and presentation of any financial or other
data required by Penn Series' Board of Directors, accountants, or
counsel;
(k) 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; and
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<PAGE>
(l) such other services as the Penn Series' Board of Directors
may reasonably request.
4. Penn Mutual shall permit any of its directors, officers, or
employees who may be elected as directors or officers of Penn Series to serve in
the capacities in which they are elected. Any of the services to be furnished by
Penn Series under this Agreement may be furnished through the medium of such
directors, officers, or employees of Penn Mutual.
5. Penn Mutual shall bear all of the following expenses in connection
with the services to be rendered under this Agreement.
(a) all rent and other expense involved in the provision of
office space for Penn Series and for Penn Mutual in connection with its
performance of services under this Agreement;
(b) the salaries and expenses of all personnel of Penn Series
and Penn Mutual incurred in connection with the provision of
administrative services to Penn Series, except the fees and expenses of
directors of Penn Series who are not interested persons (as defined in
the 1940 Act) of Penn Series or affiliated persons (as defined in the
1940 Act) of Penn Mutual or of Penn Series' Investment Adviser; and
(c) all expenses incurred by Penn Mutual or Penn Series in
connection with administering the ordinary course of Penn Series'
business, other than those excluded pursuant to Paragraph 6 below.
6. Nothing in this Agreement shall require Penn Mutual to bear, or to
reimburse Penn Series for,
(a) the costs of printing and mailing the items referred to in
Paragraph 3(b) above, or any prospectuses included in registration
statements referred to in Paragraph 3(c) or required by law, regulation
or regulatory authorities;
(b) compensation of members of Penn Series' Board of Directors
who are not interested persons (as defined in the 1940 Act) of Penn
Series or affiliated persons (as defined in the 1940 Act) of Penn
Mutual or of Penn Series' Investment Adviser;
(c) registration, filing, or other fees imposed by the
Securities and Exchange Commission or other regulatory authorities;
(d) the charges and expenses of Penn Series' Investment
Adviser, Accounting Services Agent, Custodian, and Transfer Agent;
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<PAGE>
(e) the fees and expenses of legal counsel and independent
accountants for Penn Series;
(f) brokers' commissions and any issue or transfer taxes
chargeable to Penn Series in connection with its securities
transactions;
(g) taxes and corporate fees payable by Penn Series to
Federal, state or other governmental entities;
(h) the fees of any trade association of which Penn Series may
be a member; and
(i) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of Penn
Series' business.
7. Penn Series shall pay Penn Mutual as full compensation for services
rendered and facilities furnished hereunder a fee computed at the annual rate of
0.15% of the average daily net assets of the Additional Funds. Such fee shall be
payable at such intervals not more frequently than monthly and not less
frequently than quarterly as the officers of Penn Series may from time to time
determine and specify in writing to Penn Mutual. Such fee shall be calculated on
the basis of the average of all valuations of the net assets of the Additional
Funds made as of the close of business on each valuation day during the period
for which such fee is paid and shall be prorated among the Additional Funds in
proportion to the average total net assets of each such Fund during the period.
8. With respect to each of the Additional Funds of Penn Series, to the
extent that the Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance with
generally accepted accounting principles, and extraordinary expenses, but
including investment advisory and administrative and corporate services fees
before any adjustment pursuant to this provision) exceed the expense limitation
for the Fund, such excess amount shall be a liability of Penn Mutual to Penn
Series. The liability (if any) of Penn Mutual to pay Penn Series such excess
amounts shall be determined on a daily basis. With respect to each such Fund of
Penn Series, if, at the end of each fee payment period, there is any liability
of Penn Mutual to pay Penn Series any such excess amount, the administrative
services fee shall be reduced by such liability. If, at the end of each fee
payment period, there is no liability of Penn Mutual to pay Penn Series any such
excess amount, and if payments of the administrative services fee at the end of
prior fee payment periods 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 Penn Mutual and shall be payable by Penn Series
to Penn Mutual along with the administrative services fee payable to Penn Mutual
-4-
<PAGE>
for that period. If, at the end of the fiscal year, there is any remaining
liability of Penn Mutual to pay Penn Series any such excess amounts (which have
not been paid through reduction of the administrative services fee), Penn Mutual
shall remit to Penn Series an amount sufficient to pay such remaining liability.
The expense limitation of each Additional Fund, as a percentage of the Fund's
average daily net assets, is set forth in Schedule B.
9. Penn Mutual assumes no responsibility under this Agreement other
than to render the services called for hereunder, and specifically assumes no
responsibilities for investment advice or the investment or reinvestment of Penn
Series' assets.
10. Neither Penn Mutual nor any of its trustees, officers or employees,
nor any persons performing executive, administrative or other functions 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 loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its or his or her duties on behalf of Penn
Mutual or from reckless disregard by Penn Mutual or any such person of Penn
Mutual's duties under this Agreement.
11. This Agreement shall continue in effect with respect to a given
Fund for a period more than two years from the date of its execution only so
long as such continuation is specifically approved at least annually by either
the Board of Directors of Penn Series or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) representing
interests in that Fund, provided that in either event such continuation shall
also be approved by the vote of a majority of the directors who are not
interested persons of Penn Series, as defined in the 1940 Act, cast by them in
person at a meeting called for the purpose of voting on such approval; provided,
however, that:
(a) this Agreement may at any time be terminated by Penn
Series with respect to any Fund, without the payment of any penalty, on
60 days' notice to Penn Mutual either by vote of the Board of Directors
of Penn Series or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) representing interests in that
Fund;
(b) this Agreement may be terminated by Penn Mutual at any
time, without the payment of any penalty, on 90 days' written notice to
Penn Series; and
(c) this Agreement shall immediately terminate in event of its
assignment as defined in the 1940 Act.
12. The services of Penn Mutual to Penn Series called for under this
Agreement are not to be deemed to be exclusive and Penn Mutual shall be free to
provide similar services to others. Nothing in this Agreement shall limit or
restrict the right of any trustee, officer or employee of Penn Mutual who may
also be a director, officer or employee of Penn Series to engage in any other
business or to devote his or her other time and attention in part to the
management or other aspects of any business, whether of a similar or a
dissimilar nature.
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<PAGE>
13. It is understood that directors, officers, agents and stockholders
of Penn Series are or may be interested in Penn Mutual as trustees, officers, or
otherwise; that trustees, officers, agents and policyholders of Penn Mutual are
or may be interested in Penn Series as directors, officers, stockholders or
otherwise; and that Penn Mutual may be interested in Penn Series as a
shareholder or otherwise. The existence of any such dual interest shall not
affect the validity hereof or of and transactions hereunder.
14. This Agreement may be amended by mutual written consent.
15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid: (a) to Penn Mutual at 600 Dresher Road, Horsham PA 19044,
Attention: President; or (b) to Penn Series at 600 Dresher Road, Horsham, PA
19044, Attention: President.
16. This Agreement contains the entire agreement between the parties
hereto with respect to the Additional Funds.
17. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PENN SERIES FUNDS, INC.
By:
-------------------------------------------
Peter M. Sherman
President
THE PENN MUTUAL LIFE INSURANCE COMPANY
By:
-------------------------------------------
Ann M. Strootman
Vice President and Controller
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<PAGE>
SCHEDULE A
to
ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
THE PENN MUTUAL LIFE INSURANCE COMPANY
Additional Funds
----------------
Limited Maturity Bond Fund
Growth and Income Fund
Index 500 Fund
Mid Cap Growth Fund
Mid Cap Value Fund
A-1
<PAGE>
SCHEDULE B
to
ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
THE PENN MUTUAL LIFE INSURANCE COMPANY
Expense Limitations
-------------------
Fund Expense Limitation
---- ------------------
Limited Maturity Bond Fund 0.90%
Growth and Income Fund 1.00%
Index 500 Fund 0.40%
Mid Cap Growth Fund 1.00%
Mid Cap Value Fund 1.00%
B-1
<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 49 to the Registration Statement Number 2-77284
(Form N-1A) of our report dated January 28, 2000 on the financial statements and
financial highlights of Penn Series Funds, Inc. for the year ended December 31,
1999, included in the 1999 Annual Report to Shareholders.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
April 14, 2000
<PAGE>
April 21, 2000
Penn Series Funds, Inc.
600 Dresher Road
Horsham, Pennsylvania 19044
Re: Opinion of Counsel regarding Post-Effective Amendment No. 49 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 2-77284).
---------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Penn Series Funds, Inc., a Maryland corporation (the
"Company"), in connection with the above-referenced Registration Statement (as
amended, the "Registration Statement") which relates to the Company's units of
beneficial interest, without par value (collectively, the "Shares"). This
opinion is being delivered to you in connection with the Company's filing of
Post-Effective Amendment No. 49 to the Registration Statement (the "Amendment")
to be filed with the Securities and Exchange Commission pursuant to Rule 485(b)
of the Securities Act of 1933 (the "1933 Act"). With your permission, all
assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things, executed
copies of the following documents:
(a) a certificate of the State of Maryland as to the existence and
good standing of the Company;
(b) the Articles of Incorporation for the Company and all
amendments and supplements thereto (the "Articles");
(c) a certificate executed by C. Ronald Rubley, Secretary of the
Company, certifying as to, and attaching copies of, the
Company's Articles of Incorporation and By-Laws (the
"By-Laws"), and certain resolutions adopted by the Board
of Directors of the Company authorizing the issuance of the
Shares; and
(d) a printer's proof of the Amendment.
In our capacity as counsel to the Company, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all
<PAGE>
signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Articles of
Incorporation and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and non assessable
under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis and Bockius LLP
<PAGE>
PENN SERIES FUNDS, INC.
CODE OF ETHICS
--------------
A. Legal Requirement.
-----------------
Rule 17j-l(a) under the Investment Company Act of 1940, as amended (the
"1940 Act"), makes it unlawful for any Officer or Director of Penn Series Funds,
Inc. (the "Company") (as well as other persons), in connection with the purchase
or sale by such person of a security "held or to be acquired" by the Company:
(1) To employ any device, scheme or artifice to defraud the Company;
(2) To make to the Company any untrue statement of a material fact or
omit to state to the Company a material fact necessary in order to
make the statements made, in light of the circumstances under which
they are made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Company; or
(4) To engage in any manipulative practice with respect to the Company.
A security is "held or to be acquired" if within the most recent 15
days it (i) is or has been held by the Company, or (ii) is being or has been
considered by the Company or its adviser or sub- adviser for purchase by the
Company. A purchase or sale includes the writing of an option to purchase or
sell.
As used in Rule 17j-1 and in this Code, the term "securities" does not
include securities issued by the Government of the United States, bankers'
acceptances, bank certificates of deposit, commercial paper and shares of
registered open-end investment companies.
B. Company Policy.
--------------
It is the policy of the Company that no "access person"(1) of the
Company shall engage in any act, practice or course of conduct that would
violate the provisions of Rule 17j-l(a) set forth above.
- --------
(1) An "access person" includes: (a) each Director or officer of the company;
(b) each employee (if any) of the Company (or of any company in a control
relationship to the Company) who in connection with his regular duties
obtains information about the purchase or sale of a security by the Company
or whose functions relate to the making of such recommendations; and (c) any
natural person in a control relationship to the Company who obtains
information concerning recommendations made to the Company with regard to
the purchase or sale of a security.
<PAGE>
C. Procedures.
----------
1. In order to provide the Company with information to enable it to
determine with reasonable assurance whether the provisions of Rule 17j-l(a) are
being observed by its access persons:
(a) Each access person of the Company, other than a Director who is not
an "interested person" (as defined in the 1940 Act), shall submit
reports in the form attached hereto as Exhibit A to the Company's
Secretary, showing all transactions in securities in which the
person has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership.(2) Such reports shall be filed no
later than 10 days after the end of each calendar quarter, but need
not show transactions over which such person had no direct or
indirect influence or control.
(b) Each Director who is not an "interested person" of the Company
shall submit the same quarterly report as required under paragraph
(a), but only for a transaction in a security where he or she knew
at the time of the transaction or, in the ordinary course of
fulfilling his or her official duties as a Director, should have
known that during the 15-day period immediately preceding or after
the date of the transaction, such security is or was purchased or
sold, or considered for purchase or sale, by the Company. No report
is required if the Director had no direct or indirect influence or
control over the transaction.
2. The Secretary of the Company shall maintain on a current basis a
list of all "access persons" who are required to file security transactions
reports with Penn Series pursuant to this Code and shall furnish all such
persons with a copy of the Code.
3. The Company's Secretary shall report to the Company's Board of
Directors:
(a) with respect to each reported transaction in a security involving more
than $10,000, which was also "held or to be acquired by the Company";
and
(2) You will be treated as the "beneficial owner" of a security only if you have
a direct or indirect pecuniary interest in the security.
(a) A direct pecuniary interest is the opportunity, directly or indirectly,
to profit, or to share the profit, from the transaction.
(b) An indirect pecuniary interest is any non-direct financial interest, but
is specifically defined in the rules to include among other things
securities held by members of your immediate family sharing the same
household; securities held by a partnership of which you are a general
partner; securities held by a trust of which you are the settlor if you
can revoke the trust, or a beneficiary if you have or share investment
control with the trustee; and equity securities which may be acquired
upon exercise of an option or other right, or through conversion.
You should consult counsel if you need interpretive guidance on this
test.
-2-
<PAGE>
(b) with respect to each reported transaction not required to be
reported to the Board under the preceding subparagraph, that the
Company's Secretary believes may evidence a violation of this Code.
The Secretary shall report to the Board at the next meeting of the
Board following receipt of the securities transaction report by the Secretary.
4. The Board shall consider reports made to it hereunder and shall
determine whether the policies established in paragraph B have been violated,
and what sanctions, if any, should be imposed.
5. An "access person" may direct questions to the Secretary of the
Company as to whether a proposed purchase or sale of a security may violate the
Code. The Secretary shall review the relevant facts with the person and, if
necessary, with the President of the Company, counsel to the Company or the
Board of Directors of the Company. Upon completion of the review, the Secretary
shall advise the "access person" whether the proposed transaction may violate
the Code.
6. The Secretary of the Company shall maintain the following records
and shall make them available to the Securities and Exchange Commission and
their representatives for their inspection upon their reasonable request:
(a) A copy of the Code of Ethics and copies of any Codes of Ethics of
Penn Series in effect during the past five years;
(b) A record of all violations of the Code of Ethics of the Company and
all actions taken by the Company in response thereto during the
past five years;
(c) A copy of each report made by an "access person" during a period of
not less than five years from the end of the fiscal year in which
the report was made; and
(d) A list of all persons who are, or within the past five years have
been, required to make reports.
7. The Company will make every effort to protect the privacy of "access
persons" in connection with the reporting of their personal securities
transactions.
8. The Board shall review the operation of this Code at least once a
year.
Adopted:
By: The Board of Directors
Penn Series Funds, Inc.
October 30, 1991
-3-
<PAGE>
PENN SERIES FUNDS, INC.
Addendum to Code of Ethics
Personal Investing(1)
In the Report of the ICI Advisory Group on Personal Investing, dated
May 9, 1994, the Advisory Group recommended that investment companies adopt
policies and procedures designed to guard against conflict of interest or other
inappropriate activities that may occur in connection with personal investing by
portfolio manager, investment personnel and access persons.
In the Report of the Division of Investment Management of the United
States Securities and Exchange Commission on Personal Investment Activities of
Investment Company Personnel, dated September 1994, the Division of Investment
Management generally endorsed the Advisory Group's recommendations and also
recommended that investment companies adopt polices and procedures on personal
investing by portfolio managers, investment personnel and access persons.
The Company concurs in and endorses the recommendations of the Advisory
Group and the Division of Investment Management. In accordance with the
recommendations, the Company shall follow the following policies in the conduct
of its business:
(1) The Company shall require all investment advisers to the
Penn Series Funds to have policies and procedures on personal
trading that comport in material respects with the
recommendations of the ICI and the SEC;
(2) The Company shall require all investment advisers to
provide the Company with copies of their policies and
procedures on personal trading, including all amendments and
revisions thereto;
(3) The Company shall require all investment advisers to
prepare an annual report to the Board of Directors of the
Company that
(a) summarizes their existing policies and procedures on
personal investing and any changes in their policies and
procedures made during the past year,
(b) identifies any violations of the policies and procedures
requiring significant remedial action during the past year,
and
(c) identifies any recommended changes in existing
restrictions or procedures, based upon the investment
adviser's experience under its Code of Ethics, evolving
industry practices or developments in applicable laws or
regulations.
- --------
(1) Approved by the Board of Directors on February 7, 1995.
<PAGE>
INDEPENDENCE CAPITAL MANAGEMENT, INC.
CODE OF ETHICS
Adopted Under Rule 17j-1
Independence Capital Management, Inc. (the "Adviser") is confident that its
Directors, Officers, and other personnel act with integrity and good faith. The
Adviser recognizes, however, that personal interests may conflict with the
Fund's interests when its Directors, Officers and other personnel:
o know about present or future Fund portfolio transactions; or
o have the power to influence Fund portfolio transactions; and
o engage in securities transactions for their personal account(s).
In the interest of preventing conflict of interest, and in accordance with Rule
17j-1(b)(1) under the Investment Company Act of 1940, the Adviser has adopted
this Code of Ethics to prohibit transactions that create, may create, or may
appear to create conflicts of interest, and to establish reporting requirements
and enforcement procedures.
1. About this Code of Ethics
a. What does the Code do?
o The Code sets forth specific prohibitions regarding securities
transactions and requirements regarding the reporting of personal
securities transactions and securities beneficially owned.
o The securities reporting requirements that apply to access persons
are set forth in Appendix B.
b. Who is covered by the Code?
o Directors and Officers of the Adviser.
o Employees of the Adviser
-1-
<PAGE>
c. Reading the Code
Words appearing in the Code which are underlined are defined in
Appendix A. The word "you" refers to persons who are covered by the
Code.
2. Statement of General Principles
In recognition of the trust and confidence placed in the Adviser by the
Fund, and because the Adviser believes that its operations should benefit
the Fund's shareholders, the Adviser has adopted the following general
principles:
a. The interests of Fund shareholders are paramount. Shareholder interests
must be placed before your own.
b. You must accomplish all personal securities transactions in a manner
that avoids conflict between your personal interests and those of the
Fund and its shareholders.
c. You must avoid actions or activities that allow (or appear to allow)
you or your family to profit or benefit from your position with the
Adviser, or that bring into question your independence or judgment.
3. Prohibitions and Restrictions
a. Prohibition Against Fraud, Deceit and Manipulation
You may not, in connection with the purchase or sale, directly or
indirectly, of a security held or to be acquired by the Fund:
i. employ any device, scheme or artifice to defraud the Fund;
ii. make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make
the statements made, in light of the circumstances under which
they are made, not misleading;
iii. engage in any act, practice or course of business which would
operate as a fraud or deceit upon the Fund; or
iv. engage in any manipulative practice with respect to the Fund.
b. Limits on Accepting or Receiving Gifts
-2-
<PAGE>
You may not accept or receive any gift of more than de minimis value
from any person or entity in connection with the Fund's entry into a
contract, development of an economic relationship, or other course of
dealing by or on behalf of the Fund.
c. Blackout Period on Personal Securities Transactions
i. Investment personnel may not purchase or sell, directly or
indirectly, any security in which they have (or by reason of such
transaction acquire) any beneficial ownership, during the period
of three (3) calendar days before and after the date the same (or
a related) security is being purchased or sold by the Fund,
except purchases and sales described below in subpart iii of this
subsection c.
ii. Access persons (other than investment personnel) may not purchase
or sell, directly or indirectly, any security in which they have
(or by reason of such transaction acquire) any beneficial
ownership on the same day the same (or a related) security is
being purchased or sold by Fund, except purchases and sales
described below in subpart iii of this subsection c.
iii. The following purchases and sales of a security are not subject
to the Blackout Period in subparts i and ii above:
o Purchases or sales of securities effected in any account over
which the investment personnel or access person has no direct
or indirect influence or control;
o Purchases or sales of securities which are non-volitional;
o Purchases of securities which are part of an automatic
dividend reinvestment plan;
o Purchases of securities effected upon the exercise of rights
issued by an issuer pro rata to all holders of a class of its
securities, to the extent such rights were acquired from such
issuer, and sales of such rights so acquired; and
-3-
<PAGE>
o Other securities transactions which may be approved on a case
by case basis by the Compliance Officer of the Adviser, as
not involving conflict of interest or the appearance of
conflict of interest.
d. Sixty-Day Prohibition on Selling Securities
Investment personnel may not profit from the purchase and sale, or sale
and purchase, of a security within 60 days, except
i. purchase and sale, or sale and purchase, of a security listed on
a national securities exchange or the NASDAQ National Market and
average daily trading of which is at least 500,000 shares,
ii. purchase and sale, or sale and purchase, of a security effected
in any account over which the investment personnel has no direct
or indirect influence or control; and
iii. Purchase or sale of securities which is non-volitional.
e. Pre-Clearance of Private Placements; Purchase of Shares in IPOs
i. Investment personnel must obtain approval from the Adviser's
Compliance Officer before acquiring beneficial ownership of any
security offered in a private placement.
ii. Investment personnel may not acquire any security as a part of an
initial public offering by the issuer.
4. Review and Enforcement of this Code of Ethics
a. Compliance Officer
The Compliance Officer of the Adviser will perform the duties described
in this Section 4.
b. The Compliance Officer's Duties and Responsibilities
i. The Compliance Officer will, on a quarterly basis, compare all
reported personal securities transactions with the Fund's
completed portfolio transactions and a list of securities being
considered for purchase or sale by the Fund to determine whether
a Code violation may have occurred. Before determining that a
person has violated the Code, the Compliance Officer must give
the person an opportunity to supply explanatory material.
-4-
<PAGE>
ii. No person is required to participate in a determination of
whether he or she has committed a Code violation or discuss the
imposition of any sanction against himself or herself.
iii. The Compliance Officer will report his or her own securities
transactions to the President of the Adviser on a quarterly
basis, who shall perform the duties of the Compliance Officer
with respect to securities transactions so reported.
c. Sanctions
If the Compliance Officer finds that the person violated the Code, the
Compliance Officer will report the violation to the President of the
Adviser. The President will impose upon the person sanctions that the
President deems appropriate. The Compliance Officer will report the
violation and the sanction imposed to the Fund's Board of Directors at
the next regularly scheduled board meeting unless, in the sole
discretion of the President, circumstances warrant an earlier report.
5. Interrelationship with the Adviser's and the Fund's Code of Ethics
a. General Principle
A person who is both an Officer and/or Director of the Fund, and an
Officer, Director and/or employee of the Adviser, is only required to
report securities transactions under this Code.
b. Procedures
The Compliance Officer of the Adviser shall:
i. Submit to the Board of Directors of the Fund a copy of this Code;
ii. Promptly report to the Fund in writing any material amendments to
this Code; and
iii. Immediately furnish to the Fund, without request, information
regarding any material violation of this Code by any person.
-5-
<PAGE>
iv. No less frequently than annually furnish to the Fund's Board of
Directors a written report that (a) describes any issues arising
under this Code since the last report to the Board, including,
but not limited to, information about material violations of the
Code and sanctions imposed in response to the material violations
and (b) certifies that the Fund and the Adviser have adopted
procedures reasonably necessary to prevent access persons from
violating the Code.
v. Promptly furnish to the Fund, upon request, copies of any reports
made under this Code by any person who is also covered by the
Fund's Code of Ethics;
6. Recordkeeping
The Adviser will maintain records as set forth below. These records will be
maintained in accordance with Rule 31a-2 under the 1940 Act and the
following requirements. They will be available for examination by
representatives of the United States Securities and Exchange Commission.
a. A copy of this Code and any other code of ethics which is, or at any
time within the past five years has been, in effect will be preserved
in an easily accessible place;
b. A list of all persons who are, or within the past five years have been,
required to submit reports under this Code will be maintained in an
easily accessible place;
c. A copy of each quarterly transaction report made by each access person
under this Code will be preserved for a period of not less than five
years from the end of the fiscal year in which it is made, the first
two years in an easily accessible place.
d. A record of any Code violation and of any sanctions taken will be
preserved in an easily accessible place for a period of not less than
five years following the end of the fiscal year in which the violation
occurred.
e. A copy of each annual report to the Board will be maintained for at
least five years from the end of the fiscal year in which it is made,
the first two years in an easily accessible place.
f. The Adviser will maintain a record of any decisions, and the reasons
supporting the decision, to approve transactions under subsections
3.c.iii. and 3.e.i. of this Code.
-6-
<PAGE>
7. Miscellaneous
a. Confidentiality
All personal securities transactions reports and any other information
filed under this Code will be treated as confidential.
b. Interpretation of Provisions
The Compliance Officer of the Adviser may from time to time adopt such
interpretations of this Code as he or she deems appropriate.
c. Periodic Review and Reporting
The Compliance Officer of the Adviser will report to the Board of
Directors periodically as to the operation of this Code and will
address in any such report the need (if any) for further changes or
modifications to this Code.
Adopted January 28, 2000
-7-
<PAGE>
APPENDIX A
Definitions
Access person includes any Director or Officer of the Adviser or the Fund (or of
any company in a control relationship to the Adviser or the Fund), or any
employee of the Adviser or the Fund who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding,
the purchase or sale of securities by the Fund.
Beneficial ownership means the same as it does under Section 16 of the
Securities Exchange Act of 1934. You should generally consider yourself the
"beneficial owner" of any securities in which you have a direct or indirect
pecuniary interest. In addition, you should consider yourself the beneficial
owner of securities held by your spouse, your minor children, a relative who
shares your home, or other persons by reason of any contract, arrangement,
understanding or relationship that provides you with sole or shared voting or
investment power.
Control means the same as it does under in Section 2(a)(9) of the 1940 Act.
Section 2(a)(9) provides that "control" means the power to exercise a
controlling influence over the management or policies of a company, unless such
power is solely the result of an official position with such company. Ownership
of 25% or more of a company's outstanding voting securities is presumed to give
the holder of such securities control over the company. This presumption may be
countered by the facts and circumstances of a given situation.
Employee of an entity is any person, other than a Director or Officer of a
business entity, who is employed by the entity as an employee or who functions
as an employee of the entity (although not recognized as an employee of the
entity for tax purposes).
Fund is an investment company registered under the Act, as amended, which is
advised by the Adviser.
Investment personnel is any employee of the Adviser or the Fund (or any company
in a control relationship to the Adviser or the Fund) who, in connection with
his or her regular functions or duties, makes, or participates in making
recommendations regarding a security being considered for purchase or sale by a
Fund.
Purchase or sale of a security includes, among other things, the writing of an
option to purchase or sell a security.
Security or Securities means the same as they do under Section 2(a)(36) of the
1940 Act, except that they do not include securities issued by the U.S.
Government or its agencies, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of registered open-end mutual funds.
A-1
<PAGE>
A security held or to be acquired by the Fund means any security which, within
the most recent 15 days, (i) is or has been held by the Fund, or (ii) is being
or has been considered by the Fund's adviser or sub-adviser for purchase by the
Fund.
A security is being purchased or sold by the Fund from the time a purchase or
sale program has been communicated to the person who places buy and sell orders
for the Fund until the program has been fully completed or terminated.
A security is being considered for purchase or sale by a Fund when a security is
identified as such by the Adviser to the Fund.
A-2
<PAGE>
APPENDIX B
Reports Regarding Beneficial Ownership of
Securities and Securities Transactions
1. Reports of Beneficial Ownership of Securities
If you are an access person, you must provide the Compliance Officer with a
complete listing of all securities you beneficially own as of December 31
of each year. You must submit your initial report within 10 days of the
date you first become an access person*, and you must submit annual reports
thereafter no later than 30 days after the end of each calendar year. A
form of Report Regarding Securities Beneficially Owned is included in this
Appendix B.
---------------------------------------------------------------------------
*Persons who were access persons on the effective date of the Code of
Ethics shall file initial reports of securities beneficially owned as of
March 31, 2000 not later than April 30, 2000.
2. Transaction Reports
a. Quarterly Reports:
i. On a quarterly basis, you must report transactions in securities
and the name and address of any broker, dealer or bank with whom
you maintain any account and in which securities are held for
your direct or indirect benefit. You must submit your report to
the Compliance Officer no later than 10 days after the end of the
calendar quarter in which the transaction to which the report
relates was effected. A form of Quarterly Personal Securities
Transactions Report is included in this Appendix B.
ii. If you had no reportable transactions during the quarter, you are
still required to submit a report. Please note on your report
that you had no reportable transactions during the quarter, and
return it, signed and dated.
iii. You are not required to report your transactions under the Fund's
Code of Ethics if you are required to report your transactions
under this Code.
b. What Securities are Covered Under Your Quarterly Reporting Obligation?
You must report all transactions in a security in which you acquire direct
or indirect beneficial ownership.
B-1
<PAGE>
c. What Securities Transactions May Be Excluded from Your Report?
You are not required to detail or list the following securities or
transactions on your report:
i. Purchases or sales effected for any account over which you have no
direct or indirect influence or control.
ii. Purchases you made solely with the dividend proceeds received in a
dividend reinvestment plan or that are part of an automatic payroll
deduction plan, where you purchase securities issued by your employer.
iii. Purchases arising from the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, as long as you
acquired these rights from the issuer, and sales of such rights so
acquired.
iv. Purchases or sales which are non-volitional on the part of a person,
including purchase or sales upon exercise of puts and calls written by
the person and sales from a margin account to a bona fide margin call.
You may include a statement in your report that the report shall not be
construed as your admission that you have any direct or indirect beneficial
ownership in the security included in the report.
B-2
<PAGE>
Report Regarding Securities Beneficially Owned
Name of Reporting Person:________________________________________
Date:_______________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank
No. of Shares/ with Whom Account is
Name of Issuer Title of Security Principal Amount Maintained
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you do not beneficially own any securities, please check here. |_|
If you disclaim beneficial ownership of one or more securities reported above,
please describe below and identify the securities.
____________________________ __________________
Signature Date
B-3
<PAGE>
Quarterly Personal Securities Transactions Report
Name of Reporting Person:_____________________________________________
Calendar Quarter Ended:_______________________________________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Name of Broker, Dealer or
of Date of Title of No. of Shares/ Type of Bank Effecting
Issuer Transaction Security Principal Amount Transaction Price Transaction
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you had no reportable transactions during the quarter, please check here. |_|
If you disclaim beneficial ownership of one or more securities reported above,
please describe below and identify the securities.______________________________
________________________________________________________________________________
________________________________________________________________________________
Name and address of the broker, dealer and/or bank with whom you maintain an
account and in which securities are held for your direct or indirect benefit.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________ ____________________
Signature Date
B-4
<PAGE>
February 1, 2000
RS INVESTMENT MANAGEMENT CO. LLC
RS INVESTMENT MANAGEMENT, L.P.
RS INVESTMENT MANAGEMENT, INC.
RS GROWTH GROUP LLC
RS VALUE GROUP LLC
RS INVESTMENT TRUST
---------------------------
CODE OF ETHICS
including
RSIM POLICY ON PERSONAL TRADING
---------------------------
I. Scope and Summary
-----------------
(a) Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires every investment company, as well as every investment adviser to
and principal underwriter of an investment company, to have a written Code of
Ethics which specifically deals with trading practices by "Access Persons."
Access Persons are defined to include (1) officers, directors and general
partners of the two mutual fund advisers (RS Investment Management, Inc. and RS
Investment Management, L.P. -- collectively "RSIM"), as well as (2) employees of
RSIM and officers, directors, partners who have substantial responsibility for
or knowledge of the investments of the mutual funds constituting series of the
RS (each, a "Fund"), and (3) each member of the Funds' Board of Trustees. The
Rule also requires that reasonable diligence is used and procedures instituted
to prevent violations of this Code of Ethics.
(b) Sections 21A and 15(f) of the Securities Exchange Act and Section 204A of
the Investment Advisers Act further require all broker-dealers and investment
advisers to establish, maintain and enforce written policies and procedures to
prevent the misuse of material nonpublic information.
(c) Common law fiduciary principles require that an investment adviser (like
RSIM) avoid placing itself in a position of conflict of interest with its
clients. Likewise, RSIM as a general partner to various partnerships, stands in
a fiduciary relationship to the limited partners investing in those
partnerships.
(d) The "Blue Ribbon" Advisory Group on Personal Investing in its report to the
Investment Company Institute also articulated the following three general
fiduciary principles which the Group believes should govern the personal
investment activities of mutual fund advisory and distributor personnel:
(i) the duty at all times to place the interests of Fund shareholders
first;
(ii) the requirement that all personal securities transactions be
conducted consistent with the Code of Ethics and in such a manner as
to avoid any actual or potential conflict of interest or any abuse of
an individual's position of trust and responsibility; and
(iii) the fundamental standard that mutual fund advisory and distributor
personnel should not take inappropriate advantage of their positions.
<PAGE>
(e) This Code of Ethics is designed to satisfy the above-referenced legal
requirements and ethical principles as applicable to RSIM in their roles as
adviser to and distributor for the RSIM Funds. It is important that all
partners, officers, directors and employees of RSIM to whom this Code of Ethics
applies observe the ethical standards set forth in the Code.
(f) This Code of Ethics is not intended to cover all possible areas of potential
liability under the 1940 Act or under the federal securities laws in general.
For example, other provisions of Section 17 of the 1940 Act prohibit various
transactions between a registered investment company and affiliated persons,
including the knowing sale or purchase of property to or from a registered
investment company on a principal basis, and joint transactions (e.g., combining
to achieve a substantial position in a security, concerted market activity, or
commingling of funds) between an investment company and an affiliated person.
(g) It is expected that Access Persons will be sensitive to all areas of
potential conflict, even if this Code of Ethics does not address specifically an
area of fiduciary responsibility.
(h) Exceptions to specific provisions of this Code of Ethics may be granted by
the compliance officer or an alternate if warranted by circumstances and if the
exception is requested in a timely manner.
(i) Summary. Under the Code of Ethics, all Access Persons, except independent
Trustees of the Funds, are required to:
(i) Pre-clear all trades in individual securities. [Note: certain
securities are excepted: mutual funds, stock index options, SPDR's
and money market instruments are "excepted securities."]
(ii) Reverse trades that involve securities subsequently purchased or
sold by a Fund within the applicable blackout period.
(iii) Observe a minimum 60 day holding period for all securities (except
"excepted securities"). This policy only applies to profitable
trades.
(iv) Avoid IPO's.
(v) Receive special clearance for private placements.
(vi) Avoid directorships of companies in which Fund assets may be
invested. (Unless permission is obtained from the CEO.)
(vii) Promptly disclose all security transactions and file quarterly
transaction reports and annual ownership reports.
(viii) Avoid security transactions in which they possess material
non-public information with regard to the particular security.
<PAGE>
II. Definitions
-----------
(a) "Access Person" means: (i) officers, directors and general partners of the
four mutual fund advisers (RS Investment Management, Inc. and RS Investment
Management, L.P., RS Growth Group LLC and RS Value Group LLC -- collectively
"RSIM"), as well as (ii) employees of RSIM and officers, directors, partners who
have substantial responsibility for or knowledge of the investments of the
mutual funds constituting series of the RS Trust (each, a "Fund"), hedge funds
managed by RSIM, institutional accounts where RSIM acts as a sub-adviser,
separate accounts managed by RSIM and (iii) each member of the Funds' Board of
Trustees. Members of the immediate family of an Access Person living in the same
household are covered by this Code of Ethics to the same extent as the Access
Person.
(b) "Advisory person" means with respect to (i) the Funds, (ii) an investment
adviser to a Fund or (iii) any company in a control relationship to the Funds or
the investment adviser (i.e., RSIM), (A) any employee who, in connection with
his regular functions or duties, makes, participates in, or obtains information
regarding, the purchase or sale of a security by a Fund, or whose functions
relate to the making of any recommendations with respect to such purchases or
sales; and (B) any natural person in a control relationship to the Funds or an
investment adviser who obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security.
(c) A security is "being considered for purchase or sale" when a recommendation
to purchase or sell a security has been made and communicated, and, with respect
to a person making a recommendation, when such person seriously considers making
such a recommendation.
(d) "Beneficial ownership" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, with the exception that the determination of direct or indirect
beneficial ownership shall apply to all securities which an Access Person has or
acquires.
(e) "Control" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the result of
an official position, as further defined in Section 2(a)(9) of the 1940 Act.
(f) "Purchase or sale of a security" includes the writing of an option to
purchase or sell a security.
(g) "Security" shall have the meaning set forth in Section 2(a)(36) of the 1940
Act, and shall include options and warrants, except that it shall not include
excepted securities (as defined below).
(h) "Excepted securities" include shares of registered open-end investment
companies (except the RSIM Funds), securities issued by the Government of the
United States (including Government agencies), short term debt securities which
are "government securities" within the meaning of Section 2(a)(16) of the 1940
Act, bankers' acceptances, bank certificates of deposit, commercial paper and
other money market instruments. Stock Index Options and SPDR's are also
considered "excepted securities" for all purposes except the quarterly and
annual reporting obligations.
(i) "Material Non-Public Information" is information relating to dividend
increases or decreases, earnings estimates, changes in previously released
earnings estimates, significant expansion or curtailment of operations, a
significant increase or decline of orders, significant merger or acquisition
proposals or agreements, significant new products or discoveries, extraordinary
borrowing, major litigation, liquidity problems, extraordinary management
developments, purchase or sale of substantial assets or any information a
reasonable investor might consider to be of importance in making an investment
decision to buy, sell or hold. Information should be deemed non-public if it has
not been widely disseminated by wire service, in one or more newspapers of
general circulation, or by communication from the company involved to its
shareholders or in a press release.
<PAGE>
III. Prohibited Trading Practices
----------------------------
(a) General anti-fraud prohibition. If a security:
(i) is being considered for purchase or sale by a Fund;
(ii) is in the process of being purchased or sold by a Fund; or
(iii) is or has been held by a Fund within the most recent 15 day period;
no Access Person shall knowingly purchase, sell or otherwise directly or
indirectly acquire or dispose of any direct or indirect beneficial ownership
interest in that security if such action by such Access Person would defraud a
Fund, operate as a fraud or deceit upon a Fund, or constitute a manipulative
practice with respect to a Fund.
(b) Pre-clearance. No Access Person shall purchase or sell any individual
security (i.e., any security except an "excepted security") without
pre-clearance. Once pre-clearance has been obtained, the trade must be executed
by the end of the business day or new clearance must be obtained. (See attached
Pre-clearance Form).
(c) Blackout period. An Access Person may not execute a securities transaction
(other than an "excepted security") on any day during which any Fund in the RSIM
Funds complex has a pending "buy" or "sell" order in that same security or a
related security of the same issuer (e.g., common stock is a related security to
an option on common stock). However, it is not always possible to determine
which orders were executed until the following day. The fact of pre-clearance
does not mean that a trade will not end up being unwound if it is later
ascertained that one of the Funds traded in that security on the same day.
Blackout periods may be extended for certain securities. This policy applies to
all Access people.
Additionally, portfolio managers and others who make investment
decisions with respect to a Fund are prohibited for seven (7) calendar days
preceding and following any Fund purchase or sale of that security and will
include the entire business day on which the last Fund purchase or sale activity
occurs. Any profits realized on a trade effected during the blackout period by a
portfolio manager or other individual with investment decision-making authority
will be disgorged to the appropriate Fund. The blackout period only applies to
securities traded by a Fund or Funds over which the individual exercises
investment decision-making authority. It does not apply to all Funds in the
complex. The fact of pre-clearance and execution within the same day of
pre-clearance is not relevant. Blackout periods may be extended for certain
securities.
(d) Trades in shares of RSIM Funds. Please note that purchases and sales of
shares of an RS Fund do not need pre-clearance, but the possibility of
appearance of conflict of interest in such transactions is high. Accordingly,
all purchases and sales of shares of an RS Fund:
(i) should be made well in advance of the closing price calculation each
day, and
(ii) should not be made when in possession of material nonpublic
information.
<PAGE>
(e) No IPO's. No Access Person shall acquire any securities offered in an
initial public offering.
(f) Private placements. No Access Person shall acquire any securities in a
private placement without both pre-clearance and special approval by the CEO.
(g) Other restrictions. No Access Person shall engage in short term trading or
make other investments in contravention of the general policies that may be
established from time to time as set forth. An Access Person must hold a
security (other than an "excepted security") for a minimum of 60 days. This
policy only applies to profitable trades.
IV. Exempted Transactions/Securities
--------------------------------
The prohibitions of Section IV of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase or sale
by any Fund.
(c) Purchases or sales which are non-volitional on the part of either the Access
Person or the Trust (e.g., receipt of gifts).
(d) Purchases that are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
(f) Purchases and sales which have received the prior approval of the Compliance
Officer.
(g) Purchases and sales of securities, which are not included in the definition
of "Security" in Section II.g or are "excepted securities" as defined in Section
II.h. -- i.e., mutual fund shares (but not RS Fund shares), stock index options,
SPDR's, government securities and money market instruments.
V. Reporting
---------
(a) Pre-clearance and immediate reporting. All RSIM employees are currently
required to report all individual security transactions (and purchase/sales of
RSIM Funds) under rules specifically applicable to advisory and broker-dealer
organizations. Access persons must also seek pre-clearance of individual
security transactions and are required to have a duplicate confirmation of the
transaction sent to the RSIM compliance officer promptly following the
transaction. The only securities for which such pre-clearance and immediate
reporting is not required are "excepted securities" and shares of the RSIM
Funds.
(b) Quarterly reports. In addition to contemporaneous reporting, all Access
Persons are required to review, and if necessary, correct or make additions to
quarterly reports generated within 10 days of the end of each calendar quarter,
listing all securities transactions except transactions in "excepted
securities." See subsection (c) below. Please note that purchases and sales of
shares of an RSIM Fund, which are not subject to pre-clearance and
contemporaneous reporting, are subject to quarterly reporting.
<PAGE>
(c) Every quarterly report shall be made not later than ten (10) days after the
end of each calendar quarter and shall contain the following information:
(i) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale, or any
other type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer, or bank with or through whom
the transaction was effected.
(d) Copies of statements or confirmations containing the information specified
in paragraph (c) above may be submitted in lieu of listing the transactions.
Persons submitting statements will be deemed to have satisfied this reporting
requirement, and need only sign off quarterly on having complied.
(e) For periods in which no reportable transactions were effected, the quarterly
report shall contain a representation that no transactions subject to the
reporting requirements were effected during the relevant time period.
(f) Annual report. Annually, in conjunction with the quarterly report for the
quarter ending June 30, each Access Person shall be required to review, and if
necessary, correct or make additions to, an annual report, which lists all
security positions in which such Access Person has a direct or indirect
beneficial interest.
(g) Any quarterly or annual report may contain a statement that the report shall
not be construed as an admission by the person making such report that he has
any direct or indirect beneficial ownership in the security to which the report
relates.
(h) An initial holdings report of all securities beneficially owned by such
person and the name of the broker with whom the Access Person maintained a
securities account must be submitted to Scott Smith or Marianne Clark for review
no later than 10 days after an employee of RSIM becomes an Access Person.
VI. Exceptions to Reporting Requirements
------------------------------------
(a) An independent Trustee, i.e., a Trustee of the RS Investment Trust who is
not an "interested person" (as defined in Section 2(a)(19) of the 1940 Act) of
the Funds, is not required to file a report on a transaction in a security
provided such Trustee neither knew nor, in the ordinary course of fulfilling his
or her official duties as a trustee of the Funds, should have known that, during
the 15-day period immediately preceding or after the date of the transaction by
the Trustee, such security is or was purchased or sold by a Fund or is or was
being considered for purchase or sale by a Fund by its investment adviser.
(b) Although an independent Trustee is exempt from the reporting requirements of
this Code, such Trustee may nevertheless voluntarily file a report representing
that he or she did not engage in any securities transactions which, to his or
her knowledge, involved securities that were being purchased or sold or
considered for purchase by any Fund during the 15-day period preceding or after
the date(s) of any transaction(s) by such Trustee. The failure to file such a
report, however, shall not be considered a violation of this Code of Ethics.
<PAGE>
(c) Access Persons are not required to make a report with respect to an exempted
transactions/securities as described in Section V of this Code.
(d) Access Persons do not need to file multiple reports. Copies of a single
report can be used to satisfy the personal trading reports required by RSIM.
VII. Implementation
--------------
(a) In order to implement this Code of Ethics, a compliance officer and three
alternates have been designated for RSIM and the Funds. These individuals are:
Scott R. Smith
Marianne E. Clark (alternate)
Steven M. Cohen (alternate)
G. Randy Hecht-President and CEO (alternate)
(b) The compliance officer shall create a list of all "Access Persons" and
update the list with reasonable frequency.
(c) The compliance officer shall circulate a copy of this Code of Ethics to each
Access Person, together with an acknowledgment of receipt, which shall be signed
and returned to the Compliance Officer by each Access Person at least once each
year.
(d) The compliance officer or a compliance officer delegate is charged with
responsibility for ensuring that the pre-clearance and reporting requirements of
this Code of Ethics are adhered to by all Access Persons. The compliance officer
or compliance officer delegate shall be responsible for ensuring that the review
requirements of this Code of Ethics (see Section VIII) are performed in a prompt
manner. The compliance officer shall be responsible for enforcing the policies
set forth herein.
VIII. Review
------
(a) The compliance officer shall review all reports of personal securities
transactions and compare such reports with pre-clearance forms and with
completed and contemplated portfolio transactions of each Fund to determine
whether noncompliance with the Code of Ethics and/or other applicable trading
procedures may have occurred. The compliance officer may delegate this function
to one or more persons.
(b) No person shall review his or her own reports. Before making any
determination that a non-compliant transaction may have been made by any person,
the compliance officer shall give such person an opportunity to supply
additional explanatory material. If a securities transaction of the compliance
officer is under consideration, an alternate shall act in all respects in the
manner prescribed herein for the designated compliance officer.
(c) If the compliance officer determines that noncompliance with the Code of
Ethics has or may have occurred, he or she shall, following consultation with
counsel, submit his or her written determination, together with the transaction
report, if any, and any additional explanatory material provided by the
individual, to G. Randall Hecht, who shall make an independent determination of
whether a violation has occurred.
<PAGE>
(d) The compliance officer shall be responsible for maintaining a current list
of all Access Persons (including all Fund Trustees) and for identifying all
reporting Access Persons on such list, and shall take steps to ensure that all
reporting Access Persons have submitted reports in a timely manner. The
compliance officer may delegate the compilation of this information to
appropriate persons. Failure to submit timely reports will be communicated to G.
Randall Hecht and to the Funds' Board of Trustees.
IX. Sanctions
---------
(a) If a material violation of this Code occurs or a preliminary determination
is made that a violation may have occurred, a report of the alleged violation
shall be made to the Board of Trustees.
(b) The Board of Trustees may impose such sanctions as it deems appropriate,
including, a letter of censure, suspension, or termination of employment, and/or
a disgorging of any profits made.
Please sign and date the attached form.
Detach and return to RSIM Compliance.
================================================================================
I fully understand and hereby subscribe to this Code of Ethics.
================================================================================
<PAGE>
================================================================================
------------------------------------------
Name
------------------------------------------
Signature
------------------------------------------
Date
================================================================================
<PAGE>
Appendix III
February 1, 2000
RS INVESTMENT MANAGEMENT CO. LLC
RS INVESTMENT MANAGEMENT, L.P.
RS INVESTMENT MANAGEMENT, INC.
RS GROWTH GROUP LLC
RS VALUE GROUP LLC
RS INVESTMENT TRUST
---------------------------
POLICY ON PERSONAL TRADING
---------------------------
Summary
The following policy on personal trading, together with the enclosed Code of
Ethics, outlines all existing restrictions on personal securities transactions
for Access Persons of RS Mutual Funds. While it is our belief that personal
investing can lead an individual to be a better, more knowledgeable investor,
these guidelines have been written not only to ensure compliance with relevant
securities laws, but also to protect our investors and prevent any perception of
a potential conflict of interest.
Access Persons are defined as (i) officers, directors and general partners of
the two mutual fund advisers (RS Investment Management, Inc. and RS Investment
Management, L.P. -- collectively "RSIM"), as well as (ii) employees of RSIM and
officers, directors, partners who have substantial responsibility for or
knowledge of the investments of the mutual funds constituting series of the RS
(each, a "Fund"), and (iii) each member of the Funds' Board of Trustees. Members
of the immediate family of an Access Person living in the same household are
covered by this policy to the same extent as the Access Person. The policy also
applies to the immediate families living in the same household of all Access
Persons. The highlights of the policy are as follows:
1) PERSONAL ACCOUNTS
All personal brokerage accounts must be maintained at BancBoston Robertson
Stephens, Charles Schwab or Fidelity Investments. Any exceptions to this policy
must be approved by the Compliance Department.
2) PRE-CLEARANCE
All personal trades for individual securities for all Access Persons must be
pre-cleared by the Compliance Department using the attached form. After
pre-clearance has been granted, the trade must be completed by the end of the
business day, or the approval is void and the form must be resubmitted. Trades
for which pre-clearance is required include all securities except, open-end
mutual funds, stock index options, SPDR's, government securities and money
market securities. Obtaining pre-clearance for a trade does not guarantee that
the trade will not be later reversed should a Fund effect a subsequent trade in
the same security.
<PAGE>
3) BLACKOUT PERIODS
An Access Person may not execute a securities transaction (other than an
"excepted securities") on any day during which any Fund in the RSIM Funds
complex has a pending "buy" or "sell" order in that same security or a related
security of the same issuer (e.g., common stock is a related security to an
option on common stock). However, it is not always possible to determine which
orders were executed until the following day. The fact of pre-clearance does not
mean that a trade will not end up being unwound if it is later ascertained that
one of the Funds traded in that security on the same day. Blackout periods may
be extended for certain securities. This policy applies to all Access people.
Additionally, portfolio managers and others who make investment decisions with
respect to a Fund are prohibited for seven (7) calendar days preceding and
following any Fund purchase or sale of that security and will include the entire
business day on which the last Fund purchase or sale activity occurs. Any
profits realized on a trade effected during the blackout period by a portfolio
manager or other individual with investment decision-making authority will be
disgorged to the Fund. The blackout period only applies to securities traded by
a Fund or Funds over which the individual exercises investment-making authority.
It does not apply to all Funds in the complex. The fact of pre-clearance and
execution within the same day of pre-clearance is not relevant. Blackout periods
may be extended for certain securities.
4) RESTRICTIONS ON SHORT-TERM TRADING
Access Persons are strongly discouraged from entering into securities
transactions for the purpose of achieving short-term gains. In addition to the
general prohibition against acquiring securities in the blackout period before
and immediately following Fund transactions, an Access Person must hold a
security (other than an excepted security, e.g., a stock index option) for a
minimum of 60 days. This policy only applies to profitable trades. Exceptions
may be made in the case of a medical or other emergency, provided that relevant
details are communicated at the time of pre-clearance.
5) INITIAL PUBLIC OFFERINGS
All Access Persons are strictly prohibited from acquiring securities in any
initial public offering.
6) PRIVATE PLACEMENTS
Investments by Access Persons in private placements require both pre-clearance
and special approval from the CEO.
7) SERVICE AS A DIRECTOR
Portfolio Managers and Access Persons will be permitted to serve as directors of
publicly traded companies and private companies in which the Funds may invest
only if the CEO determines that doing so would be in the best interest and would
not present a conflict of interest. All Fund investment decisions made or
participated in by such Director/Access Persons require pre-clearance from the
CEO.
<PAGE>
8) DISCLOSURE
To the extent an Access Person maintains permitted brokerage accounts at
broker/dealers other than BancBoston Robertson Stephens, Charles Schwab & Co.,
or Fidelity Investments that Access Person must ensure that copies of trade
confirmations for their brokerage accounts and accounts of immediate family
living in the same household, are forwarded to the Compliance Department. Trade
confirmations will be cross-referenced against pre-clearance forms to ensure
that approval had been granted. In addition, Access Persons must make required
quarterly reports of securities transactions (or furnish brokerage statements)
and must sign off, at least annually, on receipt of and compliance with the Code
of Ethics.
INVESTMENT
RS MANAGEMENT
<PAGE>
Pre-authorization for Personal Trades
To: RSIM Compliance
Phone: (415) 591-2779
(415) 591-2728
Fax: (415) 591-2851
From: Date:
---------------------------------------- ----------------------
I wish to effect the following trade for my personal account, an account in
which I have a beneficial interest, or an account belonging to one of my
immediate relatives living in the same household.
NAME of Security TICKER
------------------------------------------------- --------
# OF SHARES BUY SELL (CIRCLE ONE) PRICE
------------- -------------
BROKERAGE FIRM & ACCOUNT #
-------------------------------- -----------------------
THE PURCHASE/SALE IS BASED ON PERSONAL RESEARCH YES [ ] NO [ ]
(You may be required to provide documentation should there be a potential
conflict).
I AM AWARE OF AN INTENDED OR POSSIBLE MUTUAL FUND TRADE IN THIS SECURITY
YES [ ] NO [ ]
I agree that if I do not effect the above trade on the day indicated below, the
approval is null and void and the request must be resubmitted. I realize that if
I am an employee with investment decision making authority, and any RS FUNDS
transactions occur within 7 days of my transaction that involve a fund over
which I have authority and the above security, the trade will be broken at my
expense. I realize that if I do not have such authority, and any fund
transactions occur on the same day as my transaction, the trade will be broken
at my expense. Furthermore, I affirm that if this is a sale of stock, I have
either held it for at least 60 days or I am selling the stock at a loss.
------------------------------
AUTHORIZED
- -------------------------------- ------------------------------
SIGNED DATE
<PAGE>
TURNER INVESTMENT PARTNERS, INC.
PERSONAL TRADING POLICY/CODE OF ETHICS
--------------------------------------
February 17, 2000
A. Personal investments: An employee should consider himself the beneficial
owner of those securities held by him, his spouse, his minor children, a
relative who shares his house, or persons by reason of any contract,
arrangement, understanding or relationship that provides him with sole or
shared voting or investment power.
B. Employees are barred from purchasing any securities (to include Common
Stock and related Options, Convertible securities, Options, or Futures on
Indexes) in which the firm has either a long or short position. If an
employee owns a position in any security, he must get written pre-clearance
from the Chairman or President to add to or sell the position. ALL SECURITY
TRANSACTIONS (BUY OR SELL) REQUIRE WRITTEN CLEARANCE IN ADVANCE. Approval
is good for 48 hours; if a trade has not been executed, subsequent
approvals are necessary until the trade is executed. The Exception
Committee (the Chairman, Vice Chairman, President, and Director of
Compliance) must approve any exceptions to this rule.
C. Employees may not purchase initial public offerings. Private
placements/Limited partnerships require written pre-clearance. Mutual Fund
holdings are excluded from pre-clearance and reporting. IRA's, and Rollover
IRA's that are self-directed (i.e. stocks or bonds, not mutual funds), and
ESOP's (Employee stock ownership plans) require pre-clearance.
D. Blackout Restrictions: Employees are subject to the following restrictions
when their purchases and sales of securities coincide with trades of Turner
Clients (including investment companies):
1. Purchases and sales within three days following a client trade.
Employees are prohibited from purchasing or selling any security within
three calendar days after a client transaction in the same (or a
related) security. The Exception Committee must approve exceptions. If
an employee makes a prohibited transaction without an exception the
employee must unwind the transaction and relinquish any gain from the
transaction to charity.
2. Purchases within seven days before a client purchase. An employee who
purchases a security within seven calendar days before a client
purchases the same (or a related) security is prohibited from selling
the security of a period of six months following the client's trade.
The Exception Committee must approve exceptions. If an employee makes a
prohibited sale without an exception within the six month period, the
employee must relinquish any gain from the transaction to charity.
3. Sales within seven days before a client sale. An employee who sells a
security within seven days before a client sells the same (or a
related) security must relinquish to charity the difference between the
employee's sale price and the client's sale price (assuming the
employee's sale price is higher).
<PAGE>
PERSONAL TRADING POLICY/CODE OF ETHICS
--------------------------------------
February 17, 2000
Page 2
4. These restrictions do not apply to proprietary investment partnerships
for which the firm acts as an adviser in which the officers and
employees of the adviser have an equity interest of less than 50%.
These accounts may purchase the same or similar securities within the
black out period, if the partnership trades with the block or after
other clients. Where it is beneficial to client accounts and it is
possible to do so, they should be blocked with the partnership account.
E. Short Term Trading Rule - Employees may not take profits in any security in
less than 60 days (includes Options, Convertibles and Futures). If an
individual must trade with in this period, the Exception Committee must
grant approval or the employee must relinquish such profits to charity. The
closing of positions at a loss is not prohibited. Options that are out of
the money may be exercised in less than 60 days. The proprietary
partnerships may take profits in less than 60 days.
F. Reporting: Consistent with the requirements of the Investment Advisers Act
of 1940 Rule 204-2 (a)(2) and (a)(3) and with the provisions of Rule 17j-1
of the Investment Company Act of 1940 all employees must submit duplicate
statements/disclosures within 10 days following the calendar quarter.
Statements are reviewed by one of the firms Series 24 principals.
Brokerage, IRA's, Rollover IRA's (which are self-directed), ESOP's, private
placement and limited partnerships must all be reported as personal
trading. New employees are required to file initial holdings within 10 days
of hire.
G. Violation of the Personal Investments/Code of Ethics policy may result in
disciplinary action, up to and including termination of employment.
<PAGE>
Code of Ethics
piv
s
It is the personal responsibility of every Putnam employee to avoid any conduct
that could create a conflict, or even the appearance of a conflict, with our
clients, or to do anything that could damage or erode the trust our clients
place in Putnam and its employees. 44156 4/2000
<PAGE>
Table of Contents
Overview ....................................................................iii
Preamble ....................................................................vii
Definitions: Code of Ethics.................................................ix
Section I. Personal Securities Rules for All Employees ....................1
A. Restricted List...........................................1
B. Prohibited Purchases and Sales............................6
C. Discouraged Transactions..................................9
D. Exempted Transactions....................................10
Section II. Additional Special Rules for Personal Securities Transactions
of Access Persons and Certain Investment Professionals.........13
Section III. Prohibited Conduct for All Employees...........................19
Section IV. Special Rules for Officers and Employees of Putnam Europe Ltd..29
Section V. Reporting Requirements for All Employees.......................31
Section VI. Education Requirements.........................................35
Section VII. Compliance and Appeal Procedures...............................37
Appendix A ...............................................................39
Preamble ...............................................41
Definitions: Insider Trading................................43
Section 1. Rules Concerning Inside Information............45
Section 2. Overview of Insider Trading....................49
Appendix B. Policy Statement Regarding Employee Trades in Shares of
Putnam Closed-End Funds........................................55
Appendix C. Clearance Form for Portfolio Manager Sales Out of Personal
Account of Securities Also Held by Fund (For compliance with
"Contra-Trading" Rule).........................................57
Appendix D. Procedures for Approval of New Financial Instruments...........59
Index ...............................................................61
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i
Overview
Every Putnam employee is required, as a condition of continued employment, to
read, understand, and comply with the entire Code of Ethics. This Overview is
provided only as a convenience and is not intended to substitute for a careful
reading of the complete document.
It is the personal responsibility of every Putnam employee to avoid any conduct
that could create a conflict, or even the appearance of a conflict, with our
clients, or do anything that could damage or erode the trust our clients place
in Putnam and its employees. This is the spirit of the Code of Ethics. In
accepting employment at Putnam, every employee accepts the absolute obligation
to comply with the letter and the spirit of the Code of Ethics. Failure to
comply with the spirit of the Code of Ethics is just as much a violation of the
Code as failure to comply with the written rules of the Code.
The rules of the Code cover activities, including personal securities
transactions, of Putnam employees, certain family members of employees, and
entities (such as corporations, trusts, or partnerships) that employees may be
deemed to control or influence.
Sanctions will be imposed for violations of the Code of Ethics. Sanctions may
include bans on personal trading, reductions in salary increases or bonuses,
disgorgement of trading profits, suspension of employment, and termination of
employment.
- -- Insider trading:
Putnam employees are forbidden to buy or sell any security while either
Putnam or the employee is in possession of non-public information ("inside
information") concerning the security or the issuer. A violation of Putnam's
insider trading policies may result in criminal and civil penalties,
including imprisonment and substantial fines.
- -- Conflicts of interest:
The Code of Ethics imposes limits on activities of Putnam employees where
the activity may conflict with the interests of Putnam or its clients. These
include limits on the receipt and solicitation of gifts and on service as a
fiduciary for a person or entity outside of Putnam.
For example, Putnam employees generally may not accept gifts over $50 in
total value in a calendar year from any entity or any supplier of goods or
services to Putnam. In addition, a Putnam employee may not serve as a
director of any corporation without prior approval of the Code of Ethics
Officer, and Putnam employees may not be members of investment clubs.
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- -- Confidentiality:
Information about Putnam clients and Putnam investment activity and research
is proprietary and confidential and may not be disclosed or used by any
Putnam employee outside Putnam without a valid business purpose.
- -- Personal securities trading:
Putnam employees may not buy or sell any security for their own account
without clearing the proposed transaction in advance with the Code of Ethics
Administrator.
Certain securities are excepted from this requirement (e.g., Marsh &
McLennan stock and shares of open-end (not closed-end) Putnam Funds). The
Code of Ethics Officer will permit employees to purchase or sell up to 1,000
shares of stock of an issuer whose capitalization exceeds $5 billion, but
such purchases or sales must still be cleared.
Clearance must be obtained in advance, between 11:30 a.m. and 4:00 p.m. EST
on the day of the trade. Clearance may be obtained between 9:00 a.m. and
4:00 p.m. on the day of the trade for up to 1,000 shares of stock of an
issuer whose capitalization exceeds $5 billion. A clearance is valid only
for the day it is obtained. The Code also strongly discourages excessive
trading by employees for their own account (i.e., more than 10 trades in any
calendar quarter). Trading in excess of this level will be reviewed with the
Code of Ethics Oversight Committee.
- -- Short Selling:
Putnam employees are prohibited from short selling any security, whether or
not it is held in a Putnam client portfolio, except that short selling
against the S&P 100 and 500 indexes and "against the box" are permitted.
- -- Confirmations of trading and periodic account statements:
All Putnam employees must have their brokers send confirmations of personal
securities transactions, including transactions of immediate family members
and accounts over which the employee has investment discretion, to the Code
of Ethics Officer. Employees must contact the Code of Ethics Administrator
to obtain an authorization letter from Putnam for setting up a personal
brokerage account.
- -- Quarterly and annual reporting:
Certain Putnam employees (so-called "Access Persons" as defined by the SEC
and in the Code of Ethics) must report all their securities transactions in
each calendar quarter to the Code of Ethics Officer within 10 days after the
end of the quarter. All Access Persons must disclose all personal securities
holdings upon commencement of
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employment and thereafter on an annual basis. You will be notified if these
requirements apply to you. If these requirements apply to you and you fail
to report as required, salary increases and bonuses will be reduced.
- -- IPOs and private placements:
Putnam employees may not buy any securities in an initial public offering or
in a private placement, except in limited circumstances when prior written
authorization is obtained.
- -- Procedures for Approval of New Financial Instruments:
No new types of securities or instruments may be purchased for any Putnam
fund or other client account without the prior approval of the Risk
Management Committee.
- -- Personal securities transactions by Access Persons and certain investment
professionals:
The Code imposes several special restrictions on personal securities
transactions by Access Persons and certain investment professionals, which
are summarized as follows:
-- "60-Day Holding Period". No Access Person shall profit from the purchase
and sale, or sale and purchase, of any security or related derivative
security within 60 calendar days.
-- "7-Day" Rule. Before a portfolio manager places an order to buy a
security for any portfolio he manages, he must sell from his personal
account any such security or related derivative security purchased
within the preceding 7 calendar days and disgorge any profit from the
sale.
-- "Blackout" Rules. No portfolio manager may sell any security or related
derivative security for her personal account until 7 calendar days have
passed since the most recent purchase of that security or related
derivative security by any portfolio she manages. No portfolio manager
may buy any security or related derivative security for his personal
account until 7 calendar days have passed since the most recent sale of
that security or related derivative security by any portfolio he
manages.
-- "Contra-Trading" Rule. No portfolio manager may sell out of her personal
account any security or related derivative security that is held in any
portfolio she manages unless she has received the written approval of a
CIO and the Code of Ethics Officer.
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-- No manager may cause a Putnam client to take action for the manager's
own personal benefit.
-- SIMILAR RULES LIMIT PERSONAL SECURITIES TRANSACTIONS BY ANALYSTS,
CO-MANAGERS, AND CHIEF INVESTMENT OFFICERS. PLEASE READ THESE RULES
CAREFULLY. YOU ARE RESPONSIBLE FOR UNDERSTANDING THE RESTRICTIONS.
This Overview is qualified in its entirety by the provisions of the Code of
Ethics. The Code requires that all Putnam employees read, understand, and comply
with the entire Code of Ethics.
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Preamble
It is the personal responsibility of every Putnam employee to avoid any conduct
that would create a conflict, or even the appearance of a conflict, with our
clients, or embarrass Putnam in any way. This is the spirit of the Code of
Ethics. In accepting employment at Putnam, every employee also accepts the
absolute obligation to comply with the letter and the spirit of the Code of
Ethics. Failure to comply with the spirit of the Code of Ethics is just as much
a violation of the Code as failure to comply with the written rules of the Code.
Sanctions will be imposed for violations of the Code of Ethics, including the
Code's reporting requirements. Sanctions may include bans on personal trading,
reductions in salary increases or bonuses, disgorgement of trading profits,
suspension of employment and termination of employment.
Putnam Investments is required by law to adopt a Code of Ethics. The purpose of
the law is to prevent abuses in the investment advisory business that can arise
when conflicts of interest exist between the employees of an investment adviser
and its clients. Having an effective Code of Ethics is good business practice,
as well. By adopting and enforcing a Code of Ethics, we strengthen the trust and
confidence reposed in us by demonstrating that, at Putnam, client interests come
before personal interests.
Putnam has had a Code of Ethics for many years. The first Putnam Code was
written more than 30 years ago by George Putnam. It has been revised
periodically, and was re-drafted in its entirety in 1989 to take account of
legal and regulatory developments in the investment advisory business. Since
1989, the Code has been revised regularly to reflect developments in our
business.
The Code that follows represents a balancing of important interests. On the one
hand, as a registered investment adviser, Putnam owes a duty of undivided
loyalty to its clients, and must avoid even the appearance of a conflict that
might be perceived as abusing the trust they have placed in Putnam. On the other
hand, Putnam does not want to prevent conscientious professionals from investing
for their own account where conflicts do not exist or are so attenuated as to be
immaterial to investment decisions affecting Putnam clients.
When conflicting interests cannot be reconciled, the Code makes clear that,
first and foremost, Putnam employees owe a fiduciary duty to Putnam clients. In
most cases, this means that the affected employee will be required to forego
conflicting personal securities transactions. In some cases, personal
investments will be permitted, but only in a manner which, because of the
circumstances and applicable controls, cannot reasonably be
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perceived as adversely affecting Putnam client portfolios or taking unfair
advantage of the relationship Putnam employees have to Putnam clients.
The Code contains specific rules prohibiting defined types of conflicts. Because
every potential conflict cannot be anticipated in advance, the Code also
contains certain general provisions prohibiting conflict situations. In view of
these general provisions, it is critical that any individual who is in doubt
about the applicability of the Code in a given situation seek a determination
from the Code of Ethics Officer about the propriety of the conduct in advance.
The procedures for obtaining such a determination are described in Section VII
of the Code.
It is critical that the Code be strictly observed. Not only will adherence to
the Code ensure that Putnam renders the best possible service to its clients, it
will ensure that no individual is liable for violations of law.
It should be emphasized that adherence to this policy is a fundamental condition
of employment at Putnam. Every employee is expected to adhere to the
requirements of this Code of Ethics despite any inconvenience that may be
involved. Any employee failing to do so may be subject to such disciplinary
action, including financial penalties and termination of employment, as
determined by the Code of Ethics Oversight Committee or the Chief Executive
Officer of Putnam Investments.
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Definitions: Code of Ethics
The words given below are defined specifically for the purposes of Putnam's Code
of Ethics.
Gender references in the Code of Ethics alternate.
Rule of construction regarding time periods. Unless the context indicates
otherwise, time periods used in the Code of Ethics shall be measured
inclusively, i.e., including the dates from and to which the measurement
is made.
Access Persons. Access Persons are (i) all officers of Putnam Investment
Management, Inc. (the investment manager of Putnam's mutual funds), (ii)
all employees within Putnam's Investment Division, and (iii) all other
employees of Putnam who, in connection with their regular duties, have
access to information regarding purchases or sales of portfolio securities
by a Putnam mutual fund, or who have access to information regarding
recommendations with respect to such purchases or sales.
Code of Ethics Administrator. The individual designated by the Code of Ethics
Officer to assume responsibility for day-to-day, non-discretionary
administration of this Code. The current Code of Ethics Administrator is
Laura Rose, who can be reached at extension 11104.
Code of Ethics Officer. The Putnam officer who has been assigned the
responsibility of enforcing and interpreting this Code. The Code of Ethics
Officer shall be the General Counsel or such other person as is designated
by the President of Putnam Investments. If the Code of Ethics Officer is
unavailable, the Deputy Code of Ethics Officer (to be appointed by the
Code of Ethics Officer) shall act in his stead.
Code of Ethics Oversight Committee. Has oversight responsibility for
administering the Code of Ethics. Members include the Code of Ethics
Officer, the Head of Investments, and other members of Putnam's senior
management approved by the Chief Executive Officer of Putnam.
Immediate family. Spouse, minor children, or other relatives living in the same
household as the Putnam employee.
Policy Statements. The Policy Statement Concerning Insider Trading Prohibitions
attached to the Code as Appendix A and the Policy Statement Regarding
Employee Trades in Shares of Putnam Closed-End Funds attached to the Code
as Appendix B.
Private placement. Any offering of a security not to the public, but to
sophisticated investors who have access to the kind of information which
would be contained in a prospectus, and which does not require
registration with the relevant securities authorities.
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Purchase or sale of a security. Any acquisition or transfer of any interest in
the security for direct or indirect consideration, and includes the
writing of an option.
Putnam. Any or all of Putnam Investments, Inc., and its subsidiaries, any one of
which shall be a "Putnam company."
Putnam client. Any of the Putnam Funds, or any advisory, trust, or other client
of Putnam.
Putnam employee (or "employee"). Any employee of Putnam.
Restricted List. The list established in accordance with Rule 1 of Section I.A.
Security. Any type or class of equity or debt security and any rights relating
to a security, such as put and call options, warrants, and convertible
securities. Unless otherwise noted, the term "security" does not include:
currencies, direct and indirect obligations of the U.S. government and its
agencies, commercial paper, certificates of deposit, repurchase
agreements, bankers' acceptances, any other money market instruments,
shares of open-end mutual funds (including Putnam open-end mutual funds),
securities of The Marsh & McLennan Companies, Inc., commodities, and any
option on a broad-based market index or an exchange-traded futures
contract or option thereon.
Transaction for a personal account (or "personal securities transaction").
Securities transactions: (a) for the personal account of any employee; (b)
for the account of a member of the immediate family of any employee; (c)
for the account of a partnership in which a Putnam employee or immediate
family member is a general partner or a partner with investment
discretion; (d) for the account of a trust in which a Putnam employee or
immediate family member is a trustee with investment discretion; (e) for
the account of a closely-held corporation in which a Putnam employee or
immediate family member holds shares and for which he has investment
discretion; and (f) for any account other than a Putnam client account
which receives investment advice of any sort from the employee or
immediate family member, or as to which the employee or immediate family
member has investment discretion.
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Section I. Personal Securities Rules for All Employees
A. Restricted List
RULE I
No Putnam employee shall purchase or sell for his personal account any
security without prior clearance obtained through Putnam's Intranet
pre-clearance system or from the Code of Ethics Administrator. No clearance
will be granted for securities appearing on the Restricted List. Securities
shall be placed on the Restricted List in the following circumstances:
(a) when orders to purchase or sell such security have been entered for any
Putnam client, or the security is being actively considered for
purchase or sale for any Putnam client;
(b) with respect to voting securities of corporations in the banking,
savings and loan, communications, or gaming (i.e., casinos) industries,
when holdings of Putnam clients exceed 7% (for public utilities, the
threshold is 4%);
(c) when, in the judgment of the Code of Ethics Officer, other
circumstances warrant restricting personal transactions of Putnam
employees in a particular security;
(d) the circumstances described in the Policy Statement Concerning Insider
Trading Prohibitions, attached as Appendix A.
Reminder: Securities for an employee's "personal account" include
securities owned by certain family members of a Putnam employee. Thus, this
Rule prohibits certain trades by family members of Putnam employees. See
Definitions.
Compliance with this rule does not exempt an employee from complying with
any other applicable rules of the Code, such as those described in Section
III. In particular, Access Persons and certain investment professionals
must comply with the special rules set forth in Section II.
EXCEPTIONS
A. "Large Cap" Exception. If a security appearing on the Restricted List
is an equity security for which the issuer has a market capitalization
(defined as outstanding shares multiplied by current price per share)
of over $5 billion, then a Putnam employee may purchase or sell up to
1,000 shares of the security per day for his personal account. This
exception does not apply if the security appears on the Restricted List
in the circumstances described in subpart (b), (c), or (d) of Rule 1.
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B. Investment Grade Or Higher Fixed-Income Exception. If a security being
traded or considered for trade for a Putnam client is a non-convertible
fixed-income security which bears a rating of BBB (Standard & Poor's)
or Baa (Moody's) or any comparable rating or higher, then a Putnam
employee may purchase or sell that security for his personal account
without regard to the activity of Putnam clients. This exception does
not apply if the security has been placed on the Restricted List in the
circumstances described in subpart (b), (c), or (d) of Rule 1.
C. Pre-Clearing Transactions Effected by Share Subscription. The purchase
and sale of securities made by subscription rather than on an exchange
are limited to issuers having a market capitalization of $5 billion or
more and are subject to a 1,000 share limit. The following are
procedures to comply with Rule 1 when effecting a purchase or sale of
shares by subscription:
(a) The Putnam employee must pre-clear the trade on the day he or she
submits a subscription to the issuer, rather than on the actual day
of the trade since the actual day of the trade typically will not
be known to the employee who submits the subscription. At the time
of pre-clearance, the employee will be told whether the purchase is
permitted (in the case of a corporation having a market
capitalization of $5 billion or more), or not permitted (in the
case of a smaller capitalization issuer).
(b) The subscription for any purchase or sale of shares must be
reported on the employee's quarterly personal securities
transaction report, noting the trade was accomplished by
subscription.
(c) As no brokers are involved in the transaction, the confirmation
requirement will be waived for these transactions, although the
Putnam employee must provide the Legal and Compliance Department
with any transaction summaries or statements sent by the issuer.
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SANCTION GUIDELINES
A. Failure to Pre-Clear a Personal Trade
1. First violation: One month trading ban with written warning that a
future violation will result in a longer trading ban.
2. Second violation: Three month trading ban and written notice to
Managing Director of the employee's division.
3. Third violation: Six month trading ban with possible longer or
permanent trading ban based upon review by Code of Ethics Oversight
Committee.
B. Failure to Pre-Clear Securities on the Restricted List
1. First violation: Disgorgement of any profit from the transaction,
one month trading ban, and written warning that a future violation
will result in a longer trading ban.
2. Second violation: Disgorgement of any profit from the transaction,
three month trading ban, and written notice to Managing Director of
the employee's division.
3. Third violation: Disgorgement of any profit from the transaction,
and six month trading ban with possible longer or permanent trading
ban based upon review by Code of Ethics Oversight Committee.
NOTE: These are the sanction guidelines for successive failures to
pre-clear personal trades within a 2-year period. The Code of Ethics
Oversight Committee retains the right to increase or decrease the
sanction for a particular violation in light of the circumstances. The
Committee's belief that an employee intentionally has violated the Code
of Ethics will result in more severe sanctions than outlined in the
guidelines above. The sanctions described in Paragraph B apply to
Restricted List securities that are: (i) small cap stocks (i.e., stocks
not entitled to the "Large Cap" exception) and (ii) large cap stocks
that exceed the daily 1,000 share maximum permitted under the "Large
Cap" exception. Failure to pre-clear an otherwise permitted trade of up
to 1,000 shares of a large cap security is subject to the sanctions
described above in Paragraph A.
IMPLEMENTATION
A. Maintenance of Restricted List. The Restricted List shall be maintained
by the Code of Ethics Administrator.
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B. Consulting Restricted List. An employee wishing to trade any security
for his personal account shall first obtain clearance through Putnam's
Intranet pre-clearance system. The system may be accessed from your
desktop computer through Internet access software and following the
directions provided in the system. The current address of the Intranet
pre-clearance system can be obtained from the Code of Ethics
Administrator. Employees may pre-clear all securities between 11:30
a.m. and 4:00 p.m. EST, and may pre-clear purchases or sales of up to
1,000 shares of issuers having a market capitalization of more than $5
billion between 9:00 a.m. and 4:00 p.m. EST. Requests to make personal
securities transactions may not be made using the system or presented
to the Code of Ethics Administrator after 4:00 p.m.
The pre-clearance system will inform the employee whether the security
may be traded and whether trading in the security is subject to the
"Large Cap" limitation. The response of the pre-clearance system as to
whether a security appears on the Restricted List and, if so, whether
it is eligible for the exceptions set forth after this Rule shall be
final, unless the employee appeals to the Code of Ethics Officer, using
the procedure described in Section VII, regarding the request to trade
a particular security.
A clearance is only valid for trading on the day it is obtained. Trades
in securities listed on Asian or European stock exchanges, however, may
be executed within one business day after pre-clearance is obtained.
If a security is not on the Restricted List, other classes of
securities of the same issuer (e.g., preferred or convertible preferred
stock) may be on the Restricted List. It is the employee's
responsibility to identify with particularity the class of securities
for which permission is being sought for a personal investment.
If the Intranet pre-clearance system does not recognize a security, or
if an employee is unable to use the system or has any questions with
respect to the system or pre-clearance, the employee may consult the
Code of Ethics Administrator. The Code of Ethics Administrator shall
not have authority to answer any questions about a security other than
whether trading is permitted. The response of the Code of Ethics
Administrator as to whether a security appears on the Restricted List
and, if so, whether it is eligible for the exceptions set forth after
this Rule shall be final, unless the employee appeals to the Code of
Ethics Officer, using the procedure described in Section VII, regarding
the request to trade a particular security.
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C. Removal of Securities from Restricted List. Securities shall be removed
from the Restricted List when: (a) in the case of securities on the
Restricted List pursuant to Rule 1(a), they are no longer being
purchased or sold for a Putnam client or actively considered for
purchase or sale for a Putnam client; (b) in the case of securities on
the Restricted List pursuant to Rule 1(b), the holdings of Putnam
clients fall below the applicable threshold designated in that Rule, or
at such earlier time as the Code of Ethics Officer deems appropriate;
or (c) in the case of securities on the Restricted List pursuant to
Rule 1(c) or 1(d), when circumstances no longer warrant restrictions on
personal trading.
COMMENTS
1. Pre-Clearance. Subpart (a) of this Rule is designed to avoid the
conflict of interest that might occur when an employee trades for his
personal account a security that currently is being traded or is likely
to be traded for a Putnam client. Such conflicts arise, for example,
when the trades of an employee might have an impact on the price or
availability of a particular security, or when the trades of the client
might have an impact on price to the benefit of the employee. Thus,
exceptions involve situations where the trade of a Putnam employee is
unlikely to have an impact on the market.
2. Regulatory Limits. Owing to a variety of federal statutes and
regulations in the banking, savings and loan, communications, and
gaming industries, it is critical that accounts of Putnam clients not
hold more than 10% of the voting securities of any issuer (5% for
public utilities). Because of the risk that the personal holdings of
Putnam employees may be aggregated with Putnam holdings for these
purposes, subpart (b) of this Rule limits personal trades in these
areas. The 7% limit (4% for public utilities) will allow the regulatory
limits to be observed.
3. Options. For the purposes of this Code, options are treated like the
underlying security. See Definitions. Thus, an employee may not
purchase, sell, or "write" option contracts for a security that is on
the Restricted List. A securities index will not be put on the
Restricted List simply because one or more of its underlying securities
have been put on the Restricted List. The exercise of an options
contract (the purchase or writing of which was previously pre-cleared)
does not have to be pre-cleared. Note, however, that the sale of
securities obtained through the exercise of options must be
pre-cleared.
4. Involuntary Transactions. "Involuntary" personal securities
transactions are exempted from the Code. Special attention should be
paid to this exemption. (See Section I.D.)
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5. Tender Offers. This Rule does not prohibit an employee from tendering
securities from his personal account in response to an any-and-all
tender offer, even if Putnam clients are also tendering securities. A
Putnam employee is, however, prohibited from tendering securities from
his personal account in response to a partial tender offer, if Putnam
clients are also tendering securities.
B. Prohibited Purchases and Sales
RULE I
Putnam employees are prohibited from short selling any security, whether or
not the security is held in a Putnam client portfolio.
EXCEPTIONS
Short selling against the S&P 100 and 500 indexes and "against the box" are
permitted.
RULE 2
No Putnam employee shall purchase any security for her personal account in
an initial public offering.
EXCEPTION
Pre-existing Status Exception. A Putnam employee shall not be barred by
this Rule or by Rule 1(a) of Section I.A. from purchasing securities for
her personal account in connection with an initial public offering of
securities by a bank or insurance company when the employee's status as a
policyholder or depositor entitles her to purchase securities on terms more
favorable than those available to the general public, in connection with
the bank's conversion from mutual or cooperative form to stock form, or the
insurance company's conversion from mutual to stock form, provided that the
employee has had the status entitling her to purchase on favorable terms
for at least two years. This exception is only available with respect to
the value of bank deposits or insurance policies that an employee owns
before the announcement of the initial public offering. This exception does
not apply, however, if the security appears on the Restricted List in the
circumstances set forth in subparts (b), (c), or (d) of Section I.A., Rule
1.
IMPLEMENTATION
A. General Implementation. An employee shall inquire, before any purchase
of a security for her personal account, whether the security to be
purchased is being offered pursuant to an initial public offering. If
the security is offered through an initial public offering, the
employee shall refrain from purchasing that security for her personal
account unless the exception applies.
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B. Administration of Exception. If the employee believes the exception
applies, she shall consult the Code of Ethics Administrator concerning
whether the security appears on the Restricted List and if so, whether
it is eligible for this exception.
COMMENTS
1. The purpose of this rule is twofold. First, it is designed to prevent a
conflict of interest between Putnam employees and Putnam clients who
might be in competition for the same securities in a limited public
offering. Second, the rule is designed to prevent Putnam employees from
being subject to undue influence as a result of receiving "favors" in
the form of special allocations of securities in a public offering from
broker-dealers who seek to do business with Putnam.
2. Purchases of securities in the immediate after-market of an initial
public offering are not prohibited, provided they do not constitute
violations of other portions of the Code of Ethics. For example,
participation in the immediate after-market as a result of a special
allocation from an underwriting group would be prohibited by Section
III, Rule 3 concerning gifts and other "favors."
3. Public offerings subsequent to initial public offerings are not deemed
to create the same potential for competition between Putnam employees
and Putnam clients because of the pre-existence of a market for the
securities.
RULE 3
No Putnam employee shall purchase any security for his personal account in
a limited private offering or private placement.
COMMENTS
1. The purpose of this Rule is to prevent a Putnam employee from investing
in securities for his own account pursuant to a limited private
offering that could compete with or disadvantage Putnam clients, and to
prevent Putnam employees from being subject to efforts to curry favor
by those who seek to do business with Putnam.
2. Exemptions to the prohibition will generally not be granted where the
proposed investment relates directly or indirectly to investments by a
Putnam client, or where individuals involved in the offering (including
the issuers, broker, underwriter, placement agent, promoter, fellow
investors and affiliates of the foregoing) have any prior or existing
business relationship with Putnam or a Putnam employee, or where the
Putnam employee believes that such individuals may expect to have a
future business relationship with Putnam or a Putnam employee.
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3. An exemption may be granted, subject to reviewing all the facts and
circumstances, for investments in:
(a) Pooled investment funds, including hedge funds, subject to the
condition that an employee investing in a pooled investment fund
would have no involvement in the activities or decision-making
process of the fund except for financial reports made in the
ordinary course of the fund's business.
(b) Private placements where the investment cannot relate, or be
expected to relate, directly or indirectly to Putnam or investments
by a Putnam client.
4. Employees who apply for an exemption will be expected to disclose to
the Code of Ethics Officer in writing all facts and relationships
relating to the proposed investment.
5. Limited partnership interests are frequently sold in private
placements. An employee should assume that investment in a limited
partnership is barred by these rules, unless the employee has obtained,
in advance of purchase, a written exemption under the ad hoc exemption
set forth in Section I.D., Rule 2. The procedure for obtaining an ad
hoc exemption is described in Section VII, Part 4.
6. Applications to invest in private placements will be reviewed by the
Code of Ethics Oversight Committee. This review will take into account,
among other factors, the considerations described in the preceding
comments.
RULE 4
No Putnam employee shall purchase or sell any security for her personal
account or for any Putnam client account while in possession of material,
nonpublic information concerning the security or the issuer.
EXCEPTIONS
NONE. Please read Appendix A, Policy Statement Concerning Insider Trading
Prohibitions.
RULE 5
No Putnam employee shall purchase from or sell to a Putnam client any
securities or other property for his personal account, nor engage in any
personal transaction to which a Putnam client is known to be a party, or
which transaction may have a significant relationship to any action taken
by a Putnam client.
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EXCEPTIONS
None.
IMPLEMENTATION
It shall be the responsibility of every Putnam employee to make inquiry
prior to any personal transaction sufficient to satisfy himself that the
requirements of this Rule have been met.
COMMENT
This rule is required by federal law. It does not prohibit a Putnam
employee from purchasing any shares of an open-end Putnam fund. The policy
with respect to employee trading in closed-end Putnam funds is attached as
Appendix B.
C. Discouraged Transactions
RULE I
Putnam employees are strongly discouraged from engaging in naked option
transactions for their personal accounts.
EXCEPTIONS
None.
COMMENT
Naked option transactions are particularly dangerous, because a Putnam
employee may be prevented by the restrictions in this Code of Ethics from
"covering" the naked option at the appropriate time. All employees should
keep in mind the limitations on their personal securities trading imposed
by this Code when contemplating such an investment strategy. Engaging in
naked options transactions on the basis of material, nonpublic information
is prohibited. See Appendix A, Policy Statement Concerning Insider Trading
Prohibitions.
RULE 2
Putnam employees are strongly discouraged from engaging in excessive
trading for their personal accounts.
EXCEPTIONS
None.
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COMMENTS
1. Although a Putnam employee's excessive trading may not itself
constitute a conflict of interest with Putnam clients, Putnam believes
that its clients' confidence in Putnam will be enhanced and the
likelihood of Putnam achieving better investment results for its
clients over the long term will be increased if Putnam employees rely
on their investment-- as opposed to trading-- skills in transactions
for their own account. Moreover, excessive trading by a Putnam employee
for his or her own account diverts an employee's attention from the
responsibility of servicing Putnam clients, and increases the
possibilities for transactions that are in actual or apparent conflict
with Putnam client transactions.
2. Although this Rule does not define excessive trading, employees should
be aware that if their trades exceed 10 trades per quarter the trading
activity will be reviewed by the Code of Ethics Oversight Committee.
D. Exempted Transactions
RULE I
Transactions which are involuntary on the part of a Putnam employee are
exempt from the prohibitions set forth in Sections I.A., I.B., and I.C.
EXCEPTIONS
None.
COMMENTS
1. This exemption is based on categories of conduct that the Securities
and Exchange Commission does not consider "abusive."
2. Examples of involuntary personal securities transactions include:
(a) sales out of the brokerage account of a Putnam employee as a
result of bona fide margin call, provided that withdrawal of
collateral by the Putnam employee within the ten days previous
to the margin call was not a contributing factor to the margin
call;
(b) purchases arising out of an automatic dividend reinvestment program
of an issuer of a publicly traded security.
3. Transactions by a trust in which the Putnam employee (or a member of
his immediate family) holds a beneficial interest, but for which the
employee has no direct or indirect influence or control with respect to
the selection of investments, are involuntary transactions. In
addition, these transactions do not fall within the definition of
"personal securities transactions." See Definitions.
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4. A good-faith belief on the part of the employee that a transaction was
involuntary will not be a defense to a violation of the Code of Ethics.
In the event of confusion as to whether a particular transaction is
involuntary, the burden is on the employee to seek a prior written
determination of the applicability of this exemption. The procedures
for obtaining such a determination appear in Section VII, Part 3.
RULE 2
Transactions which have been determined in writing by the Code of Ethics
Officer before the transaction occurs to be no more than remotely
potentially harmful to Putnam clients because the transaction would be very
unlikely to affect a highly institutional market, or because the
transaction is clearly not related economically to the securities to be
purchased, sold, or held by a Putnam client, are exempt from the
prohibitions set forth in Sections I.A., I.B., and I.C.
EXCEPTIONS
N.A.
IMPLEMENTATION
An employee may seek an ad hoc exemption under this Rule by following the
procedures in Section VII, Part 4.
COMMENTS
1. This exemption is also based upon categories of conduct that the
Securities and Exchange Commission does not consider "abusive."
2. The burden is on the employee to seek a prior written determination
that the proposed transaction meets the standards for an ad hoc
exemption set forth in this Rule.
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<PAGE>
Section II. Additional Special Rules for Personal Securities Transactions of
Access Persons and Certain Investment Professionals
Access Persons (including all Investment
Professionals and other employees as defined on page ix)
- --------------------------------------------------------
RULE I No Access Person shall profit from the purchase and sale, or sale and
purchase, of any security or related derivative security within 60 calendar
days.
EXCEPTIONS
None, unless prior written approval from the Code of Ethics Officer is obtained.
Exceptions may be granted on a case-by-case basis when no abuse is involved and
the equities of the situation support an exemption. For example, although an
Access Person may buy a stock as a long-term investment, that stock may have to
be sold involuntarily due to unforeseen activity such as a merger.
IMPLEMENTATION
1. The 60-Day Rule applies to all Access Persons, as defined in the Definitions
section of the Code.
2. Calculation of whether there has been a profit is based upon the market
prices of the securities. The calculation is not net of commissions or other
sales charges.
3. As an example, an Access Person would not be permitted to sell a security at
$12 that he purchased within the prior 60 days for $10. Similarly, an Access
Person would not be permitted to purchase a security at $10 that she had sold
within the prior 60 days for $12. If the proposed transaction would be made
at a loss, it would be permitted if the pre-clearance requirements are met.
See, Section I, Rule 1.
COMMENTS
1. The prohibition against short-term trading profits by Access Persons is
designed to minimize the possibility that they will capitalize
inappropriately on the market impact of trades involving a client portfolio
about which they might possibly have information.
2. Although Chief Investment Officers, Portfolio Managers, and Analysts may sell
securities at a profit within 60 days of purchase in order to comply with the
requirements of the 7-Day Rule applicable to them (described below), the
profit will have to be disgorged to charity under the terms of the 7-Day
Rule.
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3. Access Persons occasionally make a series of transactions in securities over
extended periods of time. For example, an Access Person bought 100 shares of
Stock X on Day 1 at $100 per share and then bought 50 additional shares on
Day 45 at $95 per share. On Day 75, the Access Person sold 20 shares at $105
per share. The question arises whether the Access Person violated the 60-Day
Rule. The characterization of the employee's tax basis in the shares sold
determines the analysis. If, for personal income tax purposes, the Access
Person characterizes the shares sold as having a basis of $100 per share
(i.e., shares purchased on Day 1), the transaction would be consistent with
the 60-Day Rule. However, if the tax basis in the shares is $95 per share
(i.e., shares purchased on Day 45), the transaction would violate the 60-Day
Rule.
Certain Investment Professionals
- --------------------------------
RULE 2 ("7-DAY" RULE)
(a) Portfolio Managers: Before a portfolio manager places an order to buy a
security for any Putnam client portfolio that he manages, he shall sell any such
security or related derivative security purchased in a transaction for his
personal account within the preceding seven calendar days.
(b) Co-Managers: Before a portfolio manager places an order to buy a security
for any Putnam client he manages, his co-manager shall sell any such security or
related derivative security purchased in transaction for his personal account
within the preceding seven calendar days.
(c) Analysts: Before an analyst makes a buy recommendation for a security, he
shall sell any such security or related derivative security purchased in a
transaction for his personal account within the preceding seven calendar days.
(d) Chief Investment Officers: The Chief Investment Officer of an investment
group must sell any security or related derivative security purchased in a
transaction for his personal account within the preceding seven calendar days
before any portfolio manager in the CIO's investment group places an order to
buy such security for any Putnam client account he manages.
EXCEPTIONS
None.
COMMENTS
1. This Rule applies to portfolio managers and Chief Investment Officers with
respect to any purchase (no matter how small) in any client account managed
or overseen by that portfolio manager or CIO (even so-called "clone
accounts"). In particular, it should be noted that the requirements of this
rule also apply with respect to purchases in client accounts, including
"clone accounts," resulting from "cash flows." To comply with the
requirements of this rule, it is the responsibility of each portfolio manager
and CIO to be aware of the placement of all orders for purchases of a
security by client accounts that he or she manages or oversees for 7 days
following the purchase of that security for his or her personal account.
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2. An investment professional who must sell securities to be in compliance with
the 7-Day Rule must absorb any loss and disgorge to charity any profit
resulting from the sale.
3. This Rule is designed to avoid even the appearance of a conflict of interest
between an investment professional and a Putnam client. A more stringent rule
is warranted because, with their greater knowledge and control, these
investment professionals are in a better position than other employees to
create an appearance of manipulation of Putnam client accounts for personal
benefit.
4. "Portfolio manager" is used in this Section as a functional label, and is
intended to cover any employee with authority to authorize a trade on behalf
of a Putnam client, whether or not such employee bears the title "portfolio
manager." "Analyst" is also used in this Section as a functional label, and
is intended to cover any employee who is not a portfolio manager but who may
make recommendations regarding investments for Putnam clients.
RULE 3 ("BLACKOUT RULE")
(a) Portfolio Managers: No portfolio manager shall: (i) sell any security or
related derivative security for her personal account until seven calendar days
have elapsed since the most recent purchase of that security or related
derivative security by any Putnam client portfolio she manages or co-manages; or
(ii) purchase any security or related derivative security for her personal
account until seven calendar days have elapsed since the most recent sale of
that security or related derivative security from any Putnam client portfolio
that she manages or co-manages.
(b) Analysts: No analyst shall: (i) sell any security or related derivative
security for his personal account until seven calendar days have elapsed since
his most recent buy recommendation for that security or related derivative
security; or (ii) purchase any security or related derivative security for his
personal account until seven calendar days have elapsed since his most recent
sell recommendation for that security or related derivative security.
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(c) Chief Investment Officers: No Chief Investment Officer shall: (i) sell any
security or related derivative security for his personal account until seven
calendar days have elapsed since the most recent purchase of that security or
related derivative security by a portfolio manager in his investment group; or
(ii) purchase any security or related derivative security for his personal
account until seven calendar days have elapsed since the most recent sale of
that security or related derivative security from any Putnam client portfolio
managed in his investment group.
EXCEPTIONS
None.
COMMENTS
1. This Rule applies to portfolio managers and Chief Investment Officers with
respect to any transaction (no matter how small) in any client account
managed or overseen by that portfolio manager or CIO (even --- so-called
"clone accounts"). In particular, it should be noted that the requirements of
this rule also apply with respect to transactions in client accounts,
including "clone accounts," resulting from "cash flows." In order to comply
with the requirements of this rule, it is the responsibility of each
portfolio manager and CIO to be aware of all transactions in a security by
client accounts that he or she manages or oversees that took place within the
7 days preceding a transaction in that security for his or her personal
account.
2. This Rule is designed to prevent a Putnam portfolio manager or analyst from
engaging in personal investment conduct that appears to be counter to the
investment strategy she is pursuing or recommending on behalf of a Putnam
client.
3. Trades by a Putnam portfolio manager for her personal account in the "same
direction" as the Putnam client portfolio she manages, and trades by an
analyst for his personal account in the "same direction" as his
recommendation, do not present the same danger, so long as any "same
direction" trades do not violate other provisions of the Code or the Policy
Statements.
RULE 4 ("CONTRA TRADING" RULE)
(a) Portfolio Managers: No portfolio manager shall, without prior clearance,
sell out of his personal account securities or related derivative securities
held in any Putnam client portfolio that he manages or co-manages.
(b) Chief Investment Officers: No Chief Investment Officer shall, without prior
clearance, sell out of his personal account securities or related derivative
securities held in any Putnam client portfolio managed in his investment group.
15
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EXCEPTIONS
None, unless prior clearance is given.
IMPLEMENTATION
A. Individuals Authorized to Give Approval. Prior to engaging in any such sale,
a portfolio manager shall seek approval, in writing, of the proposed sale. In
the case of a portfolio manager or director, prior written approval of the
proposed sale shall be obtained from a chief investment officer to whom he
reports or, in his absence, another chief investment officer. In the case of
a chief investment officer, prior written approval of the proposed sale shall
be obtained from another chief investment officer. In addition to the
foregoing, prior written approval must also be obtained from the Code of
Ethics Officer.
B. Contents of Written Approval. In every instance, the written approval form
attached as Appendix C (or such other form as the Code of Ethics Officer
shall designate) shall be used. The written approval should be signed by the
chief investment officer giving approval and dated the date such approval was
given, and shall state, briefly, the reasons why the trade was allowed and
why the investment conduct pursued by the portfolio manager, director, or
chief investment officer was deemed inappropriate for the Putnam client
account controlled by the individual seeking to engage in the transaction for
his personal account. Such written approval shall be sent by the chief
investment officer approving the transaction to the Code of Ethics Officer
within twenty-four hours or as promptly as circumstances permit. Approvals
obtained after a transaction has been completed or while it is in process
will not satisfy the requirements of this Rule.
COMMENT
This Rule, like Rule 3 of this Section, is designed to prevent a Putnam
portfolio manager from engaging in personal investment conduct that appears to
be counter to the investment strategy that he is pursuing on behalf of a Putnam
client.
RULE 5
No portfolio manager shall cause, and no analyst shall recommend, a Putnam
client to take action for the portfolio manager's or analyst's own personal
benefit.
EXCEPTIONS
None.
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COMMENTS
1. A portfolio manager who trades in, or an analyst who recommends, particular
securities for a Putnam client account in order to support the price of
securities in his personal account, or who "front runs" a Putnam client order
is in violation of this Rule. Portfolio managers and analysts should be aware
that this Rule is not limited to personal transactions in securities (as that
word is defined in "Definitions"). Thus, a portfolio manager or analyst who
"front runs" a Putnam client purchase or sale of obligations of the U.S.
government is in violation of this Rule, although U.S. government obligations
are excluded from the definition of "security."
2. This Rule is not limited to instances when a portfolio manager or analyst has
malicious intent. It also prohibits conduct that creates an appearance of
impropriety. Portfolio managers and analysts who have questions about whether
proposed conduct creates an appearance of impropriety should seek a prior
written determination from the Code of Ethics Officer, using the procedures
described in Section VII, Part 3.
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Section III. Prohibited Conduct for All Employees
RULE I
All employees must comply with applicable laws and regulations as well as
company policies. This includes tax, antitrust, political contribution, and
international boycott laws. In addition, no employee at Putnam may engage in
fraudulent conduct of any kind.
EXCEPTIONS
None.
COMMENTS
1. Putnam may report to the appropriate legal authorities conduct by Putnam
employees that violates this rule.
2. It should also be noted that the U.S. Foreign Corrupt Practices Act makes it
a criminal offense to make a payment or offer of payment to any non-U.S.
governmental official, political party, or candidate to induce that person to
affect any governmental act or decision, or to assist Putnam's obtaining or
retaining business.
RULE 2
No Putnam employee shall conduct herself in a manner which is contrary to the
interests of, or in competition with, Putnam or a Putnam client, or which
creates an actual or apparent conflict of interest with a Putnam client.
EXCEPTIONS
None.
COMMENTS
1. This Rule is designed to recognize the fundamental principle that Putnam
employees owe their chief duty and loyalty to Putnam and Putnam clients.
2. It is expected that a Putnam employee who becomes aware of an investment
opportunity that she believes is suitable for a Putnam client who she
services will present it to the appropriate portfolio manager, prior to
taking advantage of the opportunity herself.
RULE 3
No Putnam employee shall seek or accept gifts, favors, preferential treatment,
or special arrangements of material value from any broker-dealer, investment
adviser, financial institution, corporation, or other entity, or from any
existing or prospective supplier of goods or services to Putnam or Putnam Funds.
Specifically, any gift over $50 in value, or any accumulation of gifts which in
aggregate exceeds $50 in value from one source in one calendar year, is
prohibited. Any Putnam employee who is offered or receives an item prohibited by
this Rule must report the details in writing to the Code of Ethics Officer.
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EXCEPTIONS
None.
COMMENTS
1. This rule is intended to permit only proper types of customary business
amenities. Listed below are examples of items that would be permitted under
proper circumstances and of items that are prohibited under this rule. These
examples are illustrative and not all-inclusive. Notwithstanding these
examples, a Putnam employee may not, under any circumstances, accept anything
that could create the appearance of any kind of conflict of interest. For
example, acceptance of any consideration is prohibited if it would create the
appearance of a "reward" or inducement for conducting Putnam business either
with the person providing the gift or his employer.
2. This rule also applies to gifts or "favors" of material value that an
investment professional may receive from a company or other entity being
researched or considered as a possible investment for a Putnam client
account.
3. Among items not considered of "material value" which, under proper
circumstances, would be considered permissible are:
(a) Occasional lunches or dinners conducted for business purposes;
(b) Occasional cocktail parties or similar social gatherings conducted for
business purposes;
(c) Occasional attendance at theater, sporting or other entertainment events
conducted for business purposes; and
(d) Small gifts, usually in the nature of reminder advertising, such as pens,
calendars, etc., with a value of no more than $50.
4. Among items which are considered of "material value" and which are prohibited
are:
(a) Entertainment of a recurring nature such as sporting events, theater,
golf games, etc.;
(b) The cost of transportation to a locality outside the Boston metropolitan
area, and lodging while in another locality, unless such attendance and
reimbursement arrangements have received advance written approval of the
Code of Ethics Officer;
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(c) Personal loans to a Putnam employee on terms more favorable than those
generally available for comparable credit standing and collateral; and
(d) Preferential brokerage or underwriting commissions or spreads or
allocations of shares or interests in an investment for the personal
account of a Putnam employee.
5. As with any of the provisions of the Code of Ethics, a sincere belief by the
employee that he was acting in accordance with the requirements of this Rule
will not satisfy his obligations under the Rule. Therefore, an employee who
is in doubt concerning the propriety of any gift or "favor" should seek a
prior written determination from the Code of Ethics Officer, as provided in
Part 3 of Section VII.
RULE 4
No Putnam employee may pay, offer, or commit to pay any amount of consideration
which might be or appear to be a bribe or kickback in connection with Putnam's
business.
EXCEPTIONS
None.
COMMENT
Although the rule does not specifically address political contributions, Putnam
employees should be aware that it is against corporate policy to use company
assets to fund political contributions of any sort, even where such
contributions may be legal. No Putnam employee should offer or agree to make any
political contributions (including political dinners and similar fund-raisers)
on behalf of Putnam, and no employee will be reimbursed by Putnam for such
contributions made by the employee personally.
RULE 5
No contributions may be made with corporate funds to any political party or
campaign, whether directly or by reimbursement to an employee for the expense of
such a contribution. No Putnam employee shall solicit any charitable, political
or other contributions using Putnam letterhead or making reference to Putnam in
the solicitation. No Putnam employee shall personally solicit any such
contribution while on Putnam business.
EXCEPTIONS
None.
20
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COMMENT
1. Putnam has established a political action committee (PAC) that contributes to
worthy candidates for political office. Any request received by a Putnam
employee for a political contribution must be directed to Putnam's Legal and
Compliance Department.
2. This rule does not prohibit solicitation on personal letterhead by Putnam
employees. Nonetheless, Putnam employees should use discretion in soliciting
contributions from individuals or entities who provide services to Putnam.
There should never be a suggestion that any service provider must contribute
to keep Putnam's business.
RULE 6
No unauthorized disclosure may be made by any employee or former employee of any
trade secrets or proprietary information of Putnam or of any confidential
information. No information regarding any Putnam client portfolio, actual or
proposed securities trading activities of any Putnam client, or Putnam research
shall be disclosed outside the Putnam organization without a valid business
purpose.
EXCEPTIONS
None.
COMMENT
All information about Putnam and Putnam clients is strictly confidential. Putnam
research information should not be disclosed unnecessarily and never for
personal gain.
RULE 7
No Putnam employee shall serve as officer, employee, director, trustee or
general partner of a corporation or entity other than Putnam, without prior
approval of the Code of Ethics Officer.
EXCEPTION
Charitable or Non-profit Exception. This Rule shall not prevent any Putnam
employee from serving as officer, director, or trustee of a charitable or
not-for-profit institution, provided that the employee abides by the spirit of
the Code of Ethics and the Policy Statements with respect to any investment
activity for which she has any discretion or input as officer, director, or
trustee. The pre-clearance and reporting requirements of the Code of Ethics do
not apply to the trading activities of such charitable or not-for-profit
institutions for which an employee serves as an officer, director, or trustee.
21
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COMMENTS
1. This Rule is designed to ensure that Putnam cannot be deemed an affiliate of
any issuer of securities by virtue of service by one of its officers or
employees as director or trustee.
2. Certain charitable or not-for-profit institutions have assets (such as
endowment funds or employee benefit plans) which require prudent investment.
To the extent that a Putnam employee (because of her position as officer,
director, or trustee of an outside entity) is charged with responsibility to
invest such assets prudently, she may not be able to discharge that duty
while simultaneously abiding by the spirit of the Code of Ethics and the
Policy Statements. Employees are cautioned that they should not accept
service as an officer, director, or trustee of an outside charitable or
not-for-profit entity where such investment responsibility is involved,
without seriously considering their ability to discharge their fiduciary
duties with respect to such investments.
RULE 8
No Putnam employee shall serve as a trustee, executor, custodian, any other
fiduciary, or as an investment adviser or counselor for any account outside
Putnam.
EXCEPTIONS
Charitable or Religious Exception. This Rule shall not prevent any Putnam
employee from serving as fiduciary with respect to a religious or charitable
trust or foundation, so long as the employee abides by the spirit of the Code of
Ethics and the Policy Statements with respect to any investment activity over
which he has any discretion or input. The pre-clearance and reporting
requirements of the Code of Ethics do not apply to the trading activities of
such a religious or charitable trust or foundation.
Family Trust or Estate Exception. This Rule shall not prevent any Putnam
employee from serving as fiduciary with respect to a family trust or estate, so
long as the employee abides by all of the Rules of the Code of Ethics with
respect to any investment activity over which he has any discretion.
COMMENT
The roles permissible under this Rule may carry with them the obligation to
invest assets prudently. Once again, Putnam employees are cautioned that they
may not be able to fulfill their duties in that respect while abiding by the
Code of Ethics and the Policy Statements.
RULE 9
No Putnam employee may be a member of any investment club.
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EXCEPTIONS
None.
COMMENT
This Rule guards against the danger that a Putnam employee may be in violation
of the Code of Ethics and the Policy Statements by virtue of his personal
securities transactions in or through an entity that is not bound by the
restrictions imposed by this Code of Ethics and the Policy Statements. Please
note that this restriction also applies to the spouse of a Putnam employee and
any relatives of a Putnam employee living in the same household as the employee,
as their transactions are covered by the Code of Ethics (see page x).
RULE I0
No Putnam employee may become involved in a personal capacity in consultations
or negotiations for corporate financing, acquisitions or other transactions for
outside companies (whether or not held by any Putnam client), nor negotiate nor
accept a fee in connection with these activities without obtaining the prior
written permission of the president of Putnam Investments.
EXCEPTIONS
None.
RULE II
No new types of securities or instruments may be purchased for a Putnam fund or
other client account without following the procedures set forth in Appendix D.
EXCEPTIONS
None.
COMMENT
See Appendix D.
RULE I2
No employee may create or participate in the creation of any record that is
intended to mislead anyone or to conceal anything that is improper.
EXCEPTIONS
None.
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COMMENT
In many cases, this is not only a matter of company policy and ethical behavior
but also required by law. Our books and records must accurately reflect the
transactions represented and their true nature. For example, records must be
accurate as to the recipient of all payments; expense items, including personal
expense reports, must accurately reflect the true nature of the expense. No
unrecorded fund or asset shall be established or maintained for any reason.
RULE I3
No employee should have any direct or indirect (including by a family member or
close relative) personal financial interest (other than normal investments not
material to the employee in the entity's publicly traded securities) in any
business, with which Putnam has dealings unless such interest is disclosed and
approved by the Code of Ethics Officer.
RULE I4
No employee shall, with respect to any affiliate of Putnam that provides
investment advisory services and is listed below in Comment 4 to this Rule, as
revised from time to time (each an "NPA"),
(a) directly or indirectly seek to influence the purchase, retention, or
disposition of, or exercise of voting, consent, approval or similar rights with
respect to, any portfolio security in any account or fund advised by the NPA and
not by Putnam,
(b) transmit any information regarding the purchase, retention or disposition
of, or exercise of voting, consent, approval or similar rights with respect to,
any portfolio security held in a Putnam or NPA client account to any personnel
of the NPA,
(c) transmit any trade secrets, proprietary information, or confidential
information of Putnam to the NPA without a valid business purpose,
(d) use confidential information or trade secrets of the NPA for the benefit of
the employee, Putnam, or any other NPA, or
(e) breach any duty of loyalty to the NPA by virtue of service as a director or
officer of the NPA.
COMMENT
1. Sections (a) and (b) of the Rule are designed to help ensure that the
portfolio holdings of Putnam clients and clients of the NPA need not be
aggregated for purposes of determining beneficial ownership under Section
13(d) of the Securities Exchange Act or applicable regulatory or contractual
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investment restrictions that incorporate such definition of beneficial
ownership. Persons who serve as directors or officers of both Putnam and an
NPA would take care to avoid even inadvertent violations of Section (b).
Section (a) does not prohibit a Putnam employee who serves as a director or
officer of the NPA from seeking to influence the modification or termination
of a particular investment product or strategy in a manner that is not
directed at any specific securities. Sections (a) and (b) do not apply when a
Putnam affiliate serves as an adviser or subadviser to the NPA or one of its
products, in which case normal Putnam aggregation rules apply.
2. As a separate entity, any NPA may have trade secrets or confidential
information that it would not choose to share with Putnam. This choice must
be respected.
3. When Putnam employees serve as directors or officers of an NPA, they are
subject to common law duties of loyalty to the NPA, despite their Putnam
employment. In general, this means that when performing their duties as NPA
directors or officers, they must act in the best interest of the NPA and its
shareholders. Putnam's Legal and Compliance Department will assist any Putnam
employee who is a director or officer of an NPA and has questions about the
scope of his or her responsibilities to the NPA.
4. Entities that are currently non-Putnam affiliates within the scope of this
Rule are: Cisalpina Gestioni, S.p.A., PanAgora Asset Management Inc.,
PanAgora Asset Management Ltd., Nissay Asset Management Co., Ltd., and Thomas
H. Lee Partners, L.P.
RULE I5
No employee shall use computer hardware, software, data, Internet, electronic
mail, voice mail, electronic messaging ("e-mail" or "cc: Mail"), or telephone
communications systems in a manner that is inconsistent with their use as set
forth in policy statements governing their use that are adopted from time to
time by Putnam. No employee shall introduce a computer "virus" or computer code
that may result in damage to Putnam's information or computer systems.
EXCEPTIONS
None.
COMMENT
1. Internet and Electronic Messaging Policies. As more and more employees of
Putnam Investments use the Internet to connect with Putnam's customers,
vendors, suppliers and other key organizations, it is important that all
Putnam employees understand the appropriate use guidelines and how to protect
assets of Putnam and its clients whenever using the Internet. Internet access
is provided to designated employees to connect with worldwide information
resources for the benefit of the company and its clients. Such access is not
intended for personal use. Employees using the Internet or any electronic
messaging system must do so in a responsible, ethical and lawful manner.
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o Putnam has adopted a Policy and Guidelines on Internet Use. A copy of this
policy statement is included in the Putnam Employee Handbook and is available
online (you may contact Putnam's Human Resources Department for the on-line
address). Failure to comply with this policy statement is a violation of
Putnam's Code of Ethics.
2. System Security Policy Statement. It is the policy of Putnam Investments to
secure its computer hardware, software, data, electronic mail, voice mail and
Internet access by placing strict controls and restrictions on their access
and use.
o Putnam has adopted a System Security Policy Statement. This policy statement
governs the use of computer hardware and software, data, electronic mail,
voice mail, Internet and commercial online services, computer passwords and
logon Ids, and workstation security. A copy of this policy statement is
included in the Putnam Employee Handbook and is available online (you may
contact Putnam's Human Resources Department for the on-line address). Failure
to comply with this policy statement is a violation of Putnam's Code of
Ethics.
3. Computer Virus Policy and Procedure. Putnam has adopted a Computer Virus
Policy and Procedure. This policy sets forth guidelines to prevent computer
viruses, procedures to be followed in the event a computer may be infected
with a virus, and a description of virus symptoms. A copy of this policy
statement is included in the Putnam Employee Handbook and is available online
(you may contact Putnam's Human Resources Department for the on-line
address). Failure to comply with this policy statement is a violation of
Putnam's Code of Ethics.
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Section IV. Special Rules for Officers and Employees of Putnam Europe Ltd.
RULE I
In situations subject to Section I.A., Rule 1 (Restricted List Personal
Securities Transactions), the Putnam Europe Ltd. ("PEL") employee must obtain
clearance not only as provided in that rule, but also from PEL's Compliance
Officer or her designee, who must approve the transaction before any trade is
placed and record the approval.
EXCEPTIONS
None.
IMPLEMENTATION
Putnam's Code of Ethics Administrator in Boston (the "Boston Administrator") has
also been designated the Assistant Compliance Officer of PEL and has been
delegated the right to approve or disapprove personal securities transactions in
accordance with the foregoing requirement. Therefore, approval from the Code of
Ethics Administrator for PEL employees to make personal securities investments
constitutes approval under the Code of Ethics and also for purposes of
compliance with IMRO, the U.K. self-regulatory organization that regulates PEL.
The position of London Code of Ethics Administrator (the "London Administrator")
has also been created (Jane Barlow is the current London Administrator). All
requests for clearances must be made by e-mail to the Boston Administrator
copying the London Administrator. The e-mail must include the number of shares
to be bought or sold and the name of the broker(s) involved. Where time is of
the essence clearances can be made by telephone to the Boston Administrator but
they must be followed up by e-mail.
Both the Boston and London Administrators will maintain copies of all clearances
for inspection by senior management and regulators.
RULE 2
No PEL employee may trade with any broker or dealer unless that broker or dealer
has sent a letter to the London Administrator agreeing to deliver copies of
trade confirmations to PEL. No PEL employee may enter into any margin or any
other special dealing arrangement with any broker-dealer without the prior
written consent of the PEL Compliance Officer.
EXCEPTIONS
None.
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IMPLEMENTATION
PEL employees will be notified separately of this requirement once a year by the
PEL Compliance Officer, and are required to provide an annual certification of
compliance with the Rule.
All PEL employees must inform the London Administrator of the names of all
brokers and dealers with whom they trade prior to trading. The London
Administrator will send a letter to the broker(s) in question requesting them to
agree to deliver copies of confirms to PEL. The London Administrator will
forward copies of the confirms to the Boston Administrator. PEL employees may
trade with a broker only when the London Administrator has received the signed
agreement from that broker.
RULE 3
For purposes of the Code of Ethics, including Putnam's Policy Statement on
Insider Trading Prohibitions, PEL employees must also comply with Part V of the
Criminal Justice Act 1993 on insider dealing.
EXCEPTIONS
None.
IMPLEMENTATION
To ensure compliance with U.K. insider dealing legislation, PEL employees must
observe the relevant procedures set forth in PEL's Compliance Manual, a copy of
which is sent to each PEL employee, and sign an annual certification as to
compliance.
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Section V. Reporting Requirements for All Employees
Reporting of Personal Securities Transactions
- ---------------------------------------------
RULE I
Each Putnam employee shall ensure that broker-dealers send all confirmations of
securities transactions for his personal accounts to the Code of Ethics Officer.
(For the purpose of this Rule, "securities" shall include securities of The
Marsh & McLennan Companies, Inc., and any option on a security or securities
index, including broad-based market indexes.)
EXCEPTIONS
None.
IMPLEMENTATION
1. Putnam employees must instruct their broker-dealers to send confirmations to
Putnam and must follow up with the broker-dealer on a reasonable basis to
ensure that the instructions are being followed. Putnam employees should
contact the Code of Ethics Administrator to obtain a letter from Putnam
authorizing the setting up of a personal brokerage account. Confirmations
should be submitted to the Code of Ethics Administrator. (Specific procedures
apply to employees of Putnam Europe Ltd. ("PEL"). Employees of PEL should
contact the London Code of Ethics Administrator.) Failure of a broker-dealer
to comply with the instructions of a Putnam employee to send confirmations
shall be a violation by the Putnam employee of this Rule.
COMMENTS
1. "Transactions for personal accounts" is defined broadly to include more than
transaction in accounts under an employee's own name. See Definitions.
2. A confirmation is required for all personal securities transactions, whether
or not exempted or excepted by this Code.
3. To the extent that a Putnam employee has investment authority over securities
transactions of a family trust or estate, confirmations of those transactions
must also be made, unless the employee has received a prior written exception
from the Code of Ethics Officer.
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RULE 2
Every Access Person shall file a quarterly report, within ten calendar days of
the end of each quarter, recording all purchases and sales of any securities for
personal accounts as defined in the Definitions. (For the purpose of this Rule,
"securities" shall include securities of The Marsh & McLennan Companies, Inc.,
and any option on a security or securities index, including broad-based market
indexes.)
EXCEPTIONS
None.
IMPLEMENTATION
All employees required to file such a report will receive a blank form at the
end of the quarter from the Code of Ethics Administrator. The form will specify
the information to be reported. The form shall also contain a representation
that employees have complied fully with all provisions of the Code of Ethics.
COMMENT
1. The date for each transaction required to be disclosed in the quarterly
report is the trade date for the transaction, not the settlement date.
2. If the requirement to file a quarterly report applies to you and you fail to
report within the required 10-day period, salary increases and bonuses will
be reduced in accordance with guidelines stated in the form.
Reporting of Personal Securities Holdings
- -----------------------------------------
RULE 3
Access Persons must disclose all personal securities holdings to the Code of
Ethics Officer upon commencement of employment and thereafter on an annual
basis.
EXCEPTIONS
None.
COMMENT
These requirements are mandated by SEC regulations and are designed to
facilitate the monitoring of personal securities transactions. Putnam's Code of
Ethics Administrator will provide Access Persons with the form for making these
reports and the specific information that must be disclosed at the time that the
disclosure is required.
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<PAGE>
Other Reporting Policies
- ------------------------
The following rules are designed to ensure that Putnam's internal Control and
Reporting professionals are aware of all items that might need to be addressed
by Putnam or reported to appropriate entities.
RULE 4
If a Putnam employee suspects that fraudulent or other irregular activity might
be occurring at Putnam, the activity must be reported immediately to the
Managing Director in charge of that employee's business unit. Managing Directors
who are notified of any such activity must immediately report it in writing to
Putnam's Chief Financial Officer or Putnam's General Counsel.
RULE 5
Putnam employees must report all communications from regulatory or government
agencies (federal, state, or local) to the Managing Director in charge of their
business unit. Managing Directors who are notified of any such communication
must immediately report it in writing to Putnam's Chief Financial Officer or
Putnam's General Counsel.
RULE 6
All claims, circumstances or situations that come to the attention of a Putnam
employee must be reported through the employee's management structure up to the
Managing Director in charge of the employee's business unit. Managing Directors
who are notified of any such claim, circumstance or situation that might give
rise to a claim against Putnam for more than $100,000 must immediately report in
writing it to Putnam's Chief Financial Officer or Putnam's General Counsel.
RULE 7
All possible violations of law or regulations at Putnam that come to the
attention of a Putnam employee must be reported immediately to the Managing
Director in charge of the employee's business unit. Managing Directors who are
notified of any such activity must immediately report it in writing to Putnam's
Chief Financial Officer or Putnam's General Counsel.
RULE 8
Putnam employees must report all requests by anyone for Putnam to participate in
or cooperate with an international boycott to the Managing Director in charge of
their business unit. Managing Directors who are notified of any such request
must immediately report it in writing to Putnam's Chief Financial Officer or
Putnam's General Counsel.
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<PAGE>
Section VI. Education Requirements
Every Putnam employee has an obligation to fully understand the requirements of
the Code of Ethics. The Rules set forth below are designed to enhance this
understanding.
RULE I
A copy of the Code of Ethics will be distributed to every Putnam employee
periodically. All Access Persons will be required to certify periodically that
they have read, understood, and will comply with the provisions of the Code of
Ethics, including the Code's Policy Statement Concerning Insider Trading
Prohibitions.
RULE 2
Every investment professional will attend a meeting periodically at which the
Code of Ethics will be reviewed.
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<PAGE>
Section VII. Compliance and Appeal Procedures
1. Assembly of Restricted List. The Code of Ethics Administrator will coordinate
the assembly and maintenance of the Restricted List. The list will be
assembled each day by 11:30 a.m. EST. No employee may engage in a personal
securities transaction without prior clearance on any day, even if the
employee believes that the trade will be subject to an exception. Note that
pre-clearance may be obtained after 9:00 a.m. for purchases or sales of up to
1,000 shares of issuers having a market capitalization in excess of $5
billion.
2. Consultation of Restricted List. It is the responsibility of each employee to
pre-clear through the Intranet pre-clearance system or consult with the Code
of Ethics Administrator prior to engaging in a personal securities
transaction, to determine if the security he proposes to trade is on the
Restricted List and, if so, whether it is subject to the "Large Cap"
limitation. The Intranet pre-clearance system and the Code of Ethics
Administrator will be able to tell an employee whether a security is on the
Restricted List. No other information about the Restricted List is available
through the Intranet pre-clearance system. The Code of Ethics Administrator
shall not be authorized to answer any questions about the Restricted List, or
to render an opinion about the propriety of a particular personal securities
transaction. Any such questions shall be directed to the Code of Ethics
Officer.
3. Request for Determination. An employee who has a question concerning the
applicability of the Code of Ethics to a particular situation shall request a
determination from the Code of Ethics Officer before engaging in the conduct
or personal securities transaction about which he has a question.
If the question pertains to a personal securities transaction, the request
shall state for whose account the transaction is proposed, the relationship
of that account to the employee, the security proposed to be traded, the
proposed price and quantity, the entity with whom the transaction will take
place (if known), and any other information or circumstances of the trade
that could have a bearing on the Code of Ethics Officer's determination. If
the question pertains to other conduct, the request for determination shall
give sufficient information about the proposed conduct to assist the Code of
Ethics Officer in ascertaining the applicability of the Code. In every
instance, the Code of Ethics Officer may request additional information, and
may decline to render a determination if the information provided is
insufficient.
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The Code of Ethics Officer shall make every effort to render a determination
promptly.
No perceived ambiguity in the Code of Ethics shall excuse any violation. Any
person who believes the Code to be ambiguous in a particular situation shall
request a determination from the Code of Ethics Officer.
4. Request for Ad Hoc Exemption. Any employee who wishes to obtain an ad hoc
exemption under Section I.D., Rule 2, shall request from the Code of Ethics
Officer an exemption in writing in advance of the conduct or transaction
sought to be exempted. In the case of a personal securities transaction, the
request for an ad hoc exemption shall give the same information about the
transaction required in a request for determination under Part 3 of this
Section, and shall state why the proposed personal securities transaction
would be unlikely to affect a highly institutional market, or is unrelated
economically to securities to be purchased, sold, or held by any Putnam
client. In the case of other conduct, the request shall give information
sufficient for the Code of Ethics Officer to ascertain whether the conduct
raises questions of propriety or conflict of interest (real or apparent).
The Code of Ethics Officer shall make every effort to promptly render a
written determination concerning the request for an ad hoc exemption.
5. Appeal to Code of Ethics Officer with Respect to Restricted List. If an
employee ascertains that a security that he wishes to trade for his personal
account appears on the Restricted List, and thus the transaction is
prohibited, he may appeal the prohibition to the Code of Ethics Officer by
submitting a written memorandum containing the same information as would be
required in a request for a determination. The Code of Ethics Officer shall
make every effort to respond to the appeal promptly.
6. Information Concerning Identity of Compliance Personnel. The names of Code of
Ethics personnel are available by contacting the Legal and Compliance
Department.
35
<PAGE>
Appendix A
Policy Statement Concerning Insider Trading Prohibitions
piv
s
36
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Preamble
Putnam has always forbidden trading on material nonpublic information ("inside
information") by its employees. Tougher federal laws make it important for
Putnam to restate that prohibition in the strongest possible terms, and to
establish, maintain, and enforce written policies and procedures to prevent the
misuse of material nonpublic information.
Unlawful trading while in possession of inside information can be a crime.
Today, federal law provides that an individual convicted of trading on inside
information go to jail for some period of time. There is also significant
monetary liability for an inside trader; the Securities and Exchange Commission
can seek a court order requiring a violator to pay back profits and penalties of
up to three times those profits. In addition, private plaintiffs can seek
recovery for harm suffered by them. The inside trader is not the only one
subject to liability. In certain cases, "controlling persons" of inside traders
(including supervisors of inside traders or Putnam itself) can be liable for
large penalties.
Section 1 of this Policy Statement contains rules concerning inside information.
Section 2 contains a discussion of what constitutes unlawful insider trading.
Neither material nonpublic information nor unlawful insider trading is easy to
define. Section 2 of this Policy Statement gives a general overview of the law
in this area. However, the legal issues are complex and must be resolved by the
Code of Ethics Officer. If an employee has any doubt as to whether she has
received material nonpublic information, she must consult with the Code of
Ethics Officer prior to using that information in connection with the purchase
or sale of a security for his own account or the account of any Putnam client,
or communicating the information to others. A simple rule of thumb is if you
think the information is not available to the public at large, don't disclose it
to others and don't trade securities to which the inside information relates. If
an employee has failed to consult the Code of Ethics Officer, Putnam will not
excuse employee misuse of inside information on the ground that the employee
claims to have been confused about this Policy Statement or the nature of the
information in his possession.
If Putnam determines, in its sole discretion, that an employee has failed to
abide by this Policy Statement, or has engaged in conduct that raises a
significant question concerning insider trading, he will be subject to
disciplinary action, including termination of employment.
THERE ARE NO EXCEPTIONS TO THIS POLICY STATEMENT AND NO ONE IS EXEMPT.
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Definitions: Insider Trading
Gender references in Appendix A alternate.
Code of Ethics Administrator. The individual designated by the Code of Ethics
Officer to assume responsibility for day-to-day, non-discretionary
administration of this Policy Statement.
Code of Ethics Officer. The Putnam officer who has been assigned the
responsibility of enforcing and interpreting this Policy Statement. The Code of
Ethics Officer shall be the General Counsel or such other person as is
designated by the President of Putnam Investments. If he is unavailable, the
Deputy Code of Ethics Officer (to be appointed by the Code of Ethics Officer)
shall act in his stead.
Immediate family. Spouse, minor children or other relatives living in the same
household as the Putnam employee.
Purchase or sale of a security. Any acquisition or transfer of any interest in
the security for direct or indirect consideration, including the writing of an
option.
Putnam. Any or all of Putnam Investments, Inc., and its subsidiaries, any one of
which shall be a "Putnam company."
Putnam client. Any of the Putnam Funds, or any advisory or trust client of
Putnam.
Putnam employee (or "employee"). Any employee of Putnam.
Security. Anything defined as a security under federal law. The term includes
any type of equity or debt security, any interest in a business trust or
partnership, and any rights relating to a security, such as put and call
options, warrants, convertible securities, and securities indices. (Note: The
definition of "security" in this Policy Statement varies significantly from that
in the Code of Ethics. For example, the definition in this Policy Statement
specifically includes securities of The Marsh & McLennan Companies, Inc.)
Transaction for a personal account (or "personal securities transaction").
Securities transactions: (a) for the personal account of any employee; (b) for
the account of a member of the immediate family of any employee; (c) for the
account of a partnership in which a Putnam employee or immediate family member
is a partner with investment discretion; (d) for the account of a trust in which
a Putnam employee or immediate family member is a trustee with investment
discretion; (e) for the account of a closely-held corporation in which a Putnam
employee or immediate family member holds shares and for which he has investment
discretion; and (f) for any account other than a Putnam client account which
receives investment advice of any sort from the employee or immediate family
member, or as to which the employee or immediate family member has investment
discretion.
38
Officers and employees of Putnam Europe Ltd. ("PEL") must also consult the
relevant procedures on compliance with U.K. insider dealing legislation set
forth in PEL's Compliance Manual (see Rule 3 of Section IV of the Code of
Ethics).
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Section 1. Rules Concerning Inside Information
RULE I
No Putnam employee shall purchase or sell any security listed on the Inside
Information List (the "Red List") either for his personal account or for a
Putnam client.
IMPLEMENTATION
When an employee contacts the Code of Ethics Administrator seeking clearance for
a personal securities transaction, the Code of Ethics Administrator's response
as to whether a security appears on the Restricted List will include securities
on the Red List.
COMMENT
This Rule is designed to prohibit any employee from trading a security while
Putnam may have inside information concerning that security or the issuer. Every
trade, whether for a personal account or for a Putnam client, is subject to this
Rule.
RULE 2
No Putnam employee shall purchase or sell any security, either for a personal
account or for the account of a Putnam client, while in possession of material,
nonpublic information concerning that security or the issuer, without the prior
written approval of the Code of Ethics Officer.
IMPLEMENTATION
In order to obtain prior written approval of the Code of Ethics Officer, a
Putnam employee should follow the reporting steps prescribed in Rule 3.
COMMENTS
1. Rule 1 concerns the conduct of an employee when Putnam possesses material
nonpublic information. Rule 2 concerns the conduct of an employee who herself
possesses material, nonpublic information about a security that is not yet on
the Red List.
2. If an employee has any question as to whether information she possesses is
material and/or nonpublic information, she must contact the Code of Ethics
Officer in accordance with Rule 3 prior to purchasing or selling any security
related to the information or communicating the information to others. The
Code of Ethics Officer shall have the sole authority to determine what
constitutes material, nonpublic information for the purposes of this Policy
Statement. An employee's mistaken belief that the information was not
material nonpublic information will not excuse a violation of this Policy
Statement.
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RULE 3
Any Putnam employee who believes he may have received material, nonpublic
information concerning a security or the issuer shall immediately report the
information to the Code of Ethics Officer and to no one else. After reporting
the information, the Putnam employee shall comply strictly with Rule 2 by not
trading in the security without the prior written approval of the Code of Ethics
Officer and shall: (a) take precautions to ensure the continued confidentiality
of the information; and (b) refrain from communicating the information in
question to any person.
EXCEPTION
This rule shall not apply to material, nonpublic information obtained by Putnam
employees who are directors or trustees of publicly traded companies, to the
extent that such information is received in their capacities as directors or
trustees, and then only to the extent such information is not communicated to
anyone else within the Putnam organization.
IMPLEMENTATION
1. In order to make any use of potential material, nonpublic information,
including purchasing or selling a security or communicating the information
to others, an employee must communicate that information to the Code of
Ethics Officer in a way designed to prevent the spread of such information.
Once the employee has reported potential material, nonpublic information to
the Code of Ethics Officer, the Code of Ethics Officer will evaluate whether
information constitutes material, nonpublic information, and whether a duty
exists that makes use of such information improper. If the Code of Ethics
Officer determines either (a) that the information is not material or is
public, or (b) that use of the information is proper, he will issue a written
approval to the employee specifically authorizing trading while in possession
of the information, if the employee so requests. If the Code of Ethics
Officer determines (a) that the information may be nonpublic and material,
and (b) that use of such information may be improper, he will place the
security that is the subject of such information on the Red List.
2. An employee who reports potential inside information to the Code of Ethics
Officer should expect that the Code of Ethics Officer will need significant
information to make the evaluation described in the foregoing paragraph,
including information about (a) the manner in which the employee acquired the
information, and (b) the identity of individuals to whom the employee has
revealed the information, or who have otherwise learned the information. The
Code of Ethics Officer may place the affected security or securities on the
Red List pending the completion of his evaluation.
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3. If an employee possesses documents, disks, or other materials containing the
potential inside information, an employee must take precautions to ensure the
confidentiality of the information in question. Those precautions include (a)
putting documents containing such information out of the view of a casual
observer, and (b) securing files containing such documents or ensuring that
computer files reflecting such information are secure from viewing by others.
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<PAGE>
Section 2. Overview of Insider Trading
A. Introduction
This section of the Policy Statement provides guidelines for employees as to
what may constitute inside information. It is possible that in the course of
her employment, an employee may receive inside information. No employee
should misuse that information, either by trading for her own account or by
communicating the information to others.
B. What constitutes unlawful insider trading?
The basic definition of unlawful insider trading is trading on material,
nonpublic information (also called "inside information") by an individual who
has a duty not to "take advantage" of the information. What does this
definition mean? The following sections help explain the definition.
1. What is material information?
Trading on inside information is not a basis for liability unless the
information is material. Information is "material" if a reasonable person
would attach importance to the information in determining his course of
action with respect to a security. Information which is reasonably likely
to affect the price of a company's securities is "material," but effect on
price is not the sole criterion for determining materiality. Information
that employees should consider material includes but is not limited to:
dividend changes, earnings estimates, changes in previously released
earnings estimates, reorganization, recapitalization, asset sales, plans
to commence a tender offer, merger or acquisition proposals or agreements,
major litigation, liquidity problems, significant contracts, and
extraordinary management developments.
Material information does not have to relate to a company's business. For
example, a court considered as material certain information about the
contents of a forthcoming newspaper column that was expected to affect the
market price of a security. In that case, a reporter for The Wall Street
Journal was found criminally liable for disclosing to others the dates
that reports on various companies would appear in the Journal's "Heard on
the Street" column and whether those reports would be favorable or not.
2. What is nonpublic information?
Information is nonpublic until it has been effectively communicated to,
and sufficient opportunity has existed for it to be absorbed by, the
marketplace. One must be able to point to some fact to show that the
information is generally public. For example, information found in a
report filed with the Securities and Exchange Commission, or appearing in
Dow Jones, Reuters Economic Services, The Wall Street Journal, or other
publications of general circulation would be considered public.
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3. Who has a duty not to "take advantage" of inside information?
Unlawful insider trading occurs only if there is a duty not to "take
advantage" of material nonpublic information. When there is no such duty,
it is permissible to trade while in possession of such information.
Questions as to whether a duty exists are complex, fact-specific, and must
be answered by a lawyer.
a. Insiders and Temporary Insiders. Corporate "insiders" have a duty not
to take advantage of inside information. The concept of "insider" is
broad. It includes officers, directors, and employees of a corporation.
In addition, a person can be a "temporary insider" if she enters into a
special confidential relationship with a corporation and as a result is
given access to information concerning the corporation's affairs. A
temporary insider can include, among others, accounting firms,
consulting firms, law firms, banks and the employees of such
organizations. Putnam would generally be a temporary insider of a
corporation it advises or for which it performs other services, because
typically Putnam clients expect Putnam to keep any information
disclosed to it confidential.
Example
An investment adviser to the pension fund of a large publicly-traded
corporation, Acme, Inc., learns from an Acme employee that Acme will
not be making the minimum required annual contribution to the pension
fund because of a serious downturn in Acme's financial situation. The
information conveyed is material and nonpublic.
Comment
Neither the investment adviser, its employees, nor clients can trade on
the basis of that information, because the investment adviser and its
employees could be considered "temporary insiders" of Acme.
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b. Misappropriators. Certain people who are not insiders (or temporary
insiders) also have a duty not to deceptively take advantage of inside
information. Included in this category is an individual who
"misappropriates" (or takes for his own use) material, nonpublic
information in violation of a duty owed either to the corporation that
is the subject of inside information or some other entity. Such a
misappropriator can be held liable if he trades while in possession of
that material, nonpublic information.
Example
The chief financial officer of Acme, Inc., is aware of Acme's plans to
engage in a hostile takeover of Profit, Inc. The proposed hostile
takeover is material and nonpublic.
COMMENT
The chief financial officer of Acme cannot trade in Profit, Inc.'s
stock for his own account. Even though he owes no duty to Profit, Inc.,
or its shareholders, he owes a duty to Acme not to "take advantage" of
the information about the proposed hostile takeover by using it for his
personal benefit.
c. Tippers and Tippees. A person (the "tippee") who receives material,
nonpublic information from an insider or misappropriator (the "tipper")
has a duty not to trade while in possession of that information if he
knew or should have known that the information was provided by the
tipper for an improper purpose and in breach of a duty owed by the
tipper. In this context, it is an improper purpose for a person to
provide such information for personal benefit, such as money,
affection, or friendship.
Example
The chief executive officer of Acme, Inc., tells his daughter that
negotiations concerning a previously-announced acquisition of Acme have
been terminated. This news is material and, at the time the father
tells his daughter, nonpublic. The daughter sells her shares of Acme.
Comment
The father is a tipper because he has a duty to Acme and its
shareholders not to "take advantage" of the information concerning the
breakdown of negotiations, and he has conveyed the information for an
"improper" purpose (here, out of love and affection for his daughter).
The daughter is a "tippee" and is liable for trading on inside
information because she knew or should have known that her father was
conveying the information to her for his personal benefit, and that her
father had a duty not to "take advantage" of Acme information.
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A person can be a tippee even if he did not learn the information
directly from the tipper, but learned it from a previous tippee.
Example
An employee of a law firm which works on mergers and acquisitions
learns at work about impending acquisitions. She tells her friend and
her friend's stockbroker about the upcoming acquisitions on a regular
basis. The stockbroker tells the brother of a client on a regular
basis, who in turn tells two friends, A and B. A and B buy shares of
the companies being acquired before public announcement of the
acquisition, and regularly profit from such purchases. A and B do not
know the employee of the law firm. They do not, however, ask about the
source of the information.
Comment
A and B, although they have never heard of the tipper, are tippees
because they did not ask about the source of the information, even
though they were experienced investors, and were aware that the "tips"
they received from this particular source were always right.
C. Who can be liable for insider trading?
The categories of individuals discussed above (insiders, temporary insiders,
misappropriators or tippees) can be liable if they trade while in possession
of material nonpublic information.
In addition, individuals other than those who actually trade on inside
information can be liable for trades of others. A tipper can be liable if (a)
he provided the information in exchange for a personal benefit in breach of a
duty and (b) the recipient of the information (the "tippee") traded while in
possession of the information.
Most importantly, a controlling person can be liable if the controlling
person "knew or recklessly disregarded" the fact that the controlled person
was likely to engage in misuse of inside information and failed to take
appropriate steps to prevent it. Putnam is a "controlling person" of its
employees. In addition, certain supervisors may be "controlling persons" of
those employees they supervise.
EXAMPLE
A supervisor of an analyst learns that the analyst has, over a long period of
time, secretly received material inside information from Acme, Inc.'s chief
financial officer. The supervisor learns that the analyst has engaged in a
number of trades for his personal account on the basis of the inside
information. The supervisor takes no action.
46
<PAGE>
COMMENT
Even if he is not liable to a private plaintiff, the supervisor can be liable
to the Securities and Exchange Commission for a civil penalty of up to three
times the amount of the analyst's profit. (Penalties are discussed in the
following section.)
D. Penalties for Insider Trading
Penalties for misuse of inside information are severe, both for individuals
involved in such unlawful conduct and their employers. A person who violates
the insider trading laws can be subject to some or all of the penalties
below, even if he does not personally benefit from the violation. Penalties
include:
-- jail sentences (of which at least one to three years must be served)
-- criminal penalties for individuals of up to $1,000,000, and for
corporations of up to $2,500,000
-- injunctions permanently preventing an individual from working in the
securities industry
-- injunctions ordering an individual to pay over profits obtained from
unlawful insider trading
-- civil penalties of up to three times the profit gained or loss avoided by
the trader, even if the individual paying the penalty did not trade or
did not benefit personally
-- civil penalties for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of profit gained or loss
avoided
-- damages in the amount of actual losses suffered by other participants in
the market for the security at issue.
Regardless of whether penalties or money damages are sought by others, Putnam
will take whatever action it deems appropriate (including dismissal) if Putnam
determines, in its sole discretion, that an employee appears to have committed
any violation of this Policy Statement, or to have engaged in any conduct which
raises significant questions about whether an insider trading violation has
occurred.
47
<PAGE>
Appendix B. Policy Statement Regarding Employee Trades in Shares of Putnam
Closed-End Funds
1. Pre-clearance for all employees
Any purchase or sale of Putnam closed-end fund shares by a Putnam employee must
be pre-cleared by the Code of Ethics Officer or, in his absence, the Deputy Code
of Ethics Officer. A list of the closed-end funds can be obtained from the Code
of Ethics Administrator. Trading in shares of closed-end funds is subject to all
the rules of the Code of Ethics.
2. Special Rules Applicable to Managing Directors of Putnam Investment
Management, Inc. and officers of the Putnam Funds
Please be aware that any employee who is a Managing Director of Putnam
Investment Management, Inc. (the investment manager of the Putnam mutual funds)
and officers of the Putnam Funds will not receive clearance to engage in any
combination of purchase and sale or sale and purchase of the shares of a given
closed-end fund within six months of each other. Therefore, purchases should be
made only if you intend to hold the shares more than six months; no sales of
fund shares should be made if you intend to purchase additional shares of that
same fund within six months.
You are also required to file certain forms with the Securities and Exchange
Commission in connection with purchases and sales of Putnam closed-end funds.
Please contact the Code of Ethics Officer or Deputy Code of Ethics Officer for
further information.
3. Reporting by all employees
As with any purchase or sale of a security, duplicate confirmations of all such
purchases and sales must be forwarded to the Code of Ethics Officer by the
broker-dealer utilized by an employee. If you are required to file a quarterly
report of all personal securities transactions, this report should include all
purchases and sales of closed-end fund shares.
Please contact the Code of Ethics Officer or Deputy Code of Ethics Officer if
there are any questions regarding these matters.
48
<PAGE>
Appendix C. Clearance Form for Portfolio Manager Sales Out of Personal Account
of Securities Also Held
by Fund (For compliance with "Contra-Trading" Rule)
TO: Code of Ethics Officer
FROM:______________________________________________
DATE:______________________________________________
RE: Personal Securities Transaction of______________________________
This serves as prior written approval of the personal securities transaction
described below:
NAME OF PORTFOLIO MANAGER CONTEMPLATING PERSONAL TRADE:
________________________________________________________________________________
SECURITY TO BE TRADED:
________________________________________________________________________________
AMOUNT TO BE TRADED:____________________________________________________________
FUND HOLDING SECURITIES:________________________________________________________
AMOUNT HELD BY FUND:____________________________________________________________
REASON FOR PERSONAL TRADE:______________________________________________________
SPECIFIC REASON SALE OF SECURITIES IS INAPPROPRIATE FOR FUND:
________________________________________________________________________________
________________________________________________________________________________
(Please attach additional sheets if necessary.)
CIO APPROVAL:________________________________________________ DATE:_____________
LEGAL/COMPLIANCE APPROVAL:___________________________________ DATE:_____________
49
<PAGE>
Appendix D. Procedures for Approval of New Financial Instruments
1. Summary
a. Putnam has adopted procedures for the introduction of new instruments and
securities, focusing on, but not limited to, derivatives.
b. No new types of securities or instruments may be purchased for any Putnam
fund or other client account without the approval of Putnam's New
Securities Review Committee ("NSRC").
c. Putnam publishes from time to time a list of approved derivatives. The
purchase of any derivative not listed is prohibited without specific
authorization from the NSRC.
2. Procedures
a. Introduction. The purchase and sale of financial instruments that have not
been used previously at Putnam raise significant investment, business,
operational, and compliance issues. In order to address these issues in a
comprehensive manner, Putnam has adopted the following procedures for
obtaining approval of the use of new instruments or investments. In
addition, to provide guidance regarding the purchase of derivatives,
Putnam publishes from time to time a list of approved derivatives. Only
derivatives listed may be used for Putnam funds or accounts unless
specifically authorized by the NSRC.
b. Process of approval. An investment professional wishing to purchase a new
type of investment should discuss it with the Investment Division's
Administrative office (the current contact is Julie Malloy). Investment
Division Administration will coordinate a review of a new instrument by
appropriate NSRC members from an investment, operational and compliance
perspective, including the review of instruments by the Administrative
Services Division of PFTC. Based on this review, the NSRC will then
approve or disapprove the proposed new investment. Investment
professionals must build in adequate time for this review before planned
use of a new instrument. Further, the approval of the NSRC is only a
general one. Individual fund and account guidelines must be reviewed in
accordance with standard compliance procedures to determine whether
purchase is permitted. In addition, if the instrument involves legal
documentation, that documentation must be reviewed and be completed before
trading. The NSRC may prepare a compliance and operational manual for the
new derivative.
3. Violations
a. Putnam's Operating Committee has determined that adherence to rigorous
internal controls and procedures for novel securities and instruments is
necessary to protect Putnam's business standing and reputation. Violation
of these procedures will be treated as violation of both compliance
guidelines and Putnam's Code of Ethics. Putnam encourages questions and
expects that these guidelines will be interpreted conservatively.
50
<PAGE>
Index
<TABLE>
<CAPTION>
<S> <C>
"7-Day Rule" Conflicts of interest
for transactions by managers, analysts and CIOs, 14 with Putnam and Putnam clients prohibited, 19
"60-Day Rule", 13 Contra-trading rule
Access Persons transactions by managers and CIOs, 17
definition, ix Convertible securities
special rules on trading, 13, 32 defined as securities, x
Analysts Currencies
special rules on trading by, 13 excluded as securities, x
Appeals Director
Procedures, 37 serving as for another entity prohibited, 23
Bankers' acceptances Employee
excluded from securities, x serving as for another entity prohibited, 23
Blackout rule Excessive trading (over 10 trades)
on trading by portfolio managers, analysts and CIOs, 15 by employees strongly discouraged, 10
Boycotts Exemptions
reporting of requests to participate, 33 basis for, 10
Bribes, 21 Family members
CDs covered in personal securities transactions, x, 43
excluded from securities, x Fiduciary
Claims against Putnam serving as for another entity prohibited, 23
reporting of, 33 Fraudulent or irregular activities
Clearance reporting of, 33
how long pre-clearance is valid, 4 Gifts
required for personal securities transactions, 1 restrictions on receipt of by employees, 19
Closed-end funds Government or regulatory agencies
rules on trading, 55 reporting of communications from, 33
Commercial paper Holdings
excluded from securities, x disclosure of by Access Persons, 32
Commodities (other than securities indices) Initial public offerings/IPOs
excluded from securities, x purchases in prohibited, 6
Computer use Insider trading
compliance with corporate policies required, 27 policy statement and explanations, 39
Confidentiality prohibited, 9
required of all employees, 22 Investment clubs
Confirmations prohibited, 24
of personal transactions required, 31 Investment Grade Exception
for clearance of fixed income securities on Restricted List, 2
Involuntary personal securities transactions
exempted, 10
exemption defined, 6
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Large Cap Exception Private offerings or placements
for clearance of securities on Restricted List, 1 purchases of prohibited, 7
Marsh & McLennan Companies stock Putnam Europe Ltd.
excluded from securities, x special rules for, 29
Money market instruments Repurchase agreements
excluded from securities, x excluded from securities, x
Mutual fund shares (open end) Sale
excluded from securities, x defined, x, 43
Naked options Sanctions, vii
by employees discouraged, 9 for failure to pre-clear properly, 3
New financial instruments Shares by subscription
procedures for approval, 59 procedures to preclear the purchase and sales of Shares by
Non-Putnam affiliates (NPAs) Subscription, 2
transactions and relationships with, 25 Short sales
Officer by employees prohibited conduct, 6
serving as for another entity prohibited, 23 Solicitations
Options by Putnam employees restricted, 21
defined as securities, x Tender offers
relationship to securities on Restricted or Red Lists, 5 partial exemption from clearance rules, 6
Partner Trustee
serving as general partner of another entity prohibited, 23 serving as for another entity prohibited, 23
Partnerships Trusts
covered in personal securities transactions, x, 43 covered in personal securities transactions, x, 43
Personal securities transaction U.S. government obligations
defined, x, 43 excluded from securities, x
Pink sheet reports Violations of Law
quarterly reporting requirements, 32 reporting of, 33
Political contributions, 22 Warrants
Portfolio managers defined as securities, x
special rules on trading by, 13
</TABLE>
52
Wells Capital Management Code of Ethics 5.99
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Code of Ethics
Policy on Personal Securities Transactions
and
Insider Trading
Version 9.99
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
I INTRODUCTION.......................................................................................3
I.1 CODE OF ETHICS....................................................................................3
I.2 "ADVISORY REPRESENTATIVE".........................................................................3
I.3 "BENEFICIAL OWNERSHIP"............................................................................3
II PENALTIES..........................................................................................5
II.1 VIOLATIONS OF THE CODE...........................................................................5
II.2 PENALTIES........................................................................................5
II.4 DISMISSAL AND/OR REFERRAL TO AUTHORITIES.........................................................5
III EMPLOYEE TRADE PROCEDURES..........................................................................7
III.1 PRE-CLEARANCE...................................................................................7
III.2 TRADE REPORTS...................................................................................8
III.3 POST-REVIEW.....................................................................................9
III.4 PRE-CLEARANCE AND REPORTING REQUIREMENTS........................................................9
III.5 CONFIDENTIALITY.................................................................................9
III.6 ACKNOWLEDGMENT OF BROKERAGE ACCOUNTS...........................................................10
III.7 INITIAL AND ANNUAL REPORTING REQUIREMENTS......................................................10
IV RESTRICTIONS......................................................................................11
IV.1 RESTRICTED SECURITIES...........................................................................11
IV.2 SHORT-TERM TRADING PROFITS (60-DAY TRADING RULE)..............................................12
IV.3 BLACKOUT PERIODS................................................................................12
IV.4 INSIDER TRADING.................................................................................13
IV.5 GIFTS AND OFFERINGS.............................................................................13
IV.6 DIRECTORSHIPS AND OTHER OUTSIDE EMPLOYMENT.....................................................13
V REGULATORY REQUIREMENTS...........................................................................14
V.1 INVESTMENT ADVISERS ACT OF 1940 AND INVESTMENT COMPANY ACT OF 1940...............................14
V.2 REGULATORY CENSURES..............................................................................14
VI ACKNOWLEDGMENT AND CERTIFICATION..................................................................15
</TABLE>
<PAGE>
Wells Capital Management Code of Ethics 5.99 3
I INTRODUCTION
================================================================================
I.1 Code Of Ethics Wells Capital Management (Wells Capital), as a
registered investment adviser, has an obligation to
maintain a policy governing personal securities
transactions and insider trading by its officers and
employees. This Code of Ethics and Policy on Personal
Securities Transactions and Insider Trading ("Code")
outlines the policies and procedures for such
activities based on the recognition that a fiduciary
relationship exists between Wells Capital and its
clients. All references in this Code to employees,
officers, directors, accounts, departments and
clients refer to those of Wells Capital.
In addition to this Code, please refer to the
policies outlined in the Handbook for Wells Fargo
Team Members and the Wells Fargo Code of Conduct and
Business Ethics.
Acknowledgment of, and compliance with, this Code is
a condition of employment. A copy of the Code and
applicable forms are available on Wells Capital's
common drive:
As an employee, you must -
o Be ethical
o Act professionally
o Improve competency
o Exercise independent judgment
I.2 "Advisory
Representative" For the purposes of this Code, Wells Capital defines
"advisory representative" as any director, officer or
employee, who in connection with his or her regular
functions or duties -
o makes, participates in, or obtains information
regarding the purchase or sale of a security for an
advisory client, or
o whose functions are related to the making of any
recommendations with regard to such purchases or
sales.
Because all personnel may at some time access or
obtain investment information, Wells Capital may
designate any employee (including independent
contractors who have been contracted for at least one
month) as "advisory representatives," and thereby
subject to the policies and procedures of the Code.
The list of advisory personnel will be updated each
quarter.
<PAGE>
Wells Capital Management Code of Ethics 5.99 4
I.3 "Beneficial
Ownership"
Personal securities transaction reports should
include all accounts for which you have direct or
indirect control. These include accounts over which
you have any control, influence, authority, either
with or without beneficial interest, whether directly
or indirectly, including -
o accounts of immediate family members in the same
household; and
o any other account, including but not limited to
those of relatives and friends, over which you
direct activities.
Direct and indirect control may be further construed
to include accounts for which an Advisory
Representative is sole owner, joint owner, trustee,
co-trustee, or attorney-in-fact. II
<PAGE>
Wells Capital Management Code of Ethics 5.99 5
II PENALTIES
================================================================================
II.1 Violations of the
Code The firm's Chief Compliance Officer will report
violations of the Code on a quarterly basis to the
President. Each Advisory Representative should
immediately report to the Chief Compliance Officer
any known or reasonably suspected violations of this
Code of which he or she becomes aware.
II.2 Penalties Penalties may be imposed on an Advisory
Representative as follows:
o Minor Offenses -
>> First minor offense - Verbal warning;
>> Second minor offense - Written notice;
>> Third minor offense - $1,000.00 fine to
be donated to the advisory representative's
charity of choice*.
o Substantive Offenses -
>> First substantive offense - Written notice;
>> Second substantive offense - $1,000 or
disgorgement of profits (whichever is
greater) to be donated to the advisory
representative's charity of choice*;
>> Third substantive offense- Termination of
employment and/or referral to authorities.
Minor offenses include the following: failure or late
submissions of quarterly trade reports and signed
acknowledgments of Code of Ethics forms and
certifications, failure to request trade
pre-clearance, and conflicting pre-clear request
dates versus actual trade dates.
Substantive offenses include the following:
unauthorized purchase/sale of restricted securities
outlined in the Code, violations of seven-day
blackouts, short-term trading for profit (60-day
rule), trading in conflict with clients' transactions
(such as the appearance of potential front-running or
scalping), and insider trading.
Wells Capital reserves the right to escalate the
terms of this Penalties section at any time and to
use corrective action that it determines is
appropriate (including referral to authorities) -
and, if necessary, to terminate employment
immediately.
* The fines will be made payable to the Advisory
Representative's charity of choice and turned over to
Wells Capital, which in turn will mail the donation
check on behalf of the advisory representative.
<PAGE>
Wells Capital Management Code of Ethics 5.99 6
II.3 Dismissal and/or
Referral to
Authorities Repeated violations of the Code may result in
dismissal. In addition, a single flagrant violation,
such as fraud or insider trading, will result in
immediate dismissal and referral to authorities.
The firm's Chief Compliance Officer will forward
potential Code violations involving affiliated mutual
funds to Wells Fargo Bank Mutual Fund Compliance.
<PAGE>
Wells Capital Management Code of Ethics 5.99 7
III EMPLOYEE TRADE PROCEDURES
================================================================================
III.1 Pre-clearance o All Advisory Representatives in the firm must
pre-clear personal securities transactions as
specified in Section III.4.
o All pre-clearance requests must be submitted via
electronic mail to Marivic Jimiera/Wells Capital
Compliance ([email protected]). Responses will
be sent back via electronic mail. Exceptions will
be made only for telephone requests from Advisory
Representatives who are out of the office on
business or on vacation. It is the responsibility
of the Advisory Representative to ensure that
Compliance receives pre-clearance requests. If it
appears that E-mail is down, please contact Marivic
either at 415/222-5891 (phone), or 415/210-6000
(pager).
o At a minimum, indicate the following information on
your pre-clearance request -
(a) Transaction Type: BUY or SELL
(b) Security Description / Ticker or CUSIP
(c) Security Type: Common Stock, Options, or Bonds
o Telephone requests from beneficial account holders
outside the firm will be accepted. Responses to
requests will be forwarded to the Advisory
Representative via electronic mail.
o Requests may be submitted from 7:00 am (Pacific)
until an hour before the market closes for the day.
Barring any problems with systems access (i.e.,
SEI, Advent/Moxy), responses will be made no more
than an hour from the receipt of request.
o Pre-cleared trades are valid for same day trades
only. Nexceptions.
o Pre-clearance does not preclude the possibility of
a potential conflict appearing after the execution
of an employee trade. Trades will be screened for
blackout violations and other conflicts, but
quarter-end review of each personal trade will
reveal conflicts occurring after the trade is
executed (for example, 60-day rule violation).
o The use of the electronic mail system ensures that
each report is date-stamped, and it is the
responsibility of each Advisory Representative to
ensure that the report has been received by Wells
Capital Compliance.
Personal securities transactions should be reported,
whether pre-cleared or not.
<PAGE>
Wells Capital Management Code of Ethics 5.99 8
III.2 Trade Reports o Quarterly Trade Reports which list personal
securities transactions for the quarter must be
submitted no later than the 10th day after the end
of each calendar quarter. This 10-day deadline is a
federal requirement and includes weekends and
holidays. If the 10th day falls on a weekend or a
holiday, the report is due the business day
immediately preceding this deadline.
o Quarterly Trade Reports must be submitted
using..\..\..\Wells Cap - NEWS\Risk Management
Guidelines\CodeofEthics\QUARTERLY TRADE REPORT.dot
form to Wells Capital Compliance, attention Marivic
Jimiera. If there are no activities for the
quarter, a report indicating such is still required
to be submitted. Hardcopies may be submitted via
interoffice mail to WCM Compliance at MAC A0103-101
or via electronic mail to [email protected].
o Each Advisory Representative must instruct his or
her broker(s) to send duplicate copies of trades
confirms and/or statements to Wells Capital
Compliance, attention Marivic Jimiera. If your
broker is unable to directly send duplicate copies,
please inform Compliance in writing to document
this. [Use form: ..\..\..\Wells Cap - NEWS\Risk
Management Guidelines\CodeofEthics\Request for
Duplicate Confirms.dot
<PAGE>
Wells Capital Management Code of Ethics 5.99 9
III.3 Post-review Wells Capital Compliance will match any broker
confirms received to pre-clearance requests.
Discrepancies will be documented and may be subject
to censures, as outlined in the PENALTIES section of
this Code.
Employee transactions will also be screened for the
following:
o Same day trades: Transaction occurring on the same
day as the purchase or sale of the same security in
a managed account, except for index programs (For
S&P 500 securities).
o 7-day Blackout period: Transaction up to and
including seven calendar days before and after the
purchase and/or sale of the same security in a
managed account as described in Sec IV.3 of the
Code (For non-S&P500 securities). Note: All interim
activity is considered, not just the initial
purchase or sale of a security.
o Short-term trading profits: Purchase/Sale, or vice
versa, occurring within 60 days in the same
security resulting in net profit. Advisory
Representatives are responsible for ensuring that
the 60-day rule is observed when sale requests are
made for securities previously purchased, or vice
versa.
o Other potential conflicts: Certain transactions may
also be deemed in conflict with the Code and will
warrant additional review, depending on the facts
and circumstances of the transaction.
III.4 Pre-Clearance and
Reporting Requirements The table below indicates pre-clearance
and reporting requirements. Requirements for all
other security type transactions must be checked
with Compliance.
Qtrly
Security Type Pre-Clearance Reporting
------------- ------------- ---------
Equity transactions* Yes Yes
Fixed Inc transactions Yes Yes
Wells Fargo stock No Yes
Open-ended MF No No
Proprietary MF No No
US Tsy/Agencies No No
Short term/cash equiv. No No
SPP- auto purchase No No
*Including options, exchange-traded closed-end mutual
funds and sells of stock purchase plan assets (e.g.,
ESPP, 401k).
<PAGE>
Wells Capital Management Code of Ethics 5.99 10
III.5 Confidentiality All reports of personal securities transactions,
holdings and any other information filed pursuant to
this Code will be kept CONFIDENTIAL, provided,
however that such information will also be subject to
review by appropriate Wells Capital personnel
(Compliance and/or Senior Management) and legal
counsel. Such information will also be provided to
the Securities and Exchange Commission ("SEC") or
other government authority when properly requested or
under court order.
III.6 Acknowledgment of
Brokerage Accounts All Advisory Representatives are required to submit a
list all brokerage accounts as required by the Code.
In addition, you are responsible for ensuring that
new or closed accounts are communicated to
Compliance. For reporting purposes, use
..\..\..\Wells Cap - NEWS\Risk Management
Guidelines\CodeofEthics\Acknowledgment of Brokerage
Accounts.dot
III.7 Initial and Annual
Holdings Report All Advisory Representatives are required to report
holdings (subject to Code requirements) within 10
days of employment and on an annual basis thereafter.
An Advisory Representative's broker statement will
suffice in lieu of a separate initial or annual
holdings report. It is the Advisory Representative's
responsibility to ensure that Compliance receives
duplicate copies of statements and/or confirms if
those are sent directly by the brokers.
<PAGE>
Wells Capital Management Code of Ethics 5.99 11
IV RESTRICTIONS
================================================================================
The following are Wells Capital's restrictions on personal trading:
<TABLE>
<CAPTION>
IV.1 Restricted Securities
- -------------------------------------------------------------------------------------------------------------------------
SECURITY TYPE PURCHASE SALE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A. S&P500 stocks PERMITTED PERMITTED
Subject to one-day blackout Subject to one-day blackout during
during execution of client execution of client trades (except
trades (except index program index program trades). Must
trades). Must pre-clear. pre-clear.
- -------------------------------------------------------------------------------------------------------------------------
B. Any security not included in PERMITTED PERMITTED
the S&P500 above and not defined Subject to pre-clearance
as "small cap" below. requirements. Subject to pre-clearance requirements.
- -------------------------------------------------------------------------------------------------------------------------
C. Any restricted list security PROHIBITED PERMITTED, subject to the following:
(and its associated option) (Transaction for an S&P Index >> If security held prior to
defined as "small cap" stock that is held in the Wells Capital employment, sale
(capitalization as defined Small/Mid Cap funds is permitted subject to
by the holdings in WCM-actively permitted subject to the pre-clearance requirements.
managed Small Cap funds. Code's pre-clearance
requirements)
- -------------------------------------------------------------------------------------------------------------------------
D. Any security issued by a PERMITTED, subject to the following:
Wells Capital client PROHIBITED >> If security held prior to
Wells Capital employment, sale
subject to pre-clearance
requirements.
- -------------------------------------------------------------------------------------------------------------------------
E. Automatic investment programs
or direct stock purchase plans PERMITTED PERMITTED
>> Subject to Code of >> Subject to Code of Ethics
Ethics reporting reporting requirements
requirements
- -------------------------------------------------------------------------------------------------------------------------
F. Initial Public Offerings PERMITTED, only
(IPOs) PROHIBITED >> If security held prior to
Wells Capital employment, sales
(An IPO is a corporation's first subject to pre-clearance
offering of a security representing requirements.
shares of the company to the public)
- -------------------------------------------------------------------------------------------------------------------------
G. Private Placements PERMITTED, only
PROHIBITED >> If security held prior to
(A private placement is an offer or Wells Capital employment, sales
sale of any security by a brokerage subject to pre-clearance
firm not involving a public offering, requirements.
for example, a venture capital deal)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Wells Capital Management Code of Ethics 5.99 12
IV.2 Short-Term Trading
Profits(60-Day
Trading Rule) The purchase and sale, or the sale and purchase, of
the same security (or equivalent) within 60 calendar
days and at a profit is PROHIBITED.
o This restriction applies without regard to tax lot
considerations and short-sales;
o Exercised options are not restricted, however,
purchases and sales of options occurring within 60
days resulting in profits are PROHIBITED;
o Exceptions require advance written approval from
the firm's Chief Compliance Officer (or designee).
Profits from any sale before the 60-day period
expires may require disgorgement. Please refer to
"Penalties", section II of this Code, for additional
details.
IV.3 Blackout Periods For securities in the S&P 500 Index, a one-day
firm-wide blackout will apply if the issue is being
traded on behalf of a client, at the time the
pre-clear request is made. The blackout will not
apply to Index program trades. All other issues are
subject to a seven-day firm-wide blackout period in
advance of the Advisory Representative's trade. The
Advisory Representative is also prohibited from
trading that security in any account he or she
manages for the seven-day period after his or her
personal trade.
<PAGE>
Wells Capital Management Code of Ethics 5.99 13
IV.4 Insider Trading Wells Capital considers information material if there
is a substantial likelihood that a reasonable
shareholder would consider it important in deciding
how to act. Information is considered non-public when
it has not been disseminated in a manner making it
available to investors generally. Information becomes
public once it is publicly disseminated; limited
disclosure does not make the information public
(e.g., disclosure by an insider to a select group of
persons).
Wells Capital generally defines insider trading as
the buying or selling of a security, in breach of
fiduciary duty or other relationship of trust and
confidence, while in possession of material,
non-public information. Insider trading is a
violation of federal securities laws, punishable by a
maximum prison term of 10 years and fines of up to $1
million for the individual and $2.5 million for the
firm.
Tipping of material, non-public information is
PROHIBITED. An Advisory Representative cannot trade,
either personally or on behalf of others, while in
possession of such information.
Front-running/scalping involves trading on the basis
of non-public information regarding impending market
transactions.
o Trading ahead of, or "front-running," a client or
proprietary mutual fund order in the same security;
or
o Taking a position in stock index futures or options
contracts prior to buying or selling a block or
securities for a client or proprietary mutual fund
account (i.e., self-front running).
Scalping occurs when an Advisory Representative
purchases shares of a security for his/her own
account shortly before recommending or buying that
security for long-term investment to a client and
then immediately selling the shares at profit upon
the rise in the market price following the
recommendation.
IV.5 Gifts and
Hospitality Wells Capital, as a policy, follows Wells Fargo
Bank's policy regarding gifts and hospitality. Please
refer to WFB Employee Handbook for requirements.
IV. Directorships and
Other Outside
Employment Wells Capital, as a policy, follows Wells Fargo
Bank's policy regarding directorships and other
outside employment. Please refer to WFB Employee
Handbook for requirements.
<PAGE>
Wells Capital Management Code of Ethics 5.99 14
V REGULATORY REQUIREMENTS
================================================================================
V.1 Investment Advisers
Act of 1940 and
Investment Company
Act of 1940 The SEC considers it a violation of general antifraud
provisions of federal securities laws whenever an
adviser, such as Wells Capital, engages in
fraudulent, deceptive or manipulative conduct. As a
fiduciary to client assets, Wells Capital cannot
engage in activities which would result in conflicts
of interests (for example, "front-running," scalping,
or favoring proprietary accounts over those of the
clients').
V.2 Regulatory Censures The SEC can censure, place limitations on the
activities, functions, or operations of, suspend for
a period not exceeding twelve months, or revoke the
registration of any investment adviser based on a:
>> Failure reasonably to supervise, with a view to
preventing violations of the provisions of the
federal securities laws, an employee or a
supervised person who commits such a violation.
>> However, no supervisor or manager shall be deemed
to have failed reasonably to supervise any person,
if
(a) there have been established procedures, and a
system for applying such procedures, which
would reasonably be expected to prevent and
detect, insofar as practicable, any such
violation by such other person and
(b) such supervisor or manager has reasonably
discharged the duties and obligations
incumbent upon him/her by reason of such
procedures and systems without reasonable
cause to believe that such procedures and
system were not being complied with.
<PAGE>
Wells Capital Management Code of Ethics 5.99 15
VI ACKNOWLEDGMENT AND CERTIFICATION
================================================================================
I certify that I have received, read, understood and recognize that I am subject
to Wells Capital Management's Code of Ethics and Policy on Personal Securities
Transactions and Insider Trading. This Code is in addition to Wells Fargo's
policy on Business Conduct and Ethics, as outlined in the Employee Handbook.
In addition to certifying that I will provide complete and accurate reporting as
required by the Code and have complied with all requirements of the Wells
Capital Management Code, I certify that I will not:
o Execute any prohibited purchases and/or sales, directly or indirectly, that
are outside those permissible by the Code;
o Employ any device, scheme or artifice to defraud Wells Fargo, Wells Capital
Management, or any company;
o Engage in any act, practice or course of business which operates or would
operate as a fraud or deceit upon Wells Fargo, Wells Capital Management or any
company;
o Make any untrue statement of a material fact, or omit to state a material fact
necessary in order to make the statements, in light of the circumstances under
which they are made, not misleading;
o Engage in any manipulative practice with respect to Wells Fargo, Wells Capital
Management or any company;
o Trade on inside information;
o Trade ahead of or front-run any transactions for Wells Capital managed
accounts;
o Trade without obtaining the necessary pre-clearance.
I understand that it is a violation of the Investment Advisers Act of 1940 to
fail to submit a record of my personal securities transactions within 10
calendar days of quarter-end.
I understand that, as an employee of Wells Capital Management, it is my
responsibility to submit a list of all brokerage accounts in which I have
beneficial ownership or interest and control (as defined in the Code).
Additionally, I will notify Wells Capital Management Compliance upon opening or
closing brokerage accounts.
Any exceptions, where applicable, are noted as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------- ---------------------------
Signature Date
- --------------------------------
NAME (Print)
The Acknowledgment and Certification form is due 10 days from date of receipt.
Signed copies must be submitted to Wells Capital Compliance, attention Marivic
Jimiera/MAC A0103-101.
<PAGE>
CODE OF ETHICS
This Code of Ethics ("Code") is adopted by Neuberger Berman Management Inc. ("NB
Management") and Neuberger Berman, LLC (NB") with respect to NB Management's
services as the sub-adviser of one or more registered investment companies or
series thereof ("Fund") for which neither NB Management nor any of its
affiliates is investment manager, investment adviser, administrator or
distributor.
This Code is adopted pursuant to Rule 17j-1 promulgated by the Securities and
Exchange Commission (the "Rule") under the Investment Company Act of 1940.
Statement of General Principles
This Code of Ethics is adopted in recognition of the general fiduciary
principles that govern personal investment activities of all individuals
employed by or associated with NB Management and NB.
It is the duty at all times to place the interests of Fund shareholders
first. Priority must be given to Fund trades over personal securities
trades.
All personal securities transactions must be conducted consistent with
this Code of Ethics and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of an individual's position
of trust and responsibility.
Individuals should not take advantage of their positions.
-1-
<PAGE>
TABLE OF CONTENTS
-----------------
1. General Prohibitions ........................................... 4
2. Definitions .................................................... 5
Access Person .................................................. 5
Advisory Person ................................................ 5
Beneficial Interest ............................................ 5
Blind Trust .................................................... 6
Day ............................................................ 6
Immediate Family ............................................... 6
Investment Company ............................................. 6
Investment Personnel ........................................... 6
Legal and Compliance Department ................................ 6
Portfolio Manager .............................................. 6
Related Issuer ................................................. 6
Security ....................................................... 7
Trading Desk ................................................... 7
3. Required Compliance Procedures ................................... 8
3.1 All Securities Transactions through Neuberger & Berman 8
3.2 Preclearance of Securities Transactions by Access Persons 8
3.3 Post-Trade Monitoring of Precleared Transactions 9
3.4 Disclosure of Personal Holdings ............................ 10
3.5 Certification of Compliance with Code of Ethics ................ 10
4. Restrictions and Disclosure Requirements .......................... 11
4.1 Initial Public Offerings ................................... 11
4.2 Private Placements ......................................... 11
4.3 Related Issuers ............................................ 11
4.4 Blackout Periods ........................................... 12
4.5 Same Day Price Switch ...................................... 13
4.6 Short-Term Trading Profits ................................. 15
4.7 Gifts ...................................................... 16
4.8 Service as Director of Publicly Traded Companies ............... 16
5. Procedures with Regard to Dissemination of Information ............. 17
-2-
<PAGE>
6. Reporting by Access Persons .................................... 18
6.1 General Requirement ........................................ 18
6.2 Contents ................................................... 18
7. Code of Ethics Implementation .................................. 19
8. Reports to Directors of Funds .................................. 20
9. Other Matters .................................................. 21
9.1 Forms ...................................................... 21
9.2 Exceptions ................................................. 21
-3-
<PAGE>
1. General Prohibitions
- -----------------------
No individual associated with NB Management or NB in connection with the
purchase or sale, directly or indirectly, by such person of a security held or
to be acquired by a Fund, shall:
Employ any device, scheme or artifice to defraud such Fund;
Make to such Fund any untrue statement of a material fact or omit to
state to such Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
Engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such Fund;
Engage in any manipulative practice with respect to such Fund;
Engage in any transaction in a security while in possession of material
nonpublic information regarding the security or the issuer of the
security; or
Engage in any transaction intended to raise, lower, or maintain the
price of any security or to create a false appearance of active
trading.
-4-
<PAGE>
2. Definitions
- --------------
The following words have the following meanings, regardless of whether such
terms are capitalized or not in this Code:
Access Person - any principal or employee of NB who is an Advisory
Person and all Trustees, directors, officers, or Advisory Persons of NB
Management. The determination as to whether an individual is an Access Person
shall be made by the Legal and Compliance Department.
Advisory Person - any employee of NB Management (or of any company in a
control relationship to NB or NB Management) or any employee or principal of NB
who, in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale of a
security by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales.
Beneficial Interest - a person has a Beneficial Interest in an account
in which he or she may profit or share in the profit from transactions. Without
limiting the foregoing, a person has a Beneficial Interest when the securities
in the account are held:
(i) in his or her name;
(ii) in the name of any of his or her Immediate Family;
(iii) in his or her name as trustee for himself or herself or for
his or her Immediate Family;
(iv) in a trust in which he or she has a Beneficial Interest or is
the settlor with a power to revoke;
(v) by another person and he or she has a contract or an
understanding with such person that the securities held in
that person's name are for his or her benefit;
(vi) in the form of a right to acquisition of such security
through the exercise of warrants, options, rights, or
conversion rights;
(vii) by a partnership of which he or she is a member;
(viii) by a corporation which he or she uses as a personal trading
medium;
(ix) by a holding company which he or she controls; or
(x) any other relationship in which a person would have beneficial
ownership under Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the
determination of direct or indirect Beneficial Interest shall
apply to all securities which an Access Person has or
acquires.
-5-
<PAGE>
Any person who wishes to disclaim a Beneficial Interest in any securities must
submit a written request to the Legal and Compliance Department explaining the
reasons therefor. Any disclaimers granted by the Legal and Compliance Department
must be made in writing. Without limiting the foregoing, if a disclaimer is
granted to any person with respect to shares held by a member or members of his
or her Immediate Family, the provisions of this Code of Ethics applicable to
such person shall not apply to any member or members of his or her Immediate
Family for which such disclaimer was granted, except with respect to
requirements specifically applicable to members of a person's Immediate Family.
Blind Trust - a trust in which an Access Person or employee has
Beneficial Interest or is the settlor with a power to revoke, with respect to
which the Legal and Compliance Department has determined that such Access Person
or employee has no direct or indirect influence or control over the selection or
disposition of securities and no knowledge of transactions therein, provided,
however, that direct or indirect influence or control of such trust is held by a
person or entity not associated with NB or any affiliate of NB and not a
relative of such Access Person or employee
Legal and Compliance Department - NB Legal and Compliance Department
-------------------------------
Day - a calendar day
---
Immediate Family - any of the following relatives sharing the same
household with an individual: child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, including adoptive relationships
Investment Company - each registered investment company and series
thereof for which NB Management is the investment manager, investment adviser,
sub-adviser, administrator or distributor, or for which NB is the investment
adviser or sub-adviser.
Investment Personnel - Portfolio Managers, and Access Persons who, in
connection with their regular functions or duties, provide information and
advice to a Portfolio Manager or who help execute a Portfolio Manager's
decisions. Each member of this category is individually referred to as an
Investment Person. The determination as to whether an individual is an
Investment Person shall be made by the Legal and Compliance Department.
Portfolio Manager - an Access Person who has or shares principal
day-to-day responsibility for managing the portfolio of any Fund. The
determination as to whether an individual is a Portfolio Manager shall be made
by the Legal and Compliance Department.
Related Issuer - an issuer with respect to which an Investment Person or
his or her Immediate Family: (i) has a business relationship with such issuer or
any promoter, underwriter, officer, director, or employee of such issuer; or
(ii) is related to any officer, director or employee of such issuer.
-6-
<PAGE>
Security - any option, stock or option thereon, instrument, bond,
debenture, pre-organization certificate, investment contract, any other interest
commonly known as a security, and any security or instrument related to, but not
necessarily the same as, those held or to be acquired by a Fund; provided,
however, that the following shall not be considered a "security": securities
issued by the United States Government, bankers' acceptances, bank certificates
of deposit, commercial paper, shares of registered open-end investment
companies, commodities, futures, and options on futures.
Trading Desk - NB Trading Desk
-7-
<PAGE>
3. Required Compliance Procedures
- ---------------------------------
3.1 All Securities Transactions through NB.
------------------------------------------
(a) Every Access Person, and every employee of NB Management or NB and
principal of NB is required to execute through Neuberger & Berman ("NB") all
transactions in securities held in his or her own name or in which he or she has
a Beneficial Interest. Every Portfolio Manager is also required to provide the
Legal and Compliance Department with duplicate copies of confirmations of all
transactions in securities held in the name of members of his or her Immediate
Family or in which such members have a Beneficial Interest.
(b) Exceptions will only be granted upon a showing of extenuating
circumstances. Any individual seeking an exception to this policy must submit a
written request to the Legal and Compliance Department explaining the reasons
therefor. Any exceptions granted must be made in writing.
(c) Any individual granted an exception is required to direct his or her
broker, adviser or trustee, as the case may be, to supply to the Legal and
Compliance Department, on a timely basis, duplicate copies of confirmations of
all personal securities transactions and copies of periodic statements for all
securities accounts in his or her own name or in which he or she has a
Beneficial Interest.
(d) Individuals are not required to execute through NB transactions in
which they are establishing a dividend reinvestment plan directly through an
issuer. However, individuals must obtain written approval from the Legal and
Compliance Department prior to establishing any such plan and supply to the
Legal and Compliance Department, on a timely basis, duplicate copies of all
confirmations relating to the plan.
3.2 Preclearance of Securities Transactions by Access Persons.
--------------------------------------------------------------
(a) Every Access Person must obtain prior approval from the Trading Desk
before executing any transaction in securities held in his or her own name or in
which he or she has a Beneficial Interest. Before executing any such
transaction, the Trading Desk shall determine that:
(i) No Investment Company has a pending "buy" or "sell" order in that
security;
(ii) The security does not appear on any "restricted" list of NB; and
(iii) Such transaction is not short selling or option trading that is
economically opposite any pending transaction for any Investment
Company.
(b) The following securities are exempt from preclearance requirements:
(i) Securities transactions effected in blind trusts
-8-
<PAGE>
(ii) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities
(iii) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired
(iv) Repurchase agreements
(v) Options on the Standard & Poor's "500" Composite Stock Price
Index
(vi) Other securities that may from time to time be so designated in
writing by the Code of Ethics Board
(c) Obtaining preclearance approval does not constitute a waiver of any
prohibitions, restrictions, or disclosure requirements in this Code of Ethics.
3.3 Post-Trade Monitoring of Precleared Transactions.
-----------------------------------------------------
After the Trading Desk has granted preclearance to an Access Person with
respect to any personal securities transaction, the investment activity of such
Access Person shall be monitored by the Legal and Compliance Department to
ascertain that such activity conforms to the preclearance so granted and the
provisions of this Code.
-9-
<PAGE>
3.4 Disclosure of Personal Holdings.
------------------------------------
All Access Persons are required to disclose all holdings in securities
held in their own names or in which they have a Beneficial Interest to the Legal
and Compliance Department upon commencement of employment and thereafter on an
annual basis.
3.5 Certification of Compliance With Code of Ethics.
----------------------------------------------------
All Access Persons are required to certify annually in writing that they
have:
(a) read and understand the Code of Ethics and recognize that they are
subject thereto;
(b) complied with the requirements of the Code of Ethics;
(c) disclosed or reported all personal securities transactions required
to be disclosed or reported pursuant to the requirements of the Code; and
(d) with respect to any blind trusts in which such person has a
Beneficial Interest, that such person has no direct or indirect influence or
control and no knowledge of any transactions therein.
-10-
<PAGE>
4. Restrictions and Disclosure Requirements
- -------------------------------------------
4.1 Initial Public Offerings.
-----------------------------
All Investment Personnel are prohibited from acquiring a Beneficial
Interest in any securities in an initial public offering, in order to preclude
any possibility of their profiting improperly from their positions on behalf of
a Fund. No member of an Immediate Family of an Investment Person may acquire a
Beneficial Interest in an initial public offering without the prior written
consent of the Legal and Compliance Department.
4.2 Private Placements.
-----------------------
(a) No Investment Person or member of his or her Immediate Family may
acquire a Beneficial Interest in any securities in private placements without
prior written approval by the Legal and Compliance Department.
(b) Prior approval shall take into account, among other factors, whether
the investment opportunity should be reserved for a Fund and its shareholders
and whether the opportunity is being offered to an individual by virtue of his
or her position or relationship to the Fund.
(c) An Investment Person who has (or a member of whose Immediate Family
has) acquired a Beneficial Interest in securities in a private placement is
required to disclose that investment to the Portfolio Manager when such
Investment Person plays a part in any subsequent consideration of an investment
in the issuer for any Fund; provided, however, that if any such Investment
Person is the Portfolio Manager, such Investment Person shall make such
disclosure to the Legal and Compliance Department. In any such circumstances,
the decision to purchase securities of the issuer for a Fund is subject to an
independent review by Investment Personnel with no personal interest in the
issuer. Such independent review shall be made in writing and furnished to the
Legal and Compliance Department.
4.3 Related Issuers.
--------------------
Investment Personnel are required to disclose to the Portfolio Manager
when they play a part in any consideration of an investment by a Fund in a
Related Issuer; provided, however, that if any such Investment Person is the
Portfolio Manager, such Investment Person shall make such disclosure to the
Legal and Compliance Department. In any such circumstances, the decision to
purchase securities of the Related Issuer for a Fund is subject to an
independent review by Investment Personnel with no personal interest in the
Related Issuer. Such independent review shall be made in writing and furnished
to the Legal and Compliance Department.
-11-
<PAGE>
4.4 Blackout Periods.
--------------------
(a) No Access Person may execute a securities transaction in securities
held in his or her own name or in which he or she has a Beneficial Interest on a
day during which any Investment Company has a pending "buy" or "sell" order in
that same security until that order is executed or withdrawn.
(b) No Portfolio Manager or member of his or her Immediate Family may
buy or sell a security held in his or her own name or in which he or she has a
Beneficial Interest within seven (7) Days before or after a Fund that such
Portfolio Manager manages trades in that security, provided, however, that this
prohibition shall not apply to:
(i) Securities transactions effected in blind trusts
(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Fund
(iii) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities
(iv) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired
(v) Repurchase agreements
(vi) Options on the Standard & Poor's "500" Composite Stock Price
Index
(vii) Other securities that may from time to time be so designated in
writing by the Code of Ethics Board
-12-
<PAGE>
(c) Any securities position established in violation of Section 4.4(b)
shall be closed out as soon as possible consistent with applicable law. Any
profits on trades within the proscribed periods shall be disgorged to the Fund.
(d) The foregoing blackout periods should not operate to the detriment
of any Investment Company. Without limiting the scope or meaning of this
statement, the following procedure is to be implemented under extraordinary
situations:
(i) If a Portfolio Manager of a Fund or member of his or her
Immediate Family has executed a transaction in a security and
within seven (7) Days thereafter such security is considered for
purchase or sale by such Fund, such Portfolio Manager shall
submit a written memorandum to the Legal and Compliance
Department prior to the entering of the purchase or sale order
for the Fund. Such memorandum shall describe the circumstances
underlying the consideration of such transaction for the Fund.
(ii) Based on such memorandum and other factors it deems relevant
under the specific circumstances, the Legal and Compliance
Department shall have authority to determine that the prior
transaction by the Portfolio Manager or member of his or her
Immediate Family shall not be considered a violation of the
provisions of paragraph (b) of this section.
(iii) The Legal and Compliance Department shall make a written record
of any determination made under paragraph (d)(ii) of this
section, including the reasons therefor. The Legal and Compliance
Department shall maintain records of any such memoranda and
determinations.
4.5 Same Day Price Switch.
--------------------------
(a) If any employee of NB Management, or any employee or principal of NB
purchases a security (other than a fixed income security) held, or by reason of
such transaction held, in his or her own name or in which he or she has a
Beneficial Interest and subsequent thereto a Fund purchases the same security
during the same day, then, to the extent that the price paid per share by the
Fund for such purchase is less favorable than the price paid per share by such
principal or employee, the Fund shall have the benefit of the more favorable
price per share.
(b) If any such principal or employee sells a security (other than a
fixed income security) held in his or her own name or in which he or she has a
Beneficial Interest and subsequent thereto a Fund sells the same security during
the same day, then, to the extent that the price per share received by the Fund
for such sale is less favorable than the price per share received by the
principal or employee, the Fund shall have the benefit of the more favorable
price per share.
(c) An amount of money necessary to effectuate the price adjustment
shall be transferred from the account of the principal or employee subject to
the price adjustment policies, to the Fund's account. The price adjustment shall
be limited to the number of shares purchased or sold by the principal or
employee or the number of shares purchased or sold by the Fund, whichever is
smaller.
-13-
<PAGE>
(d) Notwithstanding the foregoing, price switching shall not apply to:
(i) Securities transactions effected in blind trusts
(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Fund
(iii) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities
(iv) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired
(v) Repurchase agreements
(vi) Options on the Standard & Poor's "500" Composite Stock Price Index
(vii) Transactions in which the adjustment resulting from the price
switch is less than Five Hundred Dollars ($ 500.00)
(viii) Transactions arising through arbitrage, market making activities
or hedged options trading
(ix) Transactions in the NB ERISA Profit Sharing and Retirement Plan
(x) Transactions involving odd lots
(xi) Other securities that may from time to time be so designated in
writing by the Code of Ethics Board
-14-
<PAGE>
4.6 Short-Term Trading Profits.
-------------------------------
(a) No Investment Person may profit in the purchase and sale, or sale
and purchase, of the same (or equivalent) securities held in his or her own name
or in which he or she has a Beneficial Interest within sixty (60) Days,
provided, however, that this prohibition shall not apply to:
(i) Any security that was neither held, purchased, nor sold by any
Investment Company during such sixty (60) Day period
(ii) Securities transactions effected in blind trusts
(iii) Securities transactions that are non-volitional on the part of
either the Access Person or the Fund
(iv) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired
(vi) Repurchase agreements
(vii) Options on the Standard & Poor's "500" Composite Stock Price
Index
(viii) Other securities that may from time to time be so designated in
writing by the Code of Ethics Board
(b) Any profits on trades within the proscribed periods shall be
disgorged to a charity to be determined by the Legal and Compliance Department.
(c) In determining the applicability of this section, determinations
shall be made based upon a last-in, first-out ("LIFO") calculation; provided,
however, that such determinations shall be solely for purposes of this Code of
Ethics and shall not have any applicability for tax or other purposes.
-15-
<PAGE>
4.7 Gifts.
---------
All Access Persons and employees are prohibited from giving or receiving
any gift or other thing of more than One Hundred Dollars ($100) in value to or
from any person or entity that does business with or on behalf of the Fund in
any one year.
4.8 Service as Director of Publicly Traded Companies.
-----------------------------------------------------
Investment Personnel are prohibited from serving on the Boards of
Directors of publicly traded companies.
-16-
<PAGE>
5. Procedures with Regard to Dissemination of Information
- ---------------------------------------------------------
Access Persons and principals and employees of NB Management or NB are
prohibited from revealing information relating to current or anticipated
investment intentions, portfolio transactions or activities of a Fund except (a)
to persons whose responsibilities require knowledge of the information or (b) to
the investment adviser, administrator, custodian or Board of Directors of such
Fund.
-17-
<PAGE>
6. Reporting by Access Persons
- ------------------------------
6.1 General Requirement.
------------------------
Every Access Person shall report, or cause to be reported to the Legal
and Compliance Department the information described in Section 6.3 with respect
to transactions in any security in which such Access Person has, or by reason of
such transaction acquires, any direct or indirect Beneficial Interest; provided,
however, that no report is required with respect to transactions where such
report would duplicate information recorded by NB or NB Management pursuant to
Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940.
For purposes of the foregoing (b), the Legal and Compliance Department maintains
(i) electronic records of all securities transactions effected through NB, and
(ii) copies of any duplicate confirmations that have been provided to the Legal
and Compliance Department under this Code of Ethics with respect to securities
transactions that, pursuant to exceptions granted by the Legal and Compliance
Department, have not been effected through NB; accordingly, no report is
required with respect to such transactions.
6.2 Contents.
------------
Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected.
Unless otherwise stated, no report shall be construed as an admission by the
person making such report that he or she has any direct or indirect Beneficial
Interest in the security to which the report relates.
-18-
<PAGE>
7. Code of Ethics Implementation
- --------------------------------
A monthly report shall be provided to the Director of Compliance of NB
Management certifying that except as specifically disclosed, the Legal and
Compliance Department knows of no violation of this Code.
NB Management and NB shall have authority to impose sanctions for
violations of this Code. The Legal and Compliance Department shall make
recommendations regarding sanctions to be imposed on Access Persons who violate
this Code. Such recommendations may include a letter of censure, suspension or
termination of the employment of the violator, forfeiture of profits, forfeiture
of personal trading privileges, forfeiture of gifts, or any other penalty the
Legal and Compliance Department deems to be appropriate. All such
recommendations shall be submitted to NB Management and NB.
-19-
<PAGE>
8. Reports to Board of Directors of Fund.
- ----------------------------------------
NB Management shall prepare reports to the Boards of Directors of the Fund that:
(i) summarizes existing procedures concerning personal investing and
any changes in the procedures made during the past year;
(ii) identifies any violations requiring significant remedial action; or
(iii) provides such other information as shall be requested by the Board
of Directors.
Such reports shall be prepared with such frequency as shall be requested by the
Board of Directors of the Fund.
-20-
<PAGE>
9. Other Matters
- ----------------
9.1 Forms.
----------
The Legal and Compliance Department is authorized, with the advice of
counsel, to prepare written forms for use in implementing this Code. Such forms
shall be attached as an Appendix to this Code and shall be disseminated to all
individuals subject to the Code.
9.2 Exceptions.
--------------
Exceptions to the requirements of this Code shall rarely, if ever, be
granted. However, the Legal and Compliance Department shall have authority to
grant exceptions on a case-by-case basis. Any exceptions granted must be in
writing and reported to the Director of Compliance of NB Management.
Revised January 1999
-21-
<PAGE>
CODE OF ETHICS
FOR
THE ROYCE FUNDS
AND
THE ROYCE COMPANIES
Adopted -- As of December 30, 1994
As amended as of March 1, 2000
1. Definitions.
(a) "Fund" means each of The Royce Fund, Royce Capital
Fund, Royce Value Trust, Inc., Royce Micro-Cap Trust, Inc., Royce Focus Trust,
Inc. and any other investment company registered as such under the Investment
Company Act of 1940 which has the same investment adviser as the Fund.
(b) "Royce" means Royce & Associates, Inc., Royce
Management Company and Royce Fund Services, Inc.
(c) "Covered Person" means any interested director,
officer, employee or Advisory Person of the Fund or any general partner,
director, officer, employee or Advisory Person of Royce.
(d) "Advisory Person" means any natural person in a control
relationship to the Fund or Royce who obtains information concerning
recommendations made to the Fund or any other Royce client with regard to the
purchase or sale of a security.
(e) A security is "being considered for purchase or sale"
when a recommendation to purchase or sell such security has been made and
communicated and, with respect to the person making the recommendation, when
such person seriously considers making such a recommendation.
(f) "Beneficial ownership" shall be interpreted in the same
manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder, except that the determination of direct or indirect
beneficial ownership shall apply to all securities which a Covered Person has or
acquires. It includes ownership by a member of a Covered Person's immediate
family (such as spouse, minor children and adults living in a Covered Person's
home) and trusts of which a Covered Person or such an immediate family member is
a trustee or in which any such person has a beneficial interest.
(g) "Control" shall have the same meaning as that set forth
in Section 2(a)(9) of the Investment Company Act of 1940.
(h) "Disinterested Director" means a trustee or director of
the Fund who is not an 'interested person' of the Fund within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940.
<PAGE>
(i) "Interested Director" means a trustee or director of
the Fund who is an 'interested person' of the Fund within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.
(j) "Purchase or sale of a security" includes, inter alia,
the writing of an option to purchase or sell a security.
(k) "Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act of 1940, except that it shall not include
(i) shares of registered open-end investment companies and (ii) securities which
are direct obligations of the United States.
(l) "Initial Public Offering" means an offering of
securities registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
2. Statement of General Principles. Each Covered Person shall,
in connection with his or her personal investment activities, (i) at all times
place the interests of Royce clients and Fund shareholders first, (ii) conduct
all such transactions consistent with this Code and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of his or her position
of trust and responsibility and (iii) not take any inappropriate advantage of
his or her positions.
3. Prohibited Purchases and Sales. (a) No Covered Person shall
purchase or sell, directly or indirectly, any security in which he or she has,
or by reason of such transaction acquires, any direct or indirect beneficial
ownership unless such purchase or sale is exempted pursuant to Section 4 of this
Code. The preceding sentence of this Section 3(a) shall not prohibit the
purchase or sale of any security by Royce for the account of any pooled
investment vehicle managed by Royce, including a limited partnership, limited
liability company or other entity in which Royce or a Covered Person has a
beneficial interest as a general partner and/or otherwise, provided that the
aggregate beneficial interests of Royce and/or all Covered Persons in any such
pooled investment vehicle shall not exceed (i) 4.90% of such vehicle's capital
accounts or other equity interests or (ii) 20% of such vehicle's realized and
unrealized net capital gains from securities transactions. However, purchases of
Initial Public Offerings or private placement securities by any such pooled
investment vehicle in which a Covered Person has a beneficial interest shall be
pre-approved in writing by the Compliance Officer and an Executive Officer of
Royce.
(b) No Disinterested Director shall purchase or sell,
directly or indirectly, any security in which he or she has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership if such
director knew or, in the ordinary course of fulfilling his or her official
duties as a director or trustee of the Fund, should have known that such
security was then being purchased or sold by the Fund or was then being
considered by the Fund or Royce for purchase or sale by the Fund, unless such
purchase or sale is exempted pursuant to Section 4 of this Code.
4. Exempted Transactions. The prohibitions of Sections 3(a)
and 3(b) of this Code shall not apply to:
2
<PAGE>
(a) Purchases or sales effected in any account over which
the Covered Person or Disinterested Director has no direct or indirect influence
or control.
(b) Purchases or sales which are non-volitional on the part
of either the Covered Person, the Disinterested Director or the Fund or other
Royce client.
(c) Purchases which are part of an automatic distribution
reinvestment plan or an employer-sponsored, automatic payroll deduction, cash
purchase plan.
(d) Purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights so
acquired.
(e) Purchases or redemptions or sales of (i) debt
securities which are either "Government securities" within the meaning of
Section 2(a)(16) of the Investment Company Act of 1940 or "municipal securities"
within the meaning of Section 3(a)(29) of the Securities Exchange Act of 1934
and (ii) bankers' acceptances, bank certificates of deposit, commercial paper
and other money market instruments.
(f) Purchases or sales by a Covered Person which receive
the prior approval of the Compliance Officer and an executive officer of Royce
(to be promptly confirmed in writing) because (i) they are not eligible for
purchase or sale by the Fund or any other Royce account, (ii) they are only
remotely potentially harmful to the Fund and Royce's other accounts because they
would be very unlikely to affect a highly institutional market, (iii) they
clearly are not related economically to the securities to be purchased, sold or
held by the Fund or any other Royce account or (vi) they are not then being
purchased or sold or considered for purchase or sale by the Fund or any other
Royce account.
Such prior approvals shall be granted only in a limited
number of instances, and any prior approval granted pursuant to this Section
4(f) shall be subject to the following restrictions and conditions:
(1) Each written confirmation by the Compliance Officer
and Royce officer of their prior approval of a purchase or sale by a Covered
Person shall show the basis on which the prior approval was granted and the
period for which it was granted (which shall not exceed five trading days from
the date of the grant).
(2) No Covered Person shall be permitted to acquire any
securities in an Initial Public Offering, except to the extent set forth in
Section 3(a) above.
(3) Prior approval is required for a Covered Person to
acquire any securities (including limited partnership interests) in a private
placement. Such prior approval should take into account, among other factors,
whether the investment opportunity should be reserved for the Fund and/or other
Royce account(s), and whether the opportunity is being offered to the Covered
Person by virtue of his or her position with the Fund or Royce. Any Covered
Person who may be authorized to acquire securities in a private placement shall
disclose that investment when he or she plays a part in the Fund's or Royce's
subsequent consideration of an investment in the issuer, and, in such
circumstances, the Fund's and/or Royce's decision to purchase securities of the
issuer shall be subject to an independent review by investment personnel with no
personal interest in the issuer.
3
<PAGE>
(4) No Covered Person shall be permitted to purchase or
sell a security within at least seven calendar days before and after the Fund or
any other Royce account trades in that security, and any profits realized on
trades within such proscribed periods shall be disgorged by the Covered Person.
(5) No Covered Person, except in unusual or exceptional
circumstances, may profit in the purchase and sale, or sale and purchase, of the
same (or equivalent) securities within 60 calendar days, and any profits
realized on such short-term trades shall, except in such circumstances, be
disgorged by the Covered Person.
5. Gifts. No Covered Person shall receive any gift or other
thing of more than $100 in value from any individual or entity that does
business with or on behalf of the Fund or any other Royce account. This
prohibition does not extend to bona fide business-related entertainment and/or
travel.
6. Service as a Director. No Covered Person may serve on the
board of directors of any publicly-traded company, absent prior authorization
based upon a determination that the board service would be consistent with the
interests of the Fund and Royce's other accounts. In the relatively small number
of instances in which board service may be authorized, the Covered Person
serving as a director normally should be isolated from those making investment
decisions through "Chinese Wall" or other procedures.
7. Reporting.
(a) Every Covered Person shall report to the Fund and Royce
the information described in Section 7(c) of this Code with respect to
transactions in any security in which such Covered Person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership in the
security; provided, however, that a Covered Person shall not be required to make
a report with respect to transactions effected for any account over which such
Covered Person does not have any direct or indirect influence or control.
(b) A Disinterested Director need only report to the Fund a
transaction in a security if such director, at the time of that transaction,
knew or, in the ordinary course of fulfilling his or her official duties as a
director, should have known that, during the seven calendar days before and
after the date of the transaction by the director, such security was purchased
or sold by the Fund or was being considered by the Fund or Royce for purchase or
sale by the Fund.
(c) Every report shall be in writing, shall be signed by
the person making it, shall be made not later than ten days after the end of the
calendar quarter in which the transaction to which the report relates was
effected and shall contain the following information:
(i) The date of the transaction, the title and the
number of shares, and the principal amount of each security involved;
4
<PAGE>
(ii) The nature of the transaction -- i.e., purchase,
sale or any other type of acquisition or disposition;
(iii) The price at which the transaction was effected;
and
(iv) The name of the broker, dealer or bank with or
through whom the transaction was effected.
(d) Any such report shall include transactions exempted
pursuant to Section 4 of this Code and may contain a statement that the report
shall not be construed as an admission by the person making such report that he
or she has any direct or indirect beneficial ownership in the security to which
the report relates.
(e) All Covered Persons shall (i) direct their brokers to
supply to the Compliance Officer, on a timely basis, duplicate copies of
confirmations of all personal securities transactions and copies of periodic
statements for all securities accounts and (ii) disclose to the Fund and Royce
all personal securities holdings upon commencement of employment and thereafter
on an annual basis.
8. Sanctions. Upon discovering a violation of this Code, Royce
and/or the Board of Trustees/Directors of the Fund may impose such sanctions as
it deems appropriate, including, inter alia, a letter of censure or suspension
or termination of the employment of the violator.
5
<PAGE>
EFFECTIVE MARCH 1, 2000
CODE OF ETHICS
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
i-1
<PAGE>
CODE OF ETHICS
OF
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL POLICY STATEMENT........................................................................................1-1
Purpose and Scope of Code of Ethics......................................................................1-1
Who is Subject to the Code...............................................................................1-1
Price Associates' Status as a Fiduciary..................................................................1-2
What the Code Does Not Cover.............................................................................1-2
Compliance with the Code.................................................................................1-2
Questions Regarding the Code.............................................................................1-2
STANDARDS OF CONDUCT OF PRICE ASSOCIATES AND ITS EMPLOYEES......................................................2-1
Allocation of Client Brokerage...........................................................................2-1
Antitrust ........................................................................................2-1; 8-1
Compliance with Copyright Laws...........................................................................2-1
Computer Security...................................................................................2-1; 7-1
Conflicts of Interest....................................................................................2-1
Relationships with Profitmaking Enterprises........................................................2-1
Service with Nonprofitmaking Enterprises...........................................................2-2
Relationships with Financial Service Firms.........................................................2-2
Investment Clubs...................................................................................2-2
Confidentiality..........................................................................................2-3
Internal Operating Procedures and Planning.........................................................2-3
Clients, Fund Shareholders, and TRP Brokerage Customers............................................2-3
Investment Advice..................................................................................2-3
Investment Research................................................................................2-4
</TABLE>
i-2
<PAGE>
<TABLE>
<S> <C>
Understanding as to Clients' Accounts and Company Records
at time of Employee Termination..................................................................2-4
Corporate Responsibility............................................................................2-4; 5-1
Employment of Former Government Employees................................................................2-5
Employment Practices.....................................................................................2-5
Equal Opportunity..................................................................................2-5
Harassment.........................................................................................2-5
Drug and Alcohol Abuse.............................................................................2-5
Past and Current Litigation..............................................................................2-6
Financial Reporting......................................................................................2-6
Health and Safety in the Workplace.......................................................................2-6
Illegal Payments.........................................................................................2-6
Marketing and Sales Activities...........................................................................2-6
Policy Regarding Acceptance and Giving of Gifts and Gratuities...........................................2-6
Receipt of Gifts...................................................................................2-7
Giving of Gifts....................................................................................2-7
Additional Requirements for the Giving of Gifts in Connection
with the Broker/Dealer...........................................................................2-7
Entertainment......................................................................................2-8
Research Trips.....................................................................................2-9
Political Activities.....................................................................................2-9
Protection of Corporate Assets..........................................................................2-10
Quality of Services.....................................................................................2-10
Record Retention........................................................................................2-10
Referral Fees...........................................................................................2-10
Release of Information to the Press.....................................................................2-10
Responsibility to Report Violations.....................................................................2-10
Service as Trustee, Executor or Personal Representative.................................................2-11
Speaking Engagements and Publications...................................................................2-11
Trading in Securities with Inside Information......................................................2-11; 3-1
STATEMENT OF POLICY ON MATERIAL, INSIDE (NON-PUBLIC) INFORMATION................................................3-1
STATEMENT OF POLICY ON SECURITIES TRANSACTIONS..................................................................4-1
</TABLE>
i-3
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF POLICY ON CORPORATE RESPONSIBILITY.................................................................5-1
STATEMENT OF POLICY WITH RESPECT TO COMPLIANCE
WITH COPYRIGHT LAWS..........................................................................................6-1
STATEMENT OF POLICY WITH RESPECT TO COMPUTER SECURITY
AND RELATED ISSUES...........................................................................................7-1
STATEMENT OF POLICY ON COMPLIANCE WITH ANTITRUST LAWS...........................................................8-1
</TABLE>
i-4
<PAGE>
CODE OF ETHICS
OF
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Access Persons..................................................................................................4-3
Activities, Political...........................................................................................2-9
Alcohol Abuse...................................................................................................2-5
Allocation of Client Brokerage..................................................................................2-1
Antitrust..................................................................................................2-1; 8-1
Approved Company Rating Changes................................................................................4-11
Assets, Protection of Corporate................................................................................2-10
Association of Investment Management and Research ("AIMR")......................................................2-6
Brokerage Accounts.......................................................................................4-11; 4-12
Chinese Wall....................................................................................................3-6
Client Brokerage, Allocation of.................................................................................2-1
Client Limit Orders............................................................................................4-16
Code of Ethics, Compliance with.................................................................................1-2
Code of Ethics, Purpose and Scope of............................................................................1-1
Code of Ethics, Questions Regarding.............................................................................1-2
Code of Ethics, Who is Subject to...............................................................................1-1
Co-Investment by Employees with Client Investment Partnerships.................................................4-14
Computer Security..........................................................................................2-1; 7-1
Conduct, Standards of, Price Associates and its Employees.......................................................2-1
Confidentiality.................................................................................................2-3
Confidentiality of Computer Systems Activities and Information..................................................7-1
</TABLE>
ii-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Conflicts of Interest...........................................................................................2-1
Copyright Laws, Compliance with............................................................................2-1; 6-1
Corporate Assets, Protection of................................................................................2-10
Corporate Responsibility...................................................................................2-4; 5-1
Drug Abuse......................................................................................................2-5
Employee Co-Investment with Client Investment Partnerships.....................................................4-14
Employees, Standards of Conduct.................................................................................2-1
Employment of Former Government Employees.......................................................................2-5
Employment Practices............................................................................................2-5
Entertainment...................................................................................................2-8
Equal Opportunity...............................................................................................2-5
Exchange - Traded Index Options................................................................................4-16
Executor, Service as...........................................................................................2-11
Fees, Referral.................................................................................................2-10
Fiduciary, Price Associates' Status as a .......................................................................1-2
Financial Reporting.............................................................................................2-6
Financial Service Firms, Relationships with.....................................................................2-2
Front Running...................................................................................................4-1
General Policy Statement........................................................................................1-1
Gifts, Giving...................................................................................................2-7
Gifts, Receipt of...............................................................................................2-7
Government Employees, Employment of Former......................................................................2-5
Harassment......................................................................................................2-5
Health and Safety in the Workplace..............................................................................2-6
Illegal Payments................................................................................................2-6
Information, Release to the Press..............................................................................2-10
Initial Public Offerings........................................................................................4-9
Inside Information, Trading in Securities with.................................................................2-11
Interest, Conflicts of..........................................................................................2-1
Internet, Access to.............................................................................................7-2
Investment Clubs..........................................................................................2-2; 4-14
Investment Personnel............................................................................................4-3
Large Company Exemption for Securities Transactions............................................................4-15
</TABLE>
ii-2
<PAGE>
<TABLE>
<S> <C>
Margin Accounts................................................................................................4-15
Marketing and Sales Activities..................................................................................2-6
Non-Access Persons..............................................................................................4-4
Nonprofitmaking Enterprises, Service with.......................................................................2-2
Options and Futures............................................................................................4-16
Payments, Illegal...............................................................................................2-6
Personal Securities Holdings, Disclosure of by Access Persons..................................................4-18
Personal Representative, Service as............................................................................2-11
Political Activities............................................................................................2-9
Press, Release of Information to the...........................................................................2-10
Price Associates, Standards of Conduct..........................................................................2-1
</TABLE>
ii-3
<PAGE>
<TABLE>
<S> <C>
Price Associates' Stock, Transactions in........................................................................4-5
Prior Clearance of Securities Transactions (other than Price Associates' stock).................................4-8
Private Placement, Investment In...............................................................................4-10
Private Placement Memoranda.....................................................................................3-7
Profitmaking Enterprises, Relationships with....................................................................2-1
Protection of Corporate Assets.................................................................................2-10
Publications...................................................................................................2-11
Quality of Services............................................................................................2-10
Questions Regarding the Code....................................................................................1-2
Rating Changes, Approved Company...............................................................................4-11
Record Retention...............................................................................................2-10
Referral Fees..................................................................................................2-10
Release of Information to the Press............................................................................2-10
Reporting, Financial............................................................................................2-6
Reporting, Price Associates' Stock Transactions.................................................................4-6
Reporting, Securities Transactions (other than Price Associates' stock)........................................4-12
Research Trips..................................................................................................2-9
Responsibility, Corporate..................................................................................2-4; 5-1
Restricted List.................................................................................................3-7
Retention, Record..............................................................................................2-10
Safety and Health in the Workplace..............................................................................2-6
Securities Transactions, Reporting of (other than Price Associates' stock).....................................4-12
Services, Quality of...........................................................................................2-10
Short Sales....................................................................................................4-17
Sixty (60) Day Rule............................................................................................4-17
Software Programs, Application of Copyright Law.................................................................7-5
Speaking Engagements...........................................................................................2-11
Standards of Conduct of Price Associates and its Employees......................................................2-1
Statement, General Policy.......................................................................................1-1
Temporary Workers, Application of Code to..................................................................1-1; 4-2
Termination of Employment.......................................................................................2-4
</TABLE>
1-1
<PAGE>
<TABLE>
<S> <C>
Trading Activity...............................................................................................4-15
Trips, Research.................................................................................................2-9
Trustee, Service as............................................................................................2-11
Violations, Responsibility to Report...........................................................................2-10
Watch List......................................................................................................3-6
</TABLE>
1-2
<PAGE>
CODE OF ETHICS
OF
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
GENERAL POLICY STATEMENT
Purpose and Scope of Code of Ethics. In recognition of T. Rowe Price Associates,
Inc.'s ("Price Associates") commitment to maintain the highest standards of
professional conduct and ethics, the firm's Board of Directors has adopted this
Code of Ethics ("Code") composed of Standards of Conduct and the following
Statements of Policy ("Statements"):
1. Statement of Policy on Material, Inside (Non-Public) Information
2. Statement of Policy on Securities Transactions
3. Statement of Policy on Corporate Responsibility
4. Statement of Policy with Respect to Compliance with Copyright Laws
5. Statement of Policy with Respect to Computer Security and Related Issues
6. Statement of Policy on Compliance with Antitrust Laws
The purpose of this Code is to help preserve our most valuable asset - the
reputation of Price Associates and its employees.
Who is Subject to the Code. Price Associates, its subsidiaries and their
officers, directors and employees are all subject to the Code, as are all Rowe
Price-Fleming International, Inc. ("RPFI") and T. Rowe Fleming Asset Management
Limited ("TRFAM") personnel (officers, directors, and employees) who are
stationed in Baltimore. In addition, the following persons are also subject to
the Code:
1. All temporary workers hired on the Price Associates payroll ("TRPA
Temporaries");
2. All agency temporaries, whose assignments at Price Associates exceed
four weeks or whose cumulative assignments exceed eight weeks over a
twelve-month period;
3. All independent or agency-provided consultants whose assignments exceed
four weeks or whose cumulative assignments exceed eight weeks over a
twelve-month period and whose work is closely related to the ongoing
work of Price Associates' employees (versus project work that stands
apart from ongoing work); and
4. Any contingent worker whose assignment is more than casual in nature or
who will be exposed to the kinds of information and situations that
would create conflicts on matters covered in the Code.
1-3
<PAGE>
Price Associates' Status as a Fiduciary. The primary responsibility of Price
Associates as an investment adviser is to render to its clients on a
professional basis unbiased and continuous advice regarding their investments.
As an investment adviser, Price Associates has a fiduciary relationship with all
of its clients, which means that it has an absolute duty of undivided loyalty,
fairness and good faith toward its clients and mutual fund shareholders and a
corresponding obligation to refrain from taking any action or seeking any
benefit for itself which would, or which would appear to, prejudice the rights
of any client or shareholder or conflict with his or her best interests.
What the Code Does Not Cover. The Code was not written for the purpose of
covering all policies, rules and regulations to which employees may be subject.
As an example, T. Rowe Price Investment Services, Inc. ("Investment Services")
is a member of the National Association of Securities Dealers, Inc. ("NASD")
and, as such, is required to maintain written supervisory procedures to enable
it to supervise the activities of its registered representatives and associated
persons to ensure compliance with applicable securities laws and regulations,
and with the applicable rules of the NASD and its regulatory subsidiary, NASD
Regulation, Inc. ("NASDR").
Compliance with the Code. Strict compliance with the provisions of this Code is
considered a basic condition of employment with the firm. An employee may be
required to surrender any profit realized from a transaction which is deemed to
be in violation of the Code. In addition, any breach of the Code may constitute
grounds for disciplinary action, including dismissal from employment. Employees
may appeal to the Management Committee any ruling or decision rendered with
respect to the Code.
Questions Regarding the Code. Questions regarding the Code should be referred
as follows:
1. Standards of Conduct of Price Associates and its Employees: the
Chairperson of the Ethics Committee or the Director of Human Resources.
2. Statement of Policy on Material, Inside (Non-Public) Information: Legal
Department.
3. Statement of Policy on Securities Transactions: The Chairperson of the
Ethics Committee or his or her designee.
4. Statement of Policy on Corporate Responsibility: Corporate
Responsibility Committee.
5. Statement of Policy with Respect to Compliance with Copyright Laws:
Legal Department.
6. Statement of Policy with Respect to Computer Security and Related
Issues: Legal Department.
7. Statement of Policy on Compliance with Antitrust Laws: Legal Department.
March, 2000
1-4
<PAGE>
5-1
STANDARDS OF CONDUCT OF PRICE ASSOCIATES AND ITS EMPLOYEES
Allocation of Client Brokerage. The firm's policies with respect to the
allocation of client brokerage are set forth in Part II of Form ADV, Price
Associates' registration statement filed with the Securities and Exchange
Commission ("SEC"). It is imperative that all employees -- especially those who
are in a position to make recommendations regarding brokerage allocation, or who
are authorized to select brokers who will execute securities transactions on
behalf of our clients -- read and become fully knowledgeable concerning our
policies in this regard. Any questions regarding our firm's allocation of client
brokerage should be addressed to the Chairperson of the Brokerage Control
Committee.
Antitrust. The U.S. antitrust laws are designed to ensure fair competition and
preserve the free enterprise system. Some of the most common antitrust issues
with which an employee may be confronted are in the areas of pricing (adviser
fees) and trade association activity. To ensure its employees' understanding of
these laws, Price Associates has adopted a Statement of Policy on Compliance
with Antitrust Laws. All employees should read and understand this Statement.
(See page 8-1).
Compliance with Copyright Laws. To protect Price Associates and its employees,
Price Associates has adopted a Statement of Policy with Respect to Compliance
with Copyright Laws. All employees should read and understand this Statement
(see page 6-1).
Computer Security. Computer systems and programs play a central role in Price
Associates' operations. To establish appropriate computer security to minimize
potential for loss or disruptions to our computer operations, Price Associates
has adopted a Statement of Policy with Respect to Computer Security and Related
Issues. All employees should read and understand this Statement (see page 7-1).
Conflicts of Interest. A direct or indirect interest in a supplier, creditor,
debtor or competitor may conflict with the interests of Price Associates. All
employees must avoid placing themselves in a "compromising position" where their
interests may be in conflict with those of Price Associates or its clients.
Relationships with Profitmaking Enterprises. A conflict may occur when
an employee of Price Associates is also employed by another firm,
directly or as a consultant or independent contractor; has a direct
financial interest in another firm; has an immediate family financial
interest in another firm; or is a director, officer or partner of
another firm.
Employees of our firm sometimes serve as directors, officers, partners,
or in other capacities with profitmaking enterprises not related to
Price Associates or its mutual funds. Employees are generally
prohibited from serving as officers or directors of corporations which
are approved or are likely to be approved for purchase in our firm's
client accounts.
5-1
<PAGE>
An employee may not accept outside employment that would require him or
her to become registered (or dually registered) as a representative of
an unaffiliated broker/dealer, investment adviser, or an insurance
broker or company. An employee may also not become independently
registered as an investment adviser.
An employee who is contemplating obtaining another interest or
relationship that might conflict or appear to conflict with the
interests of Price Associates, such as accepting employment with or an
appointment as a director, officer or partner of an outside
profitmaking enterprise must receive the prior approval of the Ethics
Committee. Upon review by the Ethics Committee, the employee will be
advised in writing of the Committee's decision. Decisions by the Ethics
Committee regarding outside directorships in profitmaking enterprises
will be reviewed by the Management Committee before becoming final.
Outside business interests that will not conflict or appear to conflict
with the interests of the firm need not be reviewed by the Ethics
Committee, but must be approved by the Employee's supervisor.
Certain employees may serve as directors or as members of Creditors
Committees or in similar positions for non-public, for-profit entities
in connection with their professional activities at Price Associates.
An employee must obtain the permission of the Management Committee
before accepting such a position and must relinquish the position if
the entity becomes publicly held, unless otherwise determined by the
Management Committee.
Service with Nonprofitmaking Enterprises. Price Associates encourages
its employees to become involved in community programs and civic
affairs. However, employees should not permit such activities to affect
the performance of their job responsibilities. Approval by the
Chairperson of the Ethics Committee must be obtained before an employee
accepts a position as a trustee or member of the Board of Directors of
any non-profit organization.
Relationships with Financial Service Firms. In order to avoid any
actual or apparent conflicts of interest, employees are prohibited from
investing in or entering into any relationship, either directly or
indirectly, with corporations, partnerships, or other entities which
are engaged in business as a broker, a dealer, an underwriter, and/or
an investment adviser. As described above, this prohibition extends to
registration and/or licensure with an unaffiliated firm. This
prohibition, however, is not meant to prevent employees from purchasing
publicly traded securities of broker/dealers, investment advisers or
other companies engaged in the mutual fund industry. Of course, all
such purchases are subject to prior clearance and reporting procedures,
as applicable. This policy does not preclude an employee from engaging
an outside investment adviser to manage his or her assets.
If any member of an employee's immediate family is employed by, has a
partnership interest in, or has an equity interest of .5% or more in a
broker/dealer, investment adviser or other company engaged in the
mutual fund industry, the relationship must be reported to the Ethics
Committee.
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Investment Clubs. Access Persons (defined on p. 4-3 of the Code) must
receive the prior approval of the Chairperson of the Ethics Committee
before forming or participating in a stock or investment club.
Transactions in which Access Persons have beneficial ownership or
control (see p. 4-4) through investment clubs are subject to the firm's
Statement of Policy on Securities Transactions. Non-Access Persons
(defined on p. 4-4) do not have to receive prior approval to form or
participate in a stock or investment club and need only obtain prior
clearance of transactions in Price Associates' stock. As described on
p. 4-16, an exemption from prior clearance for an Access Person (except
for transactions in Price Associates' stock) is generally available if
the Access Person has beneficial ownership solely by virtue of his or
her spouse's participation in the club and has no investment control or
input into decisions regarding the club's securities transactions.
Confidentiality. The exercise of confidentiality extends to four major areas of
our operations: internal operating procedures and planning; clients, fund
shareholders and TRP Brokerage customers; investment advice; and investment
research. The duty to exercise confidentiality applies not only when an employee
is with the firm, but also after he or she terminates employment with the firm.
Internal Operating Procedures and Planning. During the years we have
been in business, a great deal of creative talent has been used to
develop specialized and unique methods of operations and portfolio
management. In many cases, we feel these methods give us an advantage
over our competitors, and we do not want these ideas disseminated
outside our firm. Accordingly, employees should be guarded in
discussing our business practices with outsiders. Any requests from
outsiders for specific information of this type should be cleared with
your supervisor before it is released.
Also, from time to time management holds meetings with employees in
which material, non-public information concerning the firm's future
plans is disclosed. Employees should never discuss confidential
information with, or provide copies of written material concerning the
firm's internal operating procedures or projections for the future to,
unauthorized persons outside the firm.
Clients, Fund Shareholders, and TRP Brokerage Customers. In many
instances, when clients subscribe to our services, we ask them to
disclose fully their financial status and needs. This is done only
after we have assured them that every member of our organization will
hold this information in strict confidence. It is essential that we
respect their trust. A simple rule for employees to follow is that the
names of our clients, fund shareholders, or TRP Brokerage customers or
any information pertaining to their investments must never be divulged
to anyone outside the firm, not even to members of their immediate
families, and must never be used as a basis for personal trades over
which the employee has beneficial interest or control.
Investment Advice. Because of the fine reputation our firm enjoys,
there is a great deal of public interest in what we are doing in the
market. There are two major considerations that dictate why we must not
provide investment "tips":
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o From the point of view of our clients, it is not fair to give
other people information which clients must purchase.
o From the point of view of the firm, it is not desirable to create
an outside demand for a stock when we are trying to buy it for our
clients, as this will only serve to push the price up. The reverse
is true if we are selling.
In light of these considerations, employees must never disclose to
outsiders our buy and sell recommendations, securities we are
considering for future investment, or the portfolio holdings of our
clients or mutual funds.
The practice of giving investment advice informally to members of your
immediate family should be restricted to very close relatives. Any
transactions resulting from such advice are subject to the prior
approval (Access Persons only) and reporting requirements (Access
Persons and Non-Access Persons) of the Statement of Policy on
Securities Transactions. Under no circumstances should an employee
receive compensation directly or indirectly (other than from Price
Associates or an affiliate) for rendering advice to either clients or
non-clients.
Investment Research. Any report circulated by a research analyst is
confidential in its entirety and should not be reproduced or shown to
anyone outside of our organization, except our clients where
appropriate.
Understanding as to Clients' Accounts and Company Records at Time of
Employee Termination. The accounts of clients, mutual fund
shareholders, and TRP Brokerage customers are the sole property of
Price Associates. This applies to all clients for whom Price Associates
acts as investment adviser, regardless of how or through whom the
client relationship originated and regardless of who may be the
counselor for a particular client. At the time of termination of
employment with Price Associates, an employee must: (1) surrender to
Price Associates in good condition any and all materials, reports or
records (including all copies in his or her possession or subject to
his or her control) developed by him or her or any other person which
are considered confidential information of Price Associates (except
copies of any research material in the production of which the employee
participated to a material extent); and (2) refrain from communicating,
transmitting or making known to any person or firm any information
relating to any materials or matters whatsoever which are considered by
Price Associates to be confidential.
Employees must use care in disposing of any confidential records or
correspondence. Confidential material that is to be discarded should be torn up
or, if a quantity of material is involved, you should contact Document
Management for instructions regarding proper disposal.
Corporate Responsibility. As a major institutional investor with a fiduciary
duty to its clients, including its mutual fund shareholders, Price Associates
has adopted a Statement of Policy on Corporate Responsibility (see page 5-1).
The purpose of this Statement is to establish formal standards and procedures to
guide Price Associates with respect to its responsibilities to deal with matters
of corporate and social responsibilities which may affect the companies in which
client assets are invested.
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Employment of Former Government Employees. Federal laws and regulations govern
the employment of former employees of the U.S. Government and its agencies,
including the SEC. In addition, certain states have adopted similar statutory
restrictions. Finally, certain states and municipalities which are clients of
Price Associates have imposed contractual restrictions in this regard. Before
any action is taken to discuss employment by Price Associates of a former
government employee, guidance must be obtained from the Legal Department.
Employment Practices
Equal Opportunity. Price Associates is committed to the principles of
Equal Employment. We believe our continued success depends on talented
people, without regard to race, color, religion, national origin,
gender, age, disability, sexual orientation, Vietnam era military
service or any other classification protected by federal, state or
local laws.
This commitment to Equal Opportunity covers all aspects of the
employment relationship including recruitment, application and initial
employment, promotion and transfer, selection for training
opportunities, wage and salary administration, and the application of
service, retirement, and employee benefit plan policies.
All members of T. Rowe Price staff are expected to comply with the
spirit and intent of our Equal Employment Opportunity Policy.
If you feel you have not been treated in accordance with this policy,
contact your immediate supervisor, your manager or a Human Resources
Representative. No retaliation will be taken against any employee who
reports an incident of alleged discrimination.
Harassment. Price Associates intends to provide employees a workplace
free from any form of harassment. This includes sexual harassment
which, banned by and punishable under the Civil Rights Act of 1964, may
result from unwelcome advances, requests for favors or any verbal or
physical conduct of a sexual nature. Such actions or statements may or
may not be accompanied by explicit or implied promises of preferential
treatment or negative consequences in connection with one's employment.
Harassment might include uninvited sex-oriented conversations,
touching, comments, jokes, suggestions or innuendos. This type of
behavior can create a stressful, intimidating and offensive atmosphere;
it may adversely affect morale and work performance.
Any employee who feels offended by the action or comments of another,
or any employee who has observed such behavior, should report the
matter, in confidence, to his or her immediate supervisor. If that
presents a problem, report the matter to the Director of Human
Resources or another person in the Human Resources Department. All
complaints will be investigated immediately and confidentially. Any
employee who has behaved in a reprehensible manner will be subject to
disciplinary action in keeping with the gravity of the offense.
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Drug and Alcohol Abuse. Price Associates has adopted a Statement of
Policy, available from Human Resources, to maintain a drug-free
workplace and prevent alcohol abuse. This policy fosters a safe,
healthful and productive environment for its employees and customers
and protects Price Associates' property, equipment, operations and
reputation in the community and the industry.
Past and Current Litigation. As a condition of employment, each new employee is
required to answer a questionnaire regarding past and current civil and criminal
actions and certain regulatory matters. Price Associates uses the information
obtained through these questionnaires to answer questions asked on federal and
state registration forms and for insurance and bonding purposes. Each employee
is responsible for keeping answers on the questionnaire current. If an employee
becomes party to any proceeding that could lead to his or her conviction for any
felony or misdemeanor (other than traffic or other minor offenses) or becomes
the subject of a regulatory action by the SEC, a state, a foreign government or
any domestic or foreign self-regulatory organization relating to securities or
investment activities, he or she should notify the Legal Department promptly.
Financial Reporting. Price Associates' records are maintained in a manner that
provides for an accurate record of all financial transactions in conformity with
generally accepted accounting principles. No false or deceptive entries may be
made and all entries must contain an appropriate description of the underlying
transaction. All reports, vouchers, bills, invoice, payroll and service records
and other essential data must be accurate, honest and timely and should provide
an accurate and complete representation of the facts.
Health and Safety in the Workplace. Price Associates recognizes its
responsibility to provide employees a safe and healthful workplace and proper
facilities to help them do their jobs effectively.
Illegal Payments. State, federal and foreign laws prohibit the payment of
bribes, kickbacks, inducements or other illegal gratuities or payments by or on
behalf of Price Associates. Price Associates, through its policies and
practices, is committed to comply fully with these laws. The Foreign Corrupt
Practices Act makes it a crime to corruptly give, promise or authorize payment,
in cash or in kind, for any service to a foreign official or political party in
connection with obtaining or retaining business. If an employee is solicited to
make or receive an illegal payment, he or she should contact the Legal
Department.
Marketing and Sales Activities. All written and oral marketing materials and
presentations (including performance data) must be in compliance with applicable
SEC, NASD, and Association of Investment Management and Research ("AIMR")
requirements. All advertisements, sales literature and other written marketing
materials (whether they be for the Price Funds, non-Price funds, or various
advisory or brokerage services) must be reviewed and approved by the advertising
section of the Legal Department prior to use. All performance data distributed
outside the firm, including total return and yield information, must be obtained
from the Performance Group before distribution.
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Policy Regarding Acceptance and Giving of Gifts and Gratuities. The firm, as
well as its employees and members of their families, should not accept or give
gifts that might in any way create or appear to create a conflict of interest or
interfere with the impartial discharge of our responsibilities to clients or
place our firm in a difficult or embarrassing position. Such gifts would include
gratuities or other accommodations from or to business contacts, brokers,
securities salespersons, approved companies, suppliers, clients, or any other
individual or organization with whom our firm has a business relationship, but
would not include certain types of business entertainment as described later in
this section.
Receipt of Gifts. Personal contacts may lead to gifts which are offered
on a friendship basis and may be perfectly proper. It must be
remembered, however, that business relationships cannot always be
separated from personal relationships and that the integrity of a
business relationship is always susceptible to criticism in hindsight
where gifts are received.
Under no circumstances may employees accept gifts from any business or
business contact in the form of cash or cash equivalents. Gift
certificates may only be accepted if used; they may not be converted to
cash except for nominal amounts not consumed when the gift certificate
is used.
There may be an occasion where it might be awkward to refuse a token
non-cash expression of appreciation given in the spirit of friendship.
In such cases, the value of all gifts received from a business contact
should not exceed $100 in any twelve-month period. The value of a gift
directed to the members of a department as a group may be divided by
the number of the employees in that Department. Gifts received which
are unacceptable according to this policy must be returned to the
givers.
Giving of Gifts. An employee may never give a gift to a business
contact in the form of cash or cash equivalents, including gift
certificates. Token gifts may be given to business contacts, but the
aggregate value of all such gifts given to the business contact may not
exceed $100 in any twelve-month period without the permission of the
Chairperson of the Ethics Committee. If an employee believes that it
would be appropriate to give a gift with a value exceeding $100 to a
business contact in a specific situation, he or she must submit a
written request to the Chairperson of the Ethics Committee. The request
should specify:
o the name of the giver;
o the name of the intended recipient and his or her employer;
o the nature of the gift and its monetary value;
o the nature of the business relationship; and
o the reason the gift is being given.
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NASD regulations prohibit exceptions to the $100 limit for gifts given
in connection with Investment Services' business. Baltimore/Legal
Compliance will retain a record of all such gifts.
Additional Requirements for the Giving of Gifts in Connection with the
Broker/Dealer. NASD Conduct Rule 3060 imposes stringent reporting
requirements for gifts given to any principal, employee, agent or
similarly situated person where the gift is in connection with
Investment Services' business with the person's employer. Examples of
gifts that fall under this rule would include any gift given to an
employee of a company to which our firm provides investment products
such as mutual funds (e.g., many 401(k) plans) or to which we are
marketing investment products. Under this NASD rule, gifts may not
exceed $100 (without exception) and persons associated with Investment
Services, including its registered representatives, must report each
such gift.
The NASD reporting requirement is normally met when an item is ordered
electronically from the Corporate Gift website. If a gift is obtained
from another source, it must be reported to Baltimore/Legal Compliance.
The report to Baltimore Legal/Compliance must include:
o the name of the giver;
o the name of the recipient and his or her employer;
o the nature of the gift and its monetary value;
o the nature of the business relationship; and
o the date the gift was given.
Entertainment. Our firm's $100 limit on the acceptance and giving of
gifts not only applies to gifts of merchandise, but also covers the
enjoyment or use of property or facilities for weekends, vacations,
trips, dinners, and the like. However, this limitation does not apply
to dinners, sporting events and other activities which are a normal
part of a business relationship. To illustrate this principle, the
following examples are provided:
First Example: The head of institutional research at brokerage
firm "X" (whom you have known and done business with for a
number of years) invites you and your wife to join her and her
husband for dinner and afterwards a theatrical production.
Second Example: You are going to New York for a weekend with
your wife. You wish to see a recent Broadway hit, but are told
it is sold out. You call a broker friend who works at company
"X" to see if he can get tickets for you. The broker says yes
and offers you two tickets free of charge.
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Third Example: You have been invited by a vendor to a
multi-day excursion to a resort where the primary focus is
entertainment as opposed to business. The vendor has offered
to pay your travel and lodging for this trip.
In the first example, it would be proper for you to accept the
invitation.
With respect to the second example, it would not be proper to solicit a
person doing business with the firm for free tickets to any event. You
could, however, accept the tickets if you pay for them at their fair
value or, if greater, at the cost to the broker.
With respect to the third example, trips of substantial value, such as
multi-day excursions to resorts, hunting locations or sports events,
where the primary focus is entertainment as opposed to business
activities, would not be considered a normal part of a business
relationship. Generally, such invitations may not be accepted unless
our firm or the employee pays for the cost of the excursion and the
employee has obtained approval from his or her Division Head.
The same principles apply if an employee wishes to entertain a business contact.
Inviting business contacts and, if appropriate, their guests, to an occasional
meal, sporting event, the theater, or comparable entertainment is acceptable as
long as it is neither so frequent nor so extensive as to raise any question of
propriety. If an employee wishes to pay for a business guest=s transportation
(e.g., airfare) and/or accommodations as part of business entertainment, he or
she must first receive the permission of the Chairperson of the Ethics
Committee.
Research Trips. Occasionally, brokers or portfolio companies invite employees of
our firm to attend or participate in research conferences, tours of portfolio
companies' facilities, or meetings with the management of such companies. These
invitations may involve traveling extensive distances to and from the sites of
the specified activities and may require overnight lodging. Employees may not
accept any such invitations until approval has been secured from their Division
heads. As a general rule, such invitations should only be accepted after a
determination has been made that the proposed activity constitutes a valuable
research opportunity which will be of primary benefit to our clients. All travel
expenses to and from the sites of the activities, and the expenses of any
overnight lodging, meals or other accommodations provided in connection with
such activities, should be paid for by our firm except in situations where the
costs are considered to be insubstantial and are not readily ascertainable.
Employees may not accept reimbursement from brokers or portfolio companies for:
travel and hotel expenses; speaker fees or honoraria for addresses or papers
given before audiences; or consulting services or advice they may render.
Likewise, employees may neither request nor accept loans or personal services
from brokers or portfolio companies.
Political Activities. Employees are encouraged to participate and vote in all
federal, state and local elections. All officers and directors of Price
Associates are required to disclose certain Maryland local and state political
contributions on a semi-annual basis (a Political Contribution Questionnaire is
sent to officers and directors each January and July).
No political contribution of corporate funds, direct or indirect, to any
political candidate or party, or to any other organization that might use the
contribution for a political candidate or party, or use of corporate property,
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services or other assets may be made without the written approval of the Legal
Department. These prohibitions cover not only direct contributions but also
indirect assistance or support of candidates or political parties through
purchase of tickets to special dinners or other fund raising events, or the
furnishing of any other goods, services or equipment to political parties or
committees.
Protection of Corporate Assets. All employees are responsible for taking
measures to ensure that Price Associates' assets are properly protected. This
responsibility not only applies to our business facilities, equipment and
supplies, but also to intangible assets such as proprietary, research or
marketing information, corporate trademarks and servicemarks, and copyrights.
Quality of Services. It is a continuing policy of Price Associates to provide
investment products and services which: (1) meet applicable laws, regulations
and industry standards; (2) are offered to the public in a manner which ensures
that each client/shareholder understands the objectives of each investment
product selected; and (3) are properly advertised and sold in accordance with
all applicable SEC, state and NASD rules and regulations.
The quality of Price Associates' investment products and services and operations
affects our reputation, productivity, profitability and market position. Price
Associates' goal is to be a quality leader and to create conditions that allow
and encourage all employees to perform their duties in an efficient, effective
manner.
Record Retention. Under various federal and state laws and regulations, Price
Associates is required to produce, maintain and retain various records,
documents and other written (including electronic) communications. Each employee
is responsible for adhering to Price Associates' record maintenance and
retention policies.
Referral Fees. Federal securities laws strictly prohibit the payment of any type
of referral fee unless certain conditions are met. This would include any
compensation to persons who refer clients or shareholders to us (e.g., brokers,
registered representatives or any other persons) either directly in cash, by fee
splitting, or indirectly by the providing of gifts or services (including the
allocation of brokerage). No arrangements should be entered into obligating
Price Associates or any employee to pay a referral fee unless approved by the
Legal Department.
Release of Information to the Press. All requests for information from the media
concerning T. Rowe Price Associates' corporate affairs, mutual funds, investment
services, investment philosophy and policies, and related subjects should be
referred to the Public Relations Department for reply. Investment professionals
who are contacted directly by the press concerning a particular fund's
investment strategy or market outlook may use their own discretion, but are
advised to check with the Public Relations Department if they do not know the
reporter or feel it may be inappropriate to comment on a particular matter.
Responsibility to Report Violations. Every employee who becomes aware of a
violation of this Code is encouraged to report, on a confidential basis, the
violation to his or her supervisor. If the supervisor appears to be involved in
the wrongdoing, the report should be made to the next level of supervisory
authority or to the Director of the Human Resources Department. Upon
notification of the alleged violation, the supervisor is obligated to advise the
Legal Department.
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It is Price Associates' policy that no adverse action will be taken against any
employee who reports a violation in good faith.
Service as Trustee, Executor or Personal Representative. Employees may serve as
trustees, co-trustees, executors or personal representatives for the estates of
or trusts created by close family members. Employees may also serve in such
capacities for estates or trusts created by nonfamily members. However, if an
Access Person expects to be actively involved in an investment capacity in
connection with an estate or trust created by a nonfamily member, he or she must
first be granted permission by the Ethics Committee. If an employee serves in
any of these capacities, securities transactions effected in such accounts will
be subject to the prior approval (Access Persons only) and reporting
requirements (Access Persons and Non-Access Persons) of our Statement of Policy
on Securities Transactions.
If any employees presently serve in any of these capacities for nonfamily
members, they should report these relationships in writing to the Ethics
Committee.
Speaking Engagements and Publications. Employees are often asked to accept
speaking engagements on the subject of investments, finance, or their own
particular specialty with our organization. This is encouraged by the firm, as
it enhances our public relations, but you should obtain approval from the head
of your Division before you accept such requests. You may also accept an offer
to teach a course or seminar on investments or related topics (for example, at a
local college) in your individual capacity with the approval of the head of your
Division and provided the course is in compliance with the Guidelines found in
Investment Services= Compliance Manual.
Before making any commitment to write or publish any article or book on a
subject related to investments or your work at Price Associates, approval should
be obtained from your Division head.
Trading in Securities with Inside Information. The purchase or sale of
securities while in possession of material, inside information is prohibited by
state and federal laws. Information is considered inside and material if it has
not been publicly disclosed and is sufficiently important that it would affect
the decision of a reasonable person to buy, sell or hold stock in a company,
including Price Associates' stock. Under no circumstances may an employee
transmit such information to any other person, except to other employees who are
required to be kept informed on the subject. All employees should read and
understand the Statement of Policy on Material, Inside (Non-Public) Information
(see page 3-1).
March, 2000
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T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
MATERIAL, INSIDE (NON-PUBLIC) INFORMATION
Introduction. "Insider trading" is a top enforcement priority of the Securities
and Exchange Commission. In 1988, the Insider Trading and Securities Fraud
Enforcement Act (the "Act") was signed into law. This Act has had a far reaching
impact on all public companies and especially those engaged in the securities
brokerage or investment advisory industries, including directors, executive
officers and other controlling persons of such companies. While the Act does not
provide a statutory definition of "insider trading," it contained major changes
to the previous law. Specifically, the Act:
Written Procedures. Requires SEC-registered brokers, dealers and
investment advisers to establish, maintain and enforce written policies
and procedures reasonably designed to prevent the misuse of material,
non-public information by such persons.
Civil Penalties. Imposes severe civil penalties on brokerage firms,
investment advisers, their management and advisory personnel and other
"controlling persons" who fail to take adequate steps to prevent insider
trading and illegal tipping by employees and other "controlled persons."
Persons who directly or indirectly control violators, including entities
such as Price Associates and their officers and directors, face penalties
to be determined by the court in light of the facts and circumstances, but
not to exceed the greater of $1,000,000 or three times the amount of
profit gained or loss avoided as a result of the violation.
Criminal Penalties. Provides as penalties for criminal securities law
violations:
o Maximum jail term -- from five to ten years;
o Maximum criminal fine for individuals -- from $100,000 to $1,000,000;
o Maximum criminal fine for entities -- from $500,000 to $2,500,000.
Private Right of Action. Establishes a statutory private right of action
on behalf of contemporaneous traders against insider traders and their
controlling persons.
Bounty Payments. Authorizes the SEC to award bounty payments to persons
who provide information leading to the successful prosecution of insider
trading violations. Bounty payments are at the discretion of the SEC, but
may not exceed 10% of the penalty imposed.
Purpose of Statement of Policy. The purpose of this Statement of Policy
("Statement") is to comply with the Act's requirement to establish, maintain,
and enforce written procedures designed to prevent insider trading. This
Statement explains: (i) the general legal prohibitions and sanctions regarding
insider trading; (ii) the meaning of the key concepts underlying the
prohibitions; (iii) the obligations of each employee of Price Associates in the
event he or she comes into possession of material, non-public information; and
(iv) the firm's educational program regarding insider trading. Price Associates
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has also adopted a Statement of Policy on Securities Transactions (see page
4-1), which requires both Access Persons (see p. 4-3) and Non-Access Persons
(see p. 4-4) to obtain prior clearance with respect to their transactions in
Price Associates' stock and requires Access Persons to obtain prior clearance
with respect to all pertinent securities transactions. In addition, both Access
Persons and Non-Access Persons are required to report such transactions on a
timely basis to the firm.
The Basic Insider Trading Prohibition. The "insider trading" doctrine under
federal securities laws generally prohibits any person (including investment
advisers) from:
o trading in a security while in possession of material, non-public
information regarding the issuer of the security;
o tipping such information to others;
o recommending the purchase or sale of securities while in possession of
such information;
o assisting someone who is engaged in any of the above activities.
Thus, "insider trading" is not limited to insiders of the company whose
securities are being traded. It can also apply to non-insiders, such as
investment analysts, portfolio managers and stockbrokers. In addition, it is not
limited to persons who trade. It also covers persons who tip material,
non-public information or recommend transactions in securities while in
possession of such information.
Policy of Price Associates on Insider Trading. It is the policy of Price
Associates and its affiliates to forbid any of their officers, directors, or
employees, while in possession of material, non-public information, from trading
securities or recommending transactions, either personally or in its proprietary
accounts or on behalf of others (including mutual funds and private accounts),
or communicating material, non-public information to others in violation of
federal securities laws.
"Need to Know" Policy. All information regarding planned, prospective or ongoing
securities transactions must be treated as confidential. Such information must
be confined, even within the firm, to only those individuals and departments who
must have such information in order for Price Associates to carry out its
engagement properly and effectively. Ordinarily, these prohibitions will
restrict information to only those persons who are involved in the matter.
Transactions Involving Price Associates' Stock. Officers, directors and
employees are reminded that they are "insiders" with respect to Price Associates
since Price Associates is a public company and its stock is traded in the
over-the-counter market. It is therefore important that employees not discuss
with family, friends or other persons any matter concerning Price Associates
which might involve material, non-public information, whether favorable or
unfavorable.
Sanctions. Penalties for trading on material, non-public information are severe,
both for the individuals involved in such unlawful conduct and their employers.
An employee of Price Associates who violates the insider trading laws can be
subject to some or all of the penalties described below, even if he or she does
not personally benefit from the violation:
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o Injunctions;
o Treble damages;
o Disgorgement of profits;
o Criminal fines;
o Jail sentences;
o Civil penalties for the person who committed the violation (which
would, under normal circumstances, be the employee and not the firm) of
up to three times the profit gained or loss avoided, whether or not the
individual actually benefitted; and
o Civil penalties for Price Associates (and other persons, such as
managers and supervisors, who are deemed to be controlling persons) of
up to the greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of this Statement can be expected to result in
serious sanctions being imposed by Price Associates, including dismissal of the
person(s) involved.
Basic Concepts of Insider Trading. The four critical concepts in insider trading
cases are: (1) fiduciary duty/misappropriation, (2) materiality, (3) non-public,
and (4) possession. Each concept is discussed below.
Fiduciary Duty/Misappropriation. In two decisions, Dirks v. SEC and Chiarella v.
United States, the United States Supreme Court held that insider trading and
tipping violate the federal securities law if the trading or tipping of the
information results in a breach of duty of trust or confidence.
A typical breach of duty arises when an insider, such as a corporate officer,
purchases securities of his or her corporation on the basis of material,
non-public information. Such conduct breaches a duty owed to the corporation's
shareholders. The duty breached, however, need not be to shareholders to support
liability for insider trading; it could also involve a breach of duty to a
client, an employer, employees, or even a personal acquaintance. For example,
courts have held that if the insider receives a personal benefit (either direct
or indirect) from the disclosure, such as a pecuniary gain or reputational
benefit, that would be enough to find a fiduciary breach.
The concept of who constitutes an "insider" is broad. It includes officers,
directors and employees of a company. In addition, a person can be a "temporary
insider" if he or she enters into a confidential relationship in the conduct of
a company's affairs and, as a result, is given access to information solely for
the company's purpose. A temporary insider can include, among others, a
company's attorneys, accountants, consultants, and bank lending officers, as
well as the employees of such organizations. In addition, any person may become
a temporary insider of a company if he or she advises the company or provides
other services, provided the company expects such person to keep any material,
non-public information disclosed confidential.
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Court decisions have held that under a "misappropriation" theory, an outsider
(such as an investment analyst) may be liable if he or she breaches a duty to
anyone by: (1) obtaining information improperly, or (2) using information that
was obtained properly for an improper purpose. For example, if information is
given to an analyst on a confidential basis and the analyst uses that
information for trading purposes, liability could arise under the
misappropriation theory. Similarly, an analyst who trades in breach of a duty
owed either to his or her employer or client may be liable under the
misappropriation theory. For example, the Supreme Court upheld the
misappropriation theory when a lawyer received material, non-public information
from a law partner who represented a client contemplating a tender offer, where
that lawyer used the information to trade in the securities of the target
company.
The situations in which a person can trade while in possession of material,
non-public information without breaching a duty are so complex and uncertain
that the only safe course is not to trade, tip or recommend securities while in
possession of material, non-public information.
Materiality. Insider trading restrictions arise only when the information that
is used for trading, tipping or recommendations is "material." The information
need not be so important that it would have changed an investor's decision to
buy or sell; rather, it is enough that it is the type of information on which
reasonable investors rely in making purchase, sale, or hold decisions.
Resolving Close Cases. The Supreme Court has held that, in close cases,
doubts about whether or not information is material should be resolved in
favor of a finding of materiality. You should also be aware that your
judgment regarding materiality may be reviewed by a court or the SEC with
the 20-20 vision of hindsight.
Effect on Market Price. Any information that, upon disclosure, is likely
to have a significant impact on the market price of a security should be
considered material.
Future Events. The materiality of facts relating to the possible
occurrence of future events depends on the likelihood that the event will
occur and the significance of the event if it does occur.
Illustrations. The following list, though not exhaustive, illustrates the
types of matters that might be considered material: a joint venture,
merger or acquisition; the declaration or omission of dividends; the
acquisition or loss of a significant contract; a change in control or a
significant change in management; a call of securities for redemption; the
borrowing of a significant amount of funds; the purchase or sale of a
significant asset; a significant change in capital investment plans; a
significant labor dispute or disputes with subcontractors or suppliers; an
event requiring a company to file a current report on Form 8-K with the
SEC; establishment of a program to make purchases of the company's own
shares; a tender offer for another company's securities; an event of
technical default or default on interest and/or principal payments;
advance knowledge of an upcoming publication that is expected to affect
the market price of the stock.
These illustrations are equally applicable to Price Associates as a public
company and should serve as examples of the types of matters that
employees should not discuss with persons outside the firm. Remember, even
though you may have no intent to violate any federal securities law, an
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offhand comment to a friend might be used unbeknownst to you by such
friend to effect purchases or sales of Price Associates' stock. If such
transactions were discovered and your friend were prosecuted, your status
as an informant or "tipper" would directly involve you in the case.
Non-Public Vs. Public Information. Any information which is not "public" is
deemed to be "non-public." Just as an investor is permitted to trade on the
basis of information that is not material, he or she may also trade on the basis
of information that is public. Information is considered public if it has been
disseminated in a manner making it available to investors generally. An example
of non-public information would include material information provided to a
select group of analysts but not made available to the investment community at
large. Set forth below are a number of ways in which non-public information may
be made public.
Disclosure to News Services and National Papers. The U.S. stock exchanges
require exchange-traded issuers to disseminate material, non-public
information about their companies to: (1) the national business and
financial newswire services (Dow Jones and Reuters); (2) the national
service (Associated Press); and (3) The New York Times and The Wall Street
Journal.
Local Disclosure. An announcement by an issuer in a local newspaper might
be sufficient for a company that is only locally traded, but might not be
sufficient for a company that has a national market.
Information in SEC Reports. Information contained in reports filed with
the SEC will be deemed to be public.
Information in Brokerage Reports. Information published in bulletins and
research reports disseminated by brokerage firms will, as a general
matter, be deemed to be public.
If Price Associates is in possession of material, non-public information with
respect to a security before such information is disseminated to the public
(i.e., such as being disclosed in one of the public media described above),
Price Associates and its employees must wait a sufficient period of time after
the information is first publicly released before trading or initiating
transactions to allow the information to be fully disseminated.
Concept of Possession. It is important to note that the SEC takes the position
that the law regarding insider trading prohibits any person from trading in a
security in violation of a duty of trust and confidence while in possession of
material, non-public information regarding the security. This is in contrast to
trading on the basis of the material, non-public information. To illustrate the
problems created by the use of the "possession" standard, as opposed to the
"caused" standard, the following three examples are provided:
First, if the investment committee to a Price mutual fund were to obtain
material, non-public information about one of its portfolio companies from
a Price equity research analyst, that fund would be prohibited from
trading in the securities to which that information relates. The
prohibition would last until the information is no longer material or
non-public.
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Second, if the investment committee to a Price mutual fund obtained
material, non-public information about a particular portfolio security but
continued to trade in that security, then the committee members, Price
Associates, and possibly management personnel might be liable for insider
trading violations.
Third, even if the investment committee to the Fund does not come into
possession of the material, non-public information known to the equity
research analyst, if it trades in the security, it may have a difficult
burden of proving to the SEC or to a court that it was not in possession
of such information.
Tender Offers. Tender offers are subject to particularly strict regulation under
the securities laws. Specifically, trading in securities which are the subject
of an actual or impending tender offer by a person who is in possession of
material, non-public information relating to the offer is illegal, regardless of
whether there was a breach of fiduciary duty. Under no circumstances should you
trade in securities while in possession of material, non-public information
regarding a potential tender offer.
Procedures to be Followed When Receiving Material, Non-Public Information.
Whenever an employee comes into possession of material, non-public information,
he or she should immediately contact the Legal Department and refrain from
disclosing the information to anyone else, including persons within Price
Associates, unless specifically advised to the contrary.
Specifically, employees may not:
o Trade in securities to which the material, non-public information relates;
o Disclose the information to others;
o Recommend purchases or sales of the securities to which the information
relates.
If the Legal Department determines that the information is material and
non-public, it will decide whether to:
o Place the security on a Watch List ("Watch List") and restrict the flow of
the information to others within Price Associates in order to allow Price
Associates' investment personnel to continue their ordinary investment
activities. This procedure is commonly referred to as a Chinese Wall; or
o Place the security on a Restricted List ("Restricted List") in order to
prohibit trading in the security by both clients and employees.
The Watch List is highly confidential and should, under no circumstances, be
disseminated to anyone except authorized personnel in the Legal Department. The
Restricted List is also highly confidential and should, under no circumstances,
be disseminated to anyone outside Price Associates.
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The employee whose possession of or access to inside information has caused the
inclusion of an issuer on the Watch List may never trade or recommend the trade
of the securities of that issuer without the specific prior approval of the
Legal Department.
If an employee receives a private placement memorandum and the existence of the
private offering and/or the contents of the memorandum is material and
non-public, the employee should contact the Legal Department for a determination
of whether the issuer should be placed on the Watch or Restricted List.
Specific Procedures Relating to the Safeguarding of Inside Information.
To ensure the integrity of the Chinese Wall, and the confidentiality of
the Restricted List, it is important that all employees take the following steps
to safeguard the confidentiality of material, non-public information:
o Do not discuss confidential information in public places such as
elevators, hallways or social gatherings;
o To the extent practical, limit access to the areas of the firm where
confidential information could be observed or overheard to employees
with a business need for being in the area;
o Avoid using speaker phones in areas where unauthorized persons may
overhear conversations;
o Where appropriate, maintain the confidentiality of client identities by
using code names or numbers for confidential projects;
o Exercise care to avoid placing documents containing confidential
information in areas where they may be read by unauthorized persons and
store such documents in secure locations when they are not in use; and
o Destroy copies of confidential documents no longer needed for a
project.
Price Associates has adopted specific written procedures, Procedures
Pertaining to the Administration of the Statement of Policy on Material, Inside
(Non-Public) Information ("Procedures") to deal with those situations where
employees of the firm are in possession of material, non-public information with
respect to securities which may be in or are being considered for inclusion in
the portfolios of clients managed by other areas of the firm and when tender
offer financing information is received. These Procedures also describe the
procedures for managing relationship conflicts in the municipal area. These
Procedures have been designed to isolate and keep confidential material,
non-public information known to one investment group or employee from the
remainder of the firm. They are considered a part of this Statement and will be
distributed to all appropriate personnel.
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Education Program. While the probability of research analysts and portfolio
managers being exposed to material, non-public information with respect to
companies considered for investment by clients is greater than that of other
employees, it is imperative that all employees have a full understanding of this
Statement, particularly since the insider trading restrictions also apply to
transactions in the stock of Price Associates.
To ensure that all employees are properly informed of and understand Price
Associates' policy with respect to insider trading, the following program has
been adopted.
Initial Review for New Employees. All new employees will be given a copy
of the Code, which includes this Statement, at the time of their
employment and will be required to certify that they have read it. A
representative of the Legal Department will review the Statement with each
new portfolio manager, research analyst, and trader, as well as with any
person who joins the firm as a vice president of Price Associates,
promptly after his or her employment.
Distribution of Statement. Any time this Statement is materially revised,
copies will be distributed to all employees.
Annual Review with Research Analysts, Counselors and Traders. A
representative of the Legal Department will review this Statement at least
annually with portfolio managers, research analysts, and traders.
Annual Confirmation of Compliance. All employees will be asked to confirm
their understanding of and adherence to this Statement on an annual basis.
Questions. If you have any questions with respect to the interpretation or
application of this Statement, you are encouraged to discuss them with your
immediate supervisor or the Legal Department.
March, 2000
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T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
SECURITIES TRANSACTIONS
BACKGROUND INFORMATION.
Legal Requirement. In accordance with the requirements of the Securities
Exchange Act of 1934, the Investment Company Act of 1940, the Investment
Advisers Act of 1940 and the Insider Trading and Securities Fraud
Enforcement Act of 1988, T. Rowe Price Associates, Inc. ("Price
Associates") and the mutual funds ("TRPA Funds") which it manages have
adopted this Statement of Policy on Securities Transactions
("Statement"). Both Rowe Price-Fleming International, Inc. ("RPFI") and
T. Rowe Fleming Asset Management Limited ("TRFAM") have also adopted
Statements of Policy on Securities Transactions. Funds sponsored and
managed by Price Associates or RPFI will be referred to as the "Price
Funds."
Price Associates' Fiduciary Position. As an investment adviser, Price
Associates is in a fiduciary position which requires it to act with an
eye only to the benefit of its clients, avoiding those situations which
might place, or appear to place, the interests of Price Associates or
its officers, directors and employees in conflict with the interests of
clients.
Purpose of Statement. The Statement was developed to help guide Price
Associates' employees and independent directors and the independent
directors of the Price Funds in the conduct of their personal
investments and to:
o eliminate the possibility of a transaction occurring that the
Securities and Exchange Commission or other regulatory bodies
would view as illegal, such as Front Running (see definition
below);
o avoid situations where it might appear that Price Associates or
the Price Funds or any of their officers, directors or employees
had personally benefited at the expense of a client or fund
shareholder or taken inappropriate advantage of their fiduciary
positions; and
o prevent, as well as detect, the misuse of material, non-public
information.
Employees and the independent directors of Price Associates and the
Price Funds are urged to consider the reasons for the adoption of this
Statement. Price Associates' and the Price Funds' reputations could be
adversely affected as the result of even a single transaction considered
questionable in light of the fiduciary duties of Price Associates and
the independent directors of the Price Funds.
Front Running. Front Running is illegal. It is generally defined as the
purchase or sale of a security by an officer, director or employee of an
investment adviser or mutual fund in anticipation of and prior to the
adviser effecting similar transactions for its clients in order to take
advantage of or avoid changes in market prices effected by client
transactions.
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PERSONS SUBJECT TO STATEMENT. The provisions of this Statement apply as
described below to the following persons and entities. Each person and entity is
classified as either an Access Person or a Non-Access Person as described below.
The provisions of this Statement may also apply to an Access Person's or
Non-Access Person's spouse, minor children, and certain other relatives, as
further described on page 4-4 of this Statement. Access Persons are subject to
all provisions of this Statement. Non-Access Persons are subject to the general
principles of the Statement and its reporting requirements, but are exempt from
prior clearance requirements except for transactions in Price Associates' stock.
The persons and entities covered by this Statement are:
Price Associates. Price Associates, each of its subsidiaries and their
retirement plans, and the Price Associates Employee Partnerships.
Personnel. Each officer, inside director and employee of Price
Associates and its subsidiaries, including T. Rowe Price Investment
Services, Inc., the principal underwriter of the Price Funds.
Certain Temporary Workers. These workers include:
o All temporary workers hired on the Price Associates payroll ("TRPA
Temporaries");
o All agency temporaries whose assignments at Price Associates exceed
four weeks or whose cumulative assignments exceed eight weeks over a
twelve-month period;
o All independent or agency-provided consultants whose assignments
exceed four weeks or whose cumulative assignments exceed eight weeks
over a twelve-month period and whose work is closely related to the
ongoing work of Price Associates' employees (versus project work that
stands apart from ongoing work); and
o Any contingent worker whose assignment is more than casual in nature
or who will be exposed to the kinds of information and situations that
would create conflicts on matters covered in the Code.
RPFI Personnel. As stated in the first paragraph, a Statement of Policy
on Securities Transactions has been adopted by RPFI. Under that
Statement, all RPFI personnel (officers, directors and employees)
stationed in Baltimore will be subject to this Statement.
TRFAM Personnel. As stated in the first paragraph, a Statement of Policy
on Securities Transactions has been adopted by TRFAM. Under that
Statement, all TRFAM personnel (officers, directors, and employees)
stationed in Baltimore will be subject to this Statement.
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Retired Employees. Retired employees of Price Associates who continue to
receive investment research information from Price Associates.
INDEPENDENT DIRECTORS OF PRICE ASSOCIATES AND THE PRICE FUNDS. The independent
directors of Price Associates include those directors of Price Associates who
are neither officers nor employees of Price Associates. The independent
directors of the Price Funds include those directors of the Price Funds who are
not deemed to be "interested persons" of Price Associates.
Although subject to the general principles of this Statement, including the
definition of "beneficial ownership," independent directors are subject only to
modified reporting requirements. The independent directors of the Price Funds
are exempt from prior clearance requirements. The independent directors of Price
Associates are exempt from the prior clearance requirements except for Price
Associates' stock.
ACCESS PERSONS. Certain persons and entities are classified as "Access Persons"
under the Code. The term
"Access Person" means:
o Price Associates;
o any officer (vice president or above) or director (excluding
independent directors) of Price Associates or the Price Funds;
o any employee of Price Associates or the Price Funds who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains or has access to information regarding
the purchase or sale of securities by a Price Fund or other
advisory client, or whose functions relate to the making of any
recommendations with respect to the purchases or sales; or
o any person in a control relationship to Price Associates or a
Price Fund who obtains or has access to information concerning
recommendations made to a Price Fund or other advisory client with
regard to the purchase or sale of securities by the Price Fund or
advisory client.
All Access Persons are notified of their status under the Code.
Investment Personnel. An Access Person is further identified as
"Investment Personnel" if, in connection with his or her regular
functions or duties, he or she "makes or participates in making
recommendations regarding the purchase or sale of securities" by a Price
Fund or other advisory client.
The term "Investment Personnel" includes, but is not limited to:
o those employees who are authorized to make investment decisions
or to recommend securities transactions on behalf of the firm's
clients (investment counselors and members of the mutual fund
advisory committees);
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o research and credit analysts; and
o traders who assist in the investment process.
All Investment Personnel are deemed Access Persons under the Code. All
Investment Personnel are notified of their status under the Code.
Investment Personnel are prohibited from investing in initial public
offerings.
NON-ACCESS PERSONS. Persons who do not fall within the definition of Access
Persons are deemed "Non-Access Persons".
QUESTIONS ABOUT THE STATEMENT. You are urged to seek the advice of the
Chairperson of the Ethics Committee when you have questions as to the
application of this Statement to individual circumstances.
TRANSACTIONS SUBJECT TO STATEMENT. Except as provided below, the provisions of
this Statement apply to transactions that fall under either one of the following
two conditions:
First, you are a "beneficial owner" of the security under the Rule 16a-1 of the
Securities Exchange Act of 1934 ("Exchange Act"), as defined below.
Second, if you control or direct securities trading for another person or
entity, those trades are subject to this Statement even if you are not a
beneficial owner of the securities. For example, if you have an exercisable
trading authorization of an unrelated person's or entity's brokerage account, or
are directing another person's or entity's trades, those transactions will be
subject to this Statement to the same extent your personal trades would be,
unless exempted as described below.
Definition of Beneficial Owner. A "beneficial owner" is any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship,
or otherwise, has or shares in the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the security.
A person has beneficial ownership in:
o securities held by members of the person's immediate family sharing
the same household, although the presumption of beneficial ownership
may be rebutted;
o a person's interest in securities held by a trust, which may
include both trust beneficiaries or trustees with investment
control;
o a person's right to acquire securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable;
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o a general partner's proportionate interest in the portfolio
securities held by a general or limited partnership;
o certain performance-related fees other than an asset-based fee,
received by any broker, dealer, bank, insurance company, investment
company, investment adviser, investment manager, trustee or person
or entity performing a similar function; and
o a person's right to dividends that is separated or separable from
the underlying securities. Otherwise, right to dividends alone shall
not represent beneficial ownership in the securities.
A shareholder shall not be deemed to have beneficial ownership in the portfolio
securities held by a corporation or similar entity in which the person owns
securities if the shareholder is not a controlling shareholder of the entity and
does not have or share investment control over the entity's portfolio.
Requests for Exemptions. If you have beneficial ownership of a security, any
transaction involving that security is presumed to be subject to the relevant
requirements of this Statement, unless you have no control over the transaction.
Such a situation may arise, for example, if you have delegated investment
authority to an independent investment adviser, or your spouse has an
independent trading program in which you have no input. Similarly, if your
spouse has investment control over, but no beneficial ownership in, an unrelated
account, an exemption may be appropriate.
If you are involved in an investment account for a family situation, trust,
partnership, corporation, etc., which you feel should not be subject to the
Statement's relevant prior approval and/or reporting requirements, you should
submit a written request for clarification or exemption to Baltimore
Legal/Compliance (Attn. D. Jones). Any such request for clarification or
exemption should name the account, your interest in the account, the persons or
firms responsible for its management, and the basis upon which the exemption is
being claimed. Exemptions are not self-executing; any exemption must be granted
through Baltimore Legal/Compliance.
TRANSACTIONS IN STOCK OF PRICE ASSOCIATES. Because Price Associates is a public
company, ownership of its stock subjects its officers, inside and independent
directors, and employees to special legal requirements under the Federal
securities laws. Each officer, director and employee is responsible for his or
her own compliance with these requirements. In connection with these legal
requirements, Price Associates has adopted the following rules and procedures:
Independent Directors of Price Funds. The independent directors of the
Price Funds are prohibited from owning the stock of Price Associates.
Quarterly Earnings Report. Generally, all employees and independent
directors of Price Associates must refrain from initiating transactions
in Price Associates' stock in which they have a beneficial interest from
the sixth trading day following the end of the quarter (or such other
date as management shall from time to time determine) until the third
trading day following the public release of earnings. Employees and
independent directors will be notified in writing through the Office of
the Secretary of Price Associates ("Secretary") from time to time as to
the controlling dates.
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Prior Clearance. Employees and independent directors of Price Associates
are required to obtain clearance prior to effecting any proposed
transaction (including gifts and transfers) involving shares of Price
Associates' stock owned beneficially or through the Employee Stock
Purchase Plan. Requests for prior clearance must be in writing on the
form entitled, "Notification of Proposed Transaction" (available from
Corporate Records Department) and be submitted to the Secretary who is
responsible for processing and maintaining the records of all such
requests. This would include sales of stock purchased through Price
Associates Employee Stock Purchase Plan ("ESPP"). Purchases effected
through the ESPP are automatically reported to the Secretary. Receiving
prior clearance does not relieve employees and independent directors of
Price Associates from conducting their personal securities transactions
in full compliance with the Code, including its prohibition on trading
while in possession of material, inside information. Transactions in
Price Associates' stock are subject to the 60-Day Rule except for
transactions effected through the ESPP and certain options exercises.
See p. 4-18.
=================================================================
All employees and independent directors of Price Associates must
obtain prior clearance of any transaction involving Price
Associates' stock from the Office of the Secretary of Price
Associates.
=================================================================
Initial Disclosure of Holdings. Each new employee must report to the
Secretary any shares of Price Associates' stock of which he or she has
beneficial ownership no later than 10 days after his or her starting
date of employment.
Dividend Reinvestment Plans. Purchases of Price Associates' stock owned
outside of the ESPP and effected through a dividend reinvestment plan
need not receive prior clearance if the Secretary's office has been
previously notified by the employee that he or she will be participating
in that plan. Reporting of transactions effected through that plan need
only be made quarterly, except that employees who are subject to Section
16 of the Securities Exchange Act of 1934 reporting must report such
transactions monthly.
Effectiveness of Prior Clearance. Prior clearance of transactions in
Price Associates' stock is effective for five (5) business days from and
including the date the clearance is granted, unless (i) advised to the
contrary by the Secretary prior to the proposed transaction, or (ii) the
person receiving the approval comes into possession of material,
non-public information concerning the firm. If the proposed transaction
in Price Associates' stock is not executed within this time period, a
new clearance must be obtained.
Reporting of Disposition of Proposed Transaction. Covered persons must
notify the Secretary of the disposition (whether the proposed
transaction was effected or not) of each transaction involving shares of
Price Associates' stock owned directly within two business days of its
execution, or within seven business days of the date of prior clearance,
if not executed.
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Insider Reporting and Liability. Under current rules, certain officers,
directors and 10% stockholders of a publicly traded company ("Insiders")
are subject to the requirements of Section 16. Insiders include the
directors and certain managing directors of Price Associates.
SEC Reporting. There are three reporting forms which insiders are
required to file with the SEC to report their purchase, sale and
transfer transactions in, and holdings of, Price Associates' stock.
Although the Secretary will provide assistance in complying with these
requirements as an accommodation to insiders, it remains the legal
responsibility of each insider to assure that the applicable reports are
filed in a timely manner.
o Form 3. The initial ownership report by an insider is required
to be filed on Form 3. This report must be filed within ten
days after a person becomes an insider (i.e., is elected as a
director or appointed as managing director) to report all
current holdings of Price Associates' stock. Following the
election or appointment of an insider, the Secretary will
deliver to the insider a Form 3 for appropriate signatures and
will file such Form with the SEC.
o Form 4. Any change in the insider's ownership of Price
Associates' stock must be reported on a Form 4 unless eligible
for deferred reporting on year-end Form 5. The Form 4 is due
by the 10th day following the end of the month in which the
ownership change occurred. Following receipt of the Notice of
Disposition of the proposed transaction, the Secretary will
deliver to the insider a Form 4, as applicable, for
appropriate signatures and will file such Form with the SEC.
o Form 5. Any transaction or holding which is exempt from
reporting on Form 4, such as option exercises, small purchases
of stock, gifts, etc. may be reported on a deferred basis on
Form 5 within 45 days after the end of the calendar year in
which the transaction occurred. No Form 5 is necessary if all
transactions and holdings were previously reported on Form 4.
Liability for Short-Swing Profits. Under Federal securities laws,
profit realized by certain officers, as well as directors and 10%
stockholders of a company (including Price Associates) as a
result of a purchase and sale (or sale and purchase) of stock of
the company within a period of less than six months must be
returned to the firm upon request.
Office of Thrift Supervision ("OTS") Reporting. Price Associates is the
holding company of T. Rowe Price Savings Bank, which is regulated by the
OTS. OTS regulations require that the Managing Directors of Price
Associates, as well as any vice president in charge of any Price
Associates' affiliate, file reports regarding their personal holdings of
the stock of Price Associates and of the stock of any non-affiliated
savings banks or savings and loan holding companies. Although the
Secretary will provide assistance in complying with these requirements
as an accommodation, it remains the responsibility of each person
required to file such reports to ensure that such reports are filed in a
timely manner.
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PRIOR CLEARANCE REQUIREMENTS (OTHER THAN PRICE ASSOCIATES' STOCK) FOR ACCESS
PERSONS.
All Access Persons must obtain prior clearance before directly or indirectly
initiating, recommending, or in any way participating in, the purchase or sale
of a security in which the Access Person has, or by reason of such transaction
may acquire, any beneficial interest or which he or she controls, unless
exempted below. Non-Access Persons are not required to obtain prior clearance
before engaging in any securities transactions, except for transaction in Price
Associates' stock.
=================================================================
All employees and independent directors of Price Associates must
obtain prior clearance of any transaction involving Price
Associates' stock from the Office of the Secretary of Price
Associates.
=================================================================
Where required, prior clearance must be obtained regardless of whether the
transaction is effected through TRP Brokerage or through an unaffiliated
broker/dealer. Receiving prior clearance does not relieve Access Persons from
conducting their personal securities transactions in full compliance with the
Code, including its prohibition on trading while in possession of material,
inside information, and with applicable law, including the prohibition on Front
Running (see page 4-1 for definition of Front Running). Please note that the
prior clearance procedures do not check compliance with the 60-Day Rule (p.
4-17).
TRANSACTIONS (OTHER THAN IN PRICE ASSOCIATES' STOCK) EXEMPT FROM PRIOR
CLEARANCE. The following transactions are exempt from the prior clearance
requirements:
Mutual Funds and Variable Insurance Products. Purchases or
redemptions of shares of any open-end investment companies,
including the Price Funds, and variable insurance products.
Unit Investment Trusts. Purchases or sales of shares in unit
investment trusts.
U.S. Government Obligations. Purchases or sales of direct
obligations of the U.S. Government.
Pro Rata Distributions. Purchases effected by the exercise of
rights issued pro rata to all holders of a class of securities or
the sale of rights so received.
Mandatory Tenders. Purchases and sales of securities pursuant to
a mandatory tender offer.
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Spousal Payroll Deduction Plans. Purchases by an Access Person's
spouse pursuant to a payroll deduction plan, provided the
Compliance Department has been previously notified by the Access
Person that the spouse will be participating in the payroll
deduction plan.
Exercise of Stock Option of Corporate Employer by Spouse.
Transactions involving the exercise by an Access Person's spouse
of a stock option issued by the corporation employing the spouse.
Dividend Reinvestment Plans. Purchases effected through an
established Dividend Reinvestment Plan ("DRP"), provided the
Compliance Department is first notified by the Access Person that
he or she will be participating in the DRP. An Access Person's
purchase of share(s) of the issuer to initiate participation in
the DRP or an Access Person's purchase of shares in addition to
those purchased with dividends (a "Connected Purchase") and any
sale of shares from the DRP must receive prior clearance.
Systematic Investment Plans. Purchases effected through a
systematic investment plan involving the automatic investment of
a set dollar amount on predetermined dates, provided the
Compliance Department has been previously notified by the Access
Person that he or she will be participating in the plan. An
Access Person's purchase of securities of the issuer to initiate
participation in the plan and any sale of shares from such a plan
must receive prior clearance.
Inheritances. The acquisition of securities through inheritance.
Gifts. The giving of or receipt of a security as a gift.
PROCEDURES FOR OBTAINING PRIOR CLEARANCE (OTHER THAN PRICE ASSOCIATES' STOCK)
FOR ACCESS PERSONS. All Access Persons should follow the procedures set forth
below before engaging in the transactions described.
Procedures For Obtaining Prior Clearance For Initial Public Offerings
("IPOs"):
Non-Investment Personnel. Access Persons who are not Investment
Personnel ("Non-Investment Personnel") may purchase securities
that are the subject of an IPO only if prior written approval has
been obtained from the Chairperson of the Ethics Committee or his
or her designee ("Designee"), which may include N. Morris, S.
McCafferty or A. Brooks. An IPO is an offering of securities
registered under the Securities Act of 1933 when the issuer of
the securities, immediately before the registration, was not
subject to certain reporting requirements of the Securities
Exchange Act of 1934.
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In considering such a request for approval, the Chairperson will
determine whether the proposed transaction presents a conflict of
interest with any of the firm's clients or otherwise violates the
Code. The Chairperson will also determine whether the following
conditions have been met:
1. The purchase is made through the Non-Investment
Personnel's regular broker;
2. The number of shares to be purchased is commensurate with
the normal size and activity of the Non-Investment
Personnel's account; and
3. The transaction otherwise meets the requirements of the
NASD's rules on free riding and withholding.
Non-Investment Personnel will not be permitted to purchase shares in an
IPO if any of the firm's clients are prohibited from doing so.
Therefore, Non-Investment Personnel must check with the Equity Trading
Desk the day the offering is priced before purchasing in the IPO. This
prohibition will remain in effect until the firm's clients have had the
opportunity to purchase in the secondary market once the underwriting is
completed -- commonly referred to as the aftermarket.
Investment Personnel. Investment Personnel may not purchase
securities in an IPO.
Non-Access Persons. Although Non-Access Persons are not required
to receive prior clearance before purchasing shares in an IPO,
any Non-Access Person who is a registered representative of
Investment Services should be aware that NASD rules may restrict
his or her ability to buy shares in a "hot issue," which is a new
issue that trades at a premium in the secondary market whenever
that trading commences.
Procedures For Obtaining Prior Clearance For Private Placements. Access
Persons may not invest in a private placement of securities, including
the purchase of limited partnership interests, unless prior written
approval has been obtained from the Chairperson of the Ethics Committee
or a Designee. In considering such a request for approval, the
Chairperson will determine whether the investment opportunity (private
placement) should be reserved for the firm's clients, and whether the
opportunity is being offered to the Access Person by virtue of his or
her position with the firm. The Chairperson will also secure, if
appropriate, the approval of the proposed transaction from the
chairperson of the applicable investment steering committee.
Continuing Obligation. An Access Person who has received
approval to invest in a private placement of securities and who,
at a later date, anticipates participating in the firm's
investment decision process regarding the purchase or sale of
securities of the issuer of that private placement on behalf of
any client, must immediately disclose his or her prior
investment in the private placement to the Chairperson of the
Ethics Committee and to the chairperson of the appropriate
investment steering committee.
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Procedures For Obtaining Prior Clearance For All Other Securities
Transactions. Requests for prior clearance by Access Persons for all
other securities transactions requiring prior clearance may be made
orally, in writing, or by electronic mail (e-mail address "Personal
Trades," which appears under "Trades" in the electronic mail address
book) to the Equity Trading Department of Price Associates, which will
be responsible for processing and maintaining the records of all such
requests. All requests must include the name of the security, the number
of shares or amount of bond involved, whether a foreign security is
involved, and the nature of the transaction, i.e., whether the
transaction is a purchase, sale or short sale. Responses to all requests
will be made by the Trading Department documenting the request and its
approval/disapproval.
Requests will normally be processed on the same day; however, additional
time may be required for prior clearance of transactions in foreign
securities.
Effectiveness of Prior Clearance. Prior clearance of a securities
transaction is effective for three (3) business days from and including
the date the clearance is granted, regardless of the time of day when
clearance is granted. If the proposed securities transaction is not
executed within this time, a new clearance must be obtained
REASONS FOR DISALLOWING ANY PROPOSED TRANSACTION. A proposed securities
transaction will be disapproved by the Trading Department and/or the Chairperson
of the Ethics Committee if:
Pending Client Orders. Orders have been placed by Price Associates
or RPFI to purchase or sell the security.
Purchases and Sales Within Seven (7) Calendar Days. The security
has been purchased or sold by any client of Price Associates or,
in the case of a foreign security, for any client of either Price
Associates or RPFI, within seven calendar days immediately prior
to the date of the proposed transaction. For example, if a client
transaction occurs on Monday, an Access Person may not purchase or
sell that security until Tuesday of the following week. If all
clients have eliminated their holdings in a particular security,
the seven-day restriction is not applicable to an Access Person's
transactions in that security.
Approved Company Rating Changes. A change in the rating of an
approved company as reported in the firm's Daily Research News has
occurred within seven (7) calendar days immediately prior to the
date of the proposed transaction. Accordingly, trading would not
be permitted until the eighth (8) calendar day.
Securities Subject to Internal Trading Restrictions. The security
is limited or restricted by Price Associates or RPFI as to
purchase or sale for client accounts.
Requests for Waivers of Prior Clearance Denials. If an Access Person's request
for prior clearance has been denied, he or she may apply to the Chairperson of
the Ethics Committee for a waiver. All such requests must be in writing and must
fully describe the basis upon which the waiver is being requested. Waivers are
not routinely granted.
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BROKERAGE CONFIRMATIONS AND PERIODIC ACCOUNT STATEMENTS. All Access Persons and
Non-Access Persons must request broker-dealers executing their transactions to
send to the attention of Compliance, Legal Department, T. Rowe Price Associates,
Inc., P.O. Box 17218, Baltimore, Maryland 21297-1218 a duplicate confirmation
with respect to each and every reportable transaction, including Price
Associates' stock, and a copy of all periodic statements for all securities
accounts in which the Access Person or Non-Access Person is considered to have
beneficial ownership and/or control (see Page 4-4 for a discussion of beneficial
ownership and control concepts).
NOTIFICATION OF BROKER/DEALER ACCOUNTS. All Access Persons and Non-Access
Persons must give written notice to Baltimore Legal/Compliance before opening or
trading in a securities account with any broker/dealer, including TRP Brokerage.
New Employees. New employees must give written notice to Baltimore
Legal/Compliance of any existing securities accounts maintained with any
broker/dealer when joining the firm (no later than 10 days after the
starting date).
Officers, Directors and Registered Representatives of Investment
Services. The NASD requires each associated person of T. Rowe Price
Investment Services, Inc. to:
o Obtain approval from Investment Services (request should be in
writing and be directed to Baltimore Legal/Compliance) before
opening or placing the initial trade in a securities account with
any broker/dealer; and
o Provide the broker/dealer with written notice of his or her
association with Investment Services.
TRANSACTION REPORTING REQUIREMENTS (OTHER THAN PRICE ASSOCIATES' STOCK
TRANSACTIONS). All Access Persons and Non-Access Persons must report all
securities transactions unless the transaction is exempted from reporting below.
Transactions Exempt From Reporting. The following transactions are
exempt from the reporting requirements:
Mutual Funds and Variable Insurance Products. The purchase or
redemption of shares of any open-end investment companies,
including the Price Funds, and variable insurance products,
except that any employee who serves as the president or executive
vice president of a Price Fund must report his or her beneficial
ownership or control of shares in that Fund to Baltimore
Legal/Compliance through electronic mail to Dottie Jones.
Stock Splits and Similar Acquisitions. The acquisition of
additional shares of existing corporate holdings through the
reinvestment of income dividends and capital gains in mutual
funds, stock splits, stock dividends, exercise of rights,
exchange or conversion.
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U.S. Government Obligations. Purchases or redemptions of direct
obligations of the U.S. Government.
Dividend Reinvestment Plans. The purchase of securities with
dividends effected through an established DRP. If, however, a
Connected Purchase or a sale must receive prior clearance (see p.
4-9), that transaction must also be reported.
Transactions That Must Be Reported. Other than the transactions
specified above as exempt, all Access Persons and Non-Access Persons are
required to file a report of the following securities transactions:
Cleared Transactions. Any transaction that is subject to the
prior clearance requirements, including purchases in initial
public offerings and private placement transactions. Although
Non-Access Persons are not required to receive prior clearance
for securities transactions (other than Price Associates' stock),
they must report any transaction that would have been required to
be prior cleared by an Access Person.
Unit Investment Trusts. The purchase or sale of shares of a Unit
Investment Trust.
Pro Rata Distributions. Purchase effected by the exercise of
rights issued pro rata to all holders
of a class of securities or the sale of rights so received.
Inheritances. Acquisition of securities through inheritance.
Gifts. Acquisition or disposition of securities by gift.
Mandatory Tenders. Purchases and sales of securities pursuant to
a mandatory tender offer.
Spousal Payroll Deduction Plans/Spousal Stock Option.
Transactions involving the purchase or exchange of securities by
the spouse of an Access Person or Non-Access Person pursuant to a
payroll deduction plan or the exercise by the spouse of an Access
Person or Non-Access Person of a stock option issued by the
spouse's employer. Reporting of spousal payroll deduction plan
transactions need only be made quarterly; reporting of a spousal
Stock Option exercise must be made within ten days of the
exercise.
Systematic Investment Plans. Transactions involving the purchase
of securities by an Access Person or Non-Access Person pursuant
to a systematic investment plan. Reporting of Systematic
Investment Plan transactions need only be made quarterly.
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Report Form. If the executing broker/dealer provides a confirmation or
similar statement directly to Baltimore Legal/Compliance, you do not
need to make a further report. All other transactions must be reported
on the form designated "T. Rowe Price Associates, Inc. Employee's Report
of Securities Transactions," a supply of which is available from
Baltimore Legal/Compliance.
When Reports are Due. You must report a securities transaction within
ten (10) days after the trade date or within (10) days after the date on
which you first gain knowledge of the transaction (for example, a
bequest) if this is later. Reporting of transactions involving either
systematic investment plans or the purchase of securities by a spouse
pursuant to a payroll deduction plan, however, may be reported
quarterly.
TRANSACTION REPORTING REQUIREMENTS FOR THE INDEPENDENT DIRECTORS OF PRICE
ASSOCIATES AND THE INDEPENDENT DIRECTORS OF THE PRICE FUNDS. The independent
directors of Price Associates and the independent directors of the Price Funds
are subject to the same reporting requirements as Access Persons and Non-Access
Persons except that reports need only be filed quarterly. Specifically: (1) a
report for each securities transaction must be filed with Baltimore/Legal
Compliance no later than ten (10) days after the end of the calendar quarter in
which the transaction was effected; and (2) a report must be filed for each
quarter, regardless of whether there have been any reportable transactions.
Baltimore/Legal Compliance will send the independent directors of Price
Associates and the Price Funds a reminder letter and reporting form
approximately ten days prior to the end of each calendar quarter.
MISCELLANEOUS RULES REGARDING PERSONAL SECURITIES TRANSACTIONS. These rules vary
in their applicability depending upon whether you are an Access Person.
The following rules apply to all Access Persons and Non-Access Persons and,
where indicated, to the independent directors of Price Associates and the Price
Funds.
Dealing with Clients. Access Persons, Non-Access Persons and the
independent directors of Price Associates and the Price Funds may not,
directly or indirectly, sell to or purchase from a client any security.
This prohibition does not preclude the purchase or redemption of shares
of any mutual fund that is a client of Price Associates.
Client Investment Partnerships.
Co-Investing. Access Persons and Non-Access Persons, including
employee partnerships, and the independent directors of Price
Associates and the Price Funds are not permitted to co-invest in
client investment partnerships of Price Associates, RPFI, or
their affiliates, such as Strategic Partners, Threshold, and
International Partners.
Direct Investment. The independent directors of the Price Funds
are not permitted to invest as limited partners in client
investment partnerships of Price Associates, RPFI, or their
affiliates.
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Investment Clubs. These restrictions vary depending upon the person's
status, as follows:
Non-Access Persons. A Non-Access Person may form or participate
in a stock or investment club without approval of the Chairperson
of the Ethics Committee. Only transactions in Price Associates'
stock are subject to prior clearance requirements. Club
transactions must be reported just as the Non-Access Person's
individual trades are reported.
Access Persons. An Access Person may not form or participate in a
stock or investment club unless prior written approval has been
obtained from the Chairperson of the Ethics Committee. All
transactions by such a stock or investment club in which an
Access Person has beneficial ownership or control are subject to
the same prior clearance and reporting requirements applicable to
an individual Access Person's trades. However, if the Access
Person has beneficial ownership solely by virtue of his or her
spouse's participation in the club and has no investment control
or input into decisions regarding the club's securities
transactions, he or she may request the waiver of prior clearance
requirements of the club's transactions (except for transactions
in Price Associates' stock) from the Chairperson of the Ethics
Committee as part of the approval process.
Margin Accounts. While brokerage margin accounts are discouraged, you
may open and maintain margin accounts for the purchase of securities
provided such accounts are with brokerage firms with which you maintain
a regular brokerage account.
Trading Activity. You are discouraged from engaging in a pattern of
securities transactions which either:
o Is so excessively frequent as to potentially impact your ability
to carry out your assigned responsibilities, or
o Involves securities positions that are disproportionate to your
net assets.
At the discretion of the Chairperson of the Ethics Committee,
written notification of excessive trading may be sent to your
supervisor.
The following rules apply only to Access Persons:
Large Company Exemption. Although subject to prior clearance,
transactions involving securities in certain large companies, within the
parameters set by the Ethics Committee (the "Exempt List"), will be
approved under normal circumstances, as follows:
Transactions Involving Exempt List Securities. This exemption
applies to transactions involving no more than $20,000 or the
nearest round lot (even if the amount of the transaction
marginally exceeds $20,000) per security per week in securities
of companies with market capitalizations of $5 billion or more,
unless the rating on the security as reported in the firm's Daily
Research News has been changed to a 1 or a 5 within the seven (7)
calendar days immediately prior to the date of the proposed
transaction. If such a rating change has occurred, the exemption
is not available.
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Transactions Involving Options on Exempt List Securities. Access
Persons may not purchase uncovered put options or sell uncovered
call options unless otherwise permitted under the "Options and
Futures" discussion on p. 4-16. Otherwise, in the case of options
on an individual security on the Exempt List (if it has not had a
prohibited rating change), an Access Person may trade the greater
of 5 contracts or sufficient option contracts to control $20,000
in the underlying security; thus an Access Person may trade 5
contracts even if this permits the Access Person to control more
than $20,000 in the underlying security. Similarly, the Access
Person may trade more than 5 contracts as long as the number of
contracts does not permit him or her to control more than $20,000
in the underlying security.
These parameters are subject to change by the Ethics Committee.
Exchange-Traded Index Options. Although subject to prior clearance, an
Access Person's transactions involving exchange-traded index options,
within the parameters set by the Ethics Committee, will be approved
under normal circumstances. Generally, an Access Person may trade the
greater of 5 contracts or sufficient contracts to control $20,000 in the
underlying securities; thus an Access Person may trade 5 contracts even
if this permits the Access Person to control more than $20,000 in the
underlying securities. Similarly, the Access Person may trade more than
5 contracts as long as the number of contracts does not permit him or
her to control more than $20,000 in the underlying security.
These parameters are subject to change by the Ethics Committee.
Client Limit Orders. The Equity Trading Desk may approve an Access
Person's proposed trade even if a limit order has been entered for a
client for the same security, if:
o The Access Person's trade will be entered as a market order; and
o The client's limit order is 10% or more away from the market at the
time of approval of the Access Person's trade.
Options and Futures. Please consult the specific section on Exchange-
Traded Index Options (p. 4-16) for transactions in those options.
========================================================================
Before engaging in options and future transactions, Access Persons
should understand the impact that the 60-Day Rule may have upon their
ability to close out a position with a profit (see page 4-17).
========================================================================
Options and Futures on Securities and Indices Not Held by Price
Associates' or RPFI's Clients. There are no specific restrictions
with respect to the purchase, sale or writing of put or call
options or any other option or futures activity, such as multiple
writings, spreads and straddles, on securities of companies (and
options or futures on such securities) which are not held by any
of Price Associates' or RPFI's clients.
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Options on Securities of Companies Held by Price Associates' or
RPFI's Clients. With respect to options on securities of
companies which are held by any of Price Associates' or RPFI's
clients, it is the firm's policy that an Access Person should not
profit from a price decline of a security owned by a client
(other than an Index account). Therefore, an Access Person may:
(i) purchase call options and sell covered call options and (ii)
purchase covered put options and sell put options. An Access
Person may not purchase uncovered put options or sell uncovered
call options, even if the issuer of the underlying securities is
included on the Exempt List, unless purchased in connection with
other options on the same security as part of a straddle,
combination or spread strategy which is designed to result in a
profit to the Access Person if the underlying security rises in
or does not change in value. The purchase, sale and exercise of
options are subject to the same restrictions as those set forth
with respect to securities, i.e., the option should be treated as
if it were the common stock itself.
Other Options and Futures Held by Price Associates' or RPFI's
Clients. Any other option or futures transaction with respect to
domestic or foreign securities held by any of Price Associates'
clients or with respect to foreign securities held by RPFI's
clients will be approved or disapproved on a case-by-case basis
after due consideration is given as to whether the proposed
transaction or series of transactions might appear to or actually
create a conflict with the interests of any of Price Associates'
or RPFI's clients. Such transactions include transactions in
futures and options on futures involving financial instruments
regulated solely by the CFTC.
Short Sales. Short sales by Access Persons are subject to prior
clearance. In addition, Access Persons may not sell any security short
which is owned by any client of Price Associates or RPFI, except that
short sales may be made "against the box" for tax purposes. A short sale
"against the box" is one in which the seller owns an amount of
securities equivalent to the number he or she sells short. All short
sales, including short sales against the box, are subject to the 60-Day
Rule described below.
The 60-Day Rule. Access Persons are prohibited from profiting from the
purchase and sale or sale and purchase of the same (or equivalent)
securities within 60 calendar days. An "equivalent" security means any
option, warrant, convertible security, stock appreciation right, or
similar right with an exercise or conversion privilege at a price related
to the subject security, or similar securities with a value derived from
the value of the subject security. Thus, for example, the rule prohibits
options transactions on or short sales of a security within 60 days of
its purchase. In addition, the rule applies regardless of the Access
Person's other holdings of the same security or whether the Access Person
has split his or her holdings into tax lots. For example, if an Access
Person buys 100 shares of XYZ stock on March 1, 1998 and another 100
shares of XYZ stock on March 1, 2000, he or she may not sell any shares
of XYZ stock at a profit for 60 days following March 1, 2000. The 60-Day
Rule "clock" restarts each time the Access Person trades in that
security.
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Exemptions from the 60-Day Rule. The 60-Day Rule does not apply
to:
o any transaction by a Non-Access Person except for
transactions in Price Associates' stock not exempted below;
o any transaction exempt from prior clearance (see p. 4-8);
o the purchase and sale or sale and purchase of exchange
traded index options;
o any transaction in Price Associates' stock effected through
the ESPP; and
o the exercise of "in the money" Price Associates' stock
options and the subsequent sale of the derivative shares.
Prior clearance procedures do not check compliance with the
60-Day Rule when considering a trading request. Access Persons
are responsible for checking their compliance with this rule
before entering a trade.
Access Persons may request a waiver from the 60-Day Rule. Such
requests should be directed in writing to the Chairperson of the
Ethics Committee. These waivers are not routinely granted.
Investments in Non-Listed Securities Firms. Access Persons may not
purchase or sell the shares of a broker/dealer, underwriter or federally
registered investment adviser unless that entity is traded on an
exchange or listed as a NASDAQ stock or permission is given under the
Private Placement Procedures (see p. 4-10).
OWNERSHIP REPORTING REQUIREMENTS - ONE-HALF OF ONE PERCENT OWNERSHIP. If an
employee or an independent director of Price Associates or an independent
director of the Price Funds owns more than 1/2 of 1% of the total outstanding
shares of a public or private company, he or she must immediately report in
writing such fact to Baltimore Legal/Compliance, providing the name of the
company and the total number of such company's shares beneficially owned.
DISCLOSURE OF PERSONAL SECURITIES HOLDINGS BY ACCESS PERSONS. Upon commencement
of employment, appointment or promotion (no later than 10 days after the
starting date), each Access Person must disclose in writing all current
securities holdings in which he or she is considered to have beneficial
ownership and control ("Securities Holdings Report") (see page 4-4 for
definition of the term Beneficial Owner). The form to provide the Securities
Holding Report will be provided upon commencement of employment, appointment or
promotion and should be submitted to Baltimore Legal/Compliance.
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All Investment Personnel and Managing Directors are also required to file a
Securities Holding Report on an annual basis, in conjunction with the annual
verification process. Effective January 2001, this requirement will be extended
to all Access Persons, pursuant to federal law.
CONFIDENTIALITY OF RECORDS. Price Associates makes every effort to protect the
privacy of all persons and entities in connection with their Securities Holdings
Reports and Reports of Securities Transactions.
SANCTIONS. Strict compliance with the provisions of this Statement is considered
a basic provision of association with Price Associates and the Price Funds. The
Ethics Committee and Baltimore Legal/Compliance are primarily responsible for
administering this Statement. In fulfilling this function, the Ethics Committee
will institute such procedures as it deems reasonably necessary to monitor each
person's and entity's compliance with this Statement and to otherwise prevent
and detect violations.
Violations by Access Persons, Non-Access Persons and Directors of Price
Associates. Upon discovering a material violation of this Statement by
any person or entity other than an independent director of a Price Fund,
the Ethics Committee will impose such sanctions as it deems appropriate
and as are approved by the Management Committee or the Board of
Directors including, inter alia, a letter of censure or suspension, a
fine, a suspension of trading privileges or termination of employment
and/or officership of the violator. In addition, the violator may be
required to surrender to Price Associates, or to the party or parties it
may designate, any profit realized from any transaction that is in
violation of this Statement. All material violations of this Statement
shall be reported to the Board of Directors of Price Associates and to
the Board of Directors of any Price Fund with respect to whose
securities such violations may have been involved.
Violations by Independent Directors of Price Funds. Upon discovering a
material violation of this Statement by an independent director of a
Price Fund, the Ethics Committee shall report such violation to the
Board on which the director serves. The Price Fund Boards will impose
such sanctions as they deem appropriate.
Violations by Baltimore Employees of RPFI or TRFAM. Upon discovering a
material violation of this Statement by a Baltimore-based employee of
RPFI or TRFAM, the Ethics Committee shall report such violation to the
Board of Directors of RPFI or TRFAM, as appropriate. A material
violation by a Baltimore-based employee of RPFI shall also be reported
to the Board of Directors of any RPFI Fund with respect to whose
securities such violations may have been involved.
March, 2000
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T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
CORPORATE RESPONSIBILITY
Price Associates' Fiduciary Position. As an investment adviser, T. Rowe Price
Associates, Inc. ("Price Associates") is in a fiduciary relationship with each
of its clients. This fiduciary duty obligates Price Associates to act with an
eye only to the benefit of its clients. Accordingly, when managing its client
accounts (whether private counsel clients, mutual funds, limited partnerships,
or otherwise), Price Associates' primary responsibility is to optimize the
financial returns of its clients consistent with their objectives and investment
program.
Definition of Corporate Responsibility Issues. Concern over the behavior of
corporations has been present since the Industrial Revolution. Each generation
has focused its attention on specific issues. Concern over the abuses of the use
of child labor in the 1800's was primarily addressed by legislative action which
mandated corporate America to adhere to new laws restricting and otherwise
governing the employment of children. In other instances, reform has been
achieved through shareholder action -- namely, the adoption of shareholder
proposals. The corporate responsibility issues most often addressed during the
past decade have involved:
o Ecological issues, including toxic hazards and pollution of the air and
water;
o Employment practices, such as the hiring of women and minority groups;
o Product quality and safety; o Advertising practices;
o Animal testing;
o Military and nuclear issues; and
o International politics and operations, including the world debt crisis,
infant formula, and child labor laws.
Corporate Responsibility Issues in the Investment Process. Price Associates
recognizes the legitimacy of public concern over the behavior of business with
respect to issues of corporate responsibility. Price Associates' policy is to
carefully review the merits of such issues that pertain to any issuer which is
held in a client portfolio or which is being considered for investment. Price
Associates believes that a corporate management's record of identifying and
resolving issues of corporate responsibility is a legitimate criteria for
evaluating the investment merits of the issuer. Enlightened corporate
responsibility can enhance a issuer's long term prospects for business success.
The absence of such a policy can have the converse effect.
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Corporate Responsibility Committee. Since 1971, Price Associates has had a
Corporate Responsibility Committee, which is responsible for:
o Reviewing and establishing positions with respect to corporate
responsibility issues that are presented in the proxy statements of
portfolio companies; and
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o Reviewing questions and inquiries received from clients and mutual
fund shareholders pertaining to issues of corporate responsibility.
Questions Regarding Corporate Responsibility. Should an employee have any
questions regarding Price Associates' policy with respect to a corporate
responsibility issue or the manner in which Price Associates has voted or
intends to vote on a proxy matter, he or she should contact a member of the
Corporate Responsibility Committee or Price Associates' Proxy Administrator.
March, 2000
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T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
WITH RESPECT TO COMPLIANCE WITH COPYRIGHT LAWS
Purpose of Statement of Policy. To protect the interests of Price Associates and
its employees, Price Associates has adopted this Statement of Policy with
Respect to Compliance with Copyright Laws ("Statement" to: (1) inform its
employees regarding the legal principles governing copyrights, trademarks, and
service marks; and (2) ensure that Price Associates' various copyrights,
trademarks, and service marks are protected from infringement.
Definition of Trademark, Service Mark, and Copyright
Trademark. A trademark is normally a word, phrase, or symbol used to
identify and distinguish a product or a company. For example, Kleenex
is a trademark for a particular brand of facial tissues.
Service Mark. A service mark is normally a word, phrase, or symbol used
to identify and distinguish a service or the provider of a service. For
example, Invest With Confidence is a registered service mark which
identifies and distinguishes the mutual fund management services
offered by Price Associates. The words "trademark" and "service mark"
are often used interchangeably, but as a general rule a trademark is
for a tangible product, whereas a service mark is for an intangible
good or service. Because most of Price Associates' business activities
involve providing services (e.g., investment management; transaction
processing and account maintenance; information, etc.), most of Price
Associates' registered marks are service marks.
Copyright. In order to protect the authors and owners of books,
articles, drawings, music, or computer programs and software, the U.S.
copyright law makes it a crime to reproduce, in any manner, any
copyrighted material without the express written permission of the
author or publisher. Under current law, all original works are
copyrighted at the moment of creation; it is no longer necessary to
register a copyright. Copyright infringements may result in judgments
of actual damages (i.e., the cost of additional subscriptions), as well
as punitive damages, which can be as high as $100,000 per infringement.
Registered Trademarks and Service Marks. Once Price Associates has registered a
trademark or service mark with the U.S. Patent and Trademark Office, it has the
exclusive right to use that mark. In order to preserve rights to a registered
trademark or service mark, Price Associates must (1) use the mark on a
continuous basis and in a manner consistent with the Certificate of
Registration; (2) place an encircled "R" ((R)) next to the mark in the first, or
most prominent, occurrence in all publicly distributed media; and (3) take
action against any party infringing upon the mark.
Establishing a Trademark or Service Mark. The Legal Department has the
responsibility to register and maintain all trademarks and service marks and
protect them against any infringement. If Price Associates or a subsidiary
wishes to utilize a particular word, phrase, or symbol as a trademark or service
mark, the Legal Department must be notified as far in advance as possible so
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that a search may be conducted to determine if the proposed mark has already
been registered or used by another entity. Until clearance is obtained from the
Legal Department, no new mark should be used. This procedure has been adopted to
ensure that Price Associates does not unknowingly infringe upon another
company's mark. Once a proposed mark is cleared for use, it must be accompanied
by the abbreviations "TM" or "SM," as appropriate, until it has been registered.
All trademarks and service marks which have been registered with the U.S. Patent
and Trademark Office must be accompanied by an encircled "R" when used in any
public document. These symbols need only accompany the mark in the first or most
prominent place it is used in each publicly circulated document. Subsequent use
of the same trademark or service mark in such material does not need to be
marked. The Legal Department maintains a written summary of all Price
Associates' registered and pending trademarks and service marks. All registered
and pending trademarks and service marks are also listed in the T. Rowe Price
Style Guide. If you have any questions regarding the status of a trademark or
service mark, you should contact the Legal Department.
Infringement of Price Associates' Registered Marks. If an employee notices that
another entity is using a mark similar to one which Price Associates has
registered, the Legal Department should be notified immediately so that
appropriate action can be taken to protect Price Associates' interests in the
mark.
Reproduction of Articles and Similar Materials for Internal Distribution, or for
Distribution to Shareholders, Clients and Others Outside the Firm. In general,
the reproduction of copyrighted material is a federal offense. Exceptions under
the "fair use" doctrine include reproduction for scholarly purposes, criticism,
or commentary, which ordinarily do not apply in a business environment.
Occasional copying of a relatively small portion of a newsletter or magazine to
keep in a file, circulate to colleagues with commentary, or send to a client
with commentary is generally permissible under the "fair use" doctrine. Written
permission from the author or publisher must be obtained by any employee wishing
to reproduce copyrighted material for internal or external distribution,
including distribution via the Internet or the T. Rowe Price Associates'
intranet. It is the responsibility of each employee to obtain permission to
reproduce copyrighted material. Such permission must be in writing and forwarded
to the Legal Department. If the publisher will not grant permission to reproduce
copyrighted material, then the requestor must purchase from the publisher either
additional subscriptions to the periodical or the reprints of specific articles.
The original article or periodical may be circulated as an alternative to
purchasing additional subscriptions or reprints.
Personal Computer Software Programs. Software products and on-line information
services purchased for use on Price Associates' personal computers are generally
copyrighted material and may not be reproduced without proper authorization from
the software vendor. See the T. Rowe Price Associates, Inc. Statement of Policy
With Respect to Computer Security and Related Issues for more information.
March, 2000
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T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY WITH RESPECT TO
COMPUTER SECURITY AND RELATED ISSUES
PURPOSE OF STATEMENT OF POLICY. The central and critical role of computer
systems in our firm's operations underscores the importance of ensuring the
integrity of these systems. The data stored on our firm's computers, as well as
the specialized software programs and systems developed for the firm's use, are
extremely valuable assets and very confidential.
This Statement of Policy ("Statement") establishes a comprehensive computer
security program which has been designed to:
o prevent the unauthorized use of or access to our firm's computer
systems (collectively the "Systems"), including the firm's electronic
mail ("e-mail") and voice mail systems;
o prevent breaches in computer security;
o maintain the integrity of confidential information; and
o prevent the introduction of computer viruses into our Systems that
could imperil the firm's operations.
In addition, the Statement describes various issues that arise in connection
with the application of U.S. Copyright Law to computer software.
Any material violation of this Statement may lead to sanctions, which may
include dismissal of the employee or employees involved.
CONFIDENTIALITY OF SYSTEMS ACTIVITIES AND INFORMATION. Systems activities and
information stored on our firm's computers (including e-mail and voice mail) may
be subject to monitoring by firm personnel or others. All such information,
including messages on the firm's e-mail and voice mail systems, are records of
the firm and the sole property of the firm. The firm reserves the right to
monitor, access, and disclose for any purpose all information, including all
messages sent, received, or stored through the Systems. The use of the firm's
computer Systems is for the transaction of firm business and is for authorized
users only. All firm policies apply to the use of the Systems. See Employee
Handbook.
By using the firm's Systems, you agree to be bound by this Statement and consent
to the access to and disclosure of all information, including e-mail and voice
mail messages, by the firm. Employees do not have any expectation of privacy in
connection with the use of the Systems, or with the transmission, receipt, or
storage of information in the Systems.
Information entered into our firm's computers but later deleted from the Systems
may continue to be maintained permanently on our firm's back-up tapes. Employees
should take care so that they do not create documents or communications that
might later be embarrassing to them or to our firm. This policy applies to
e-mail and voice mail, as well to any other communication on a System.
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SECURITY ADMINISTRATION. Enterprise Security in T. Rowe Price Investment
Technologies, Inc. ("TRPIT") is responsible for identifying security needs and
overseeing the maintenance of computer security, including Internet-related
security issues.
AUTHORIZED SYSTEMS USERS. In general, access to any type of System is restricted
to authorized users who need access in order to support their business
activities. Access for mainframe, LAN and external Systems must be requested on
a "Systems Access Request" form. A hard copy can be printed from the Enterprise
Security intranet site or obtained from Enterprise Security. Access requests and
changes must be approved by the appropriate supervisor or manager in the user's
department.
AUTHORIZED APPLICATION USERS. Access to specific computer applications (i.e.,
Finance, Retirement Plan Services systems, etc.) can also be requested. Many
application systems have an additional level of security, such as extra
passwords. If a user wants access to an application or data that is outside the
normal scope of his or her business activity, additional approval may be
required from the "Owner" of such application or data. The "Owner" is the
employee who is responsible for making judgments and decisions on behalf of the
firm with regard to the application or data, including the authority to decide
who may have access.
USER-IDS, PASSWORDS, AND OTHER SECURITY ISSUES. Once a request for access is
approved, a unique "User-ID" will be assigned the user. Each User-ID has a
password that must be kept confidential by the user. For most systems, passwords
must be changed on a regular schedule and Enterprise security has the authority
to determine the password policy. User-IDs and passwords may not be shared.
Users can be held accountable for work performed with their User-IDs. Personal
computers must not be left logged on and unattended unless screen savers with
passwords or software-based keyboard locks are utilized. Enterprise Security
recommends that GroupWise e-mail accounts be password protected.
EXTERNAL COMPUTER SYSTEMS. Our data processing environment includes access to
data stored not only on our firm's computers, but also on external systems, such
as DST. Although the security practices governing these outside systems are
established by the providers of these external systems, requests for access to
such systems should be directed to Enterprise Security. User-IDs and passwords
to these systems must be kept confidential by the user.
ACCESS TO THE INTERNET AND OTHER ON-LINE SERVICES. Access to the Internet
(including, but not limited to, e-mail, remote FTP, Telnet, World Wide Web,
Gopher, remote administration, secure shell, and using IP tunneling software to
remotely control Internet servers) presents special security considerations due
to the world-wide nature of the connection and the security weaknesses present
in Internet protocols and services. The firm can provide authorized employees
and other staff with access to Internet e-mail and other Internet services (such
as the World Wide Web) through a direct connection from the firm's network.
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Access to the Internet or Internet services from our firm's computers, including
the firm's e-mail system, is permitted only for legitimate business purposes.
Such access must be requested through Enterprise Security, approved by the
employee's supervisor, and provided only through firm approved connections. All
firm policies apply to the use of the Internet or Internet services. See
Employee Handbook.
Use of Internet. In accordance with firm policies, employees are
prohibited from accessing inappropriate sites, including, but not
limited to, adult and gambling sites. Firm personnel monitor Internet
use for visits to inappropriate sites and for inappropriate use. Should
employees have questions regarding what constitutes an inappropriate
site or inappropriate use, they should discuss it first with their
manager who may refer the question to Human Resources. Inappropriate
use of the Internet, or accessing inappropriate sites, may lead to
sanctions, which may include dismissal of the employee or employees
involved.
Dial-Out Access. Using a modem or an Internet connection on a firm
computer housed at any of the firm's offices to access an Internet
service provider using one's home or personal account is prohibited,
unless this account is being used by authorized personnel to service
Price Associates' connection to the Internet. When Internet access is
granted, the employee will be asked to reaffirm his or her
understanding of this Statement.
Unauthorized modems are not permitted. Dial-out access that circumvents
the Internet firewall or proxy server, except by authorized personnel in
the business of Price Associates, is prohibited.
On-line Services. Access to America OnLine ("AOL"), CompuServe, or
other commercial on-line service providers is not permitted from a firm
computer except for a legitimate business purpose approved by the
employee's supervisor and with software obtained through the Help Desk
at x4357 (select menu option 1).
Participation on Bulletin Boards. Because communications by our firm or
any of its employees on on-line service bulletin boards are subject to
federal, state and NASD advertising regulations, unsupervised
participation can result in serious securities violations. Certain
designated employees have been authorized to use AOL to monitor and
respond to inquiries about our firm and its investment services and
products. Any employee other than those assigned to this special group
must first receive the authorization of a member of the Board of T.
Rowe Price Investment Services, Inc. and the Legal Department before
initiating or responding to a message on any computer bulletin board
relating to the firm, a Price Fund or any investment or brokerage
option or service. This policy applies whether or not the employee
intends to disclose his or her relationship to the firm, whether or not
our firm sponsors the bulletin board, and whether or not the firm is
the principal focus of the bulletin board.
E-mail Use. Access to the firm's e-mail system is permitted only for
legitimate business purposes. All firm policies apply to the use of
e-mail. Firm personnel may monitor e-mail usage for inappropriate use.
Should employees have questions regarding what constitutes
inappropriate use, they should discuss it first with their manager who
may refer the question to Human Resources. Inappropriate use of e-mail
may lead to sanctions, which may include dismissal of the employee or
employees involved.
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E-mail services, other than those provided or approved by Price
Associates, may not be used for business purposes. In addition,
accessing e-mail services not provided or approved by Price Associates
from firm equipment for any reason could allow the introduction of
viruses or malicious code into the network, or lead to the compromise
of confidential data.
Employees should understand that e-mail sent through the Internet is
not secure and could be intercepted by a third party.
DIAL-IN ACCESS. The ability to access our firm's computer Systems from a remote
location is also limited to authorized users. Phone numbers used to access our
firm's computer Systems are confidential. A security system that uses a one-time
password or other strong authentication method must be employed when accessing
our firm's network from a remote computer. Authorization for remote access can
be requested by completing a "Systems Access Request" form. Any employee who
requires remote access should contact the Help Desk at x4357 (select menu option
1) for desktop setup.
VIRUS PROTECTION. A computer virus is a program designed to damage or impair
software or data on a computer system. Software from any outside source may
contain a computer virus or similar malicious code. Types of carriers and
transmission methods increase daily and currently include diskettes, CDs, file
downloads, executables, and e-mail attachments. A comprehensive malicious code
prevention and control program is in place throughout Price Associates. This
program provides policy and procedures for anti-virus controls on all systems.
More information about the anti-virus program can be found on the TRPIT
Intranet.
Introducing a virus or similar malicious code into the Price Associates Systems
by engaging in prohibited actions, such as downloading non-business related
software, or by failing to implement recommended precautions, such as updating
virus scanning software on remote machines, may lead to sanctions, which may
include dismissal of the employee or employees involved.
Virus Scanning Software. As part of the TRPIT's anti-virus program,
virus scanning software is installed on the majority of applicable
platforms. This software is designed to detect and eradicate malicious
code and viruses. All desktop computers have the corporate standard
anti-virus scanning software installed and running. This software is
installed and configured by the Distributed Processing Support Group
and runs constantly. Virus scanning software updates are automatically
distributed to the desktops as they become available. Desktop virus
scanning software can also be used by the employee to scan diskettes,
CDs, directories, and attachments "on demand". Contact the Help Desk at
x4357 (select menu option 3) for assistance.
E-mail. An e-mail anti-virus gateway scans the content of inbound and
outbound e-mail for viruses. Infected e-mail and attachments will be
cleaned when possible and quarantined when not cleanable. Updating of
the e-mail gateway anti-virus software and pattern files is done
automatically.
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Portable and Remote Computers. Laptops and other computers that
remotely access the TRPIT network are also required to have the latest
anti-virus software and pattern files. It is the responsibility of each
user to ensure that his or her portable computer's anti-virus software
is regularly updated. The Help Desk has instructions available. Contact
the Help Desk at x4357 (select menu option 3) to obtain further
information.
Downloading or Copying. The user of a PC with a modem or with an
Internet connection has the ability to connect to other computers or
on-line services outside of the firm's network and there may be
business reasons to download or copy software from those sources.
Downloading or copying software, which includes documents, graphics,
programs and other computer-based materials, from any outside source is
not permitted unless it is for a legitimate business purpose because
downloads and copies could introduce viruses and malicious code into
the Systems.
Other Considerations. Users must log off the System each night. Unless
the user logs off, virus software on each workstation cannot pick up
the most current virus scanning downloads or the most current software
updates for the user's System. Employees must call the Help Desk at
x4357 (select menu option 3) when viruses are detected so that it can
ensure that appropriate tracking and follow-up take place. Do not
forward any "virus warning" mail received to other staff until you have
contacted the Help Desk, since many of these warnings are hoaxes. When
notified that a user has received "virus warning" mail, the Help Desk
will contact Enterprise Security, whose personnel will check to
determine the validity of the virus warning.
APPLICATION OF U.S. COPYRIGHT LAW TO SOFTWARE PROGRAMS. Software products and
on-line information services purchased for use on Price Associates' personal
computers are generally copyrighted material and may not be reproduced without
proper authorization from the software vendor. This includes the software on CDs
or diskettes, any program manuals or documentation, and data or software
retrievable from on-line information systems. Unauthorized reproduction of such
material or information, or downloading or printing such material, is a federal
offense, and the software vendor can sue to protect the developer's rights. In
addition to criminal penalties such as fines and imprisonment, civil damages can
be awarded in excess of $50,000.
GUIDELINES FOR USING PERSONAL COMPUTER SOFTWARE
Acquisition and Installation of Software. Only Distributed Processing
Support Group approved and installed software is authorized. Any
software program that is to be used by an employee of Price Associates
in connection with the business of the firm must be ordered through the
Help Desk at x4357 (select menu option 1) and installed by the
Distributed Processing Support Group of TRPIT.
Licensing. Software residing on firm LAN servers will be either: (1)
maintained at an appropriate license level for the number of users, or
(2) made accessible only for those for whom it is licensed.
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Original CDs, Diskettes and Copies. In most cases, software is
installed by the Distributed Processing Support Group and original
software CDs and diskettes are not provided to the user. In the event
that original CDs or diskettes are provided, they must be stored
properly to reduce the possibility of damage or theft. CDs and
diskettes should be protected from extreme heat, cold, and contact with
anything that may act as a magnet or otherwise damage them. Employees
may not make additional copies of software or software manuals obtained
through the firm.
Recommendations, Upgrades, and Enhancements. All recommendations
regarding computer hardware and software programs are to be forwarded
to the Help Desk at x4357 (select menu option 1), which will coordinate
upgrades and enhancements.
QUESTIONS REGARDING THIS STATEMENT. Any questions regarding this Statement
should be directed to Enterprise Security in TRPIT.
March, 2000
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<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
COMPLIANCE WITH ANTITRUST LAWS
Purpose
To protect the interests of the company and its employees, Price
Associates has adopted this Statement of Policy on Compliance with Antitrust
Laws ("Statement") to:
(1) Inform employees about the legal principles governing
prohibited anticompetitive activity in the conduct of Price
Associates' business; and
(2) Establish guidelines for contacts with other members of the
investment management industry to avoid violations of the
antitrust laws.
The Basic Anticompetitive Activity Prohibition
Section 1 of the Sherman Antitrust Act (the "Act") prohibits
agreements, understandings, or joint actions between companies that constitute a
"restraint of trade," i.e., reduce or eliminate competition.
This prohibition is triggered only by an agreement or action among two
or more companies; unilateral action never violates the Act. To constitute an
illegal agreement, however, an understanding does not need to be formal or
written. Comments made in conversations, casual comments at meetings, or even as
little as "a knowing wink," as one case says, may be sufficient to establish an
illegal agreement under the Act.
The agreed upon action must be anticompetitive. Some actions are "per
se" anticompetitive, while others are judged according to a "rule of reason."
o Some activities have been found to be so inherently
anticompetitive that a court will not even permit the argument
that they have a procompetitive component. Examples of such per se
illegal activities are agreements between competitors to fix
prices or divide up markets in any way, such as exclusive
territories.
o Other joint agreements or activities will be examined by a court
using the rule of reason approach to see if the procompetitive
results of the arrangement outweigh the anticompetitive effects.
Permissible agreements among competitors may include a buyers'
cooperative, or a syndicate of buyers for an initial public
offering of securities. In rare instances, an association of
sellers (such as ASCAP) may be permissible.
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There is also an exception for joint activity designed to influence
government action. Such activity is protected by the First Amendment to the U.S.
Constitution. For example, members of an industry may agree to lobby Congress
jointly to enact legislation that may be manifestly anticompetitive.
Penalties for Violating the Sherman Act
A charge that the Act has been violated can be brought as a civil or a
criminal action. Civil damages can include treble damages, plus attorneys fees.
Criminal penalties for individuals can include fines of up to $350,000 and three
years in jail, and $100 million or more for corporations.
Situations in Which Antitrust Issues May Arise
To avoid violating the Act, any agreement with other members of the
investment management industry regarding which securities to buy or sell and
under what circumstances we buy or sell them, or about the manner in which we
market our mutual funds and investment and retirement services, must be made
with the prohibitions of the Act in mind.
Trade Association Meetings and Activities. A trade association is a
group of competitors who join together to share common interests and
seek common solutions to common problems. Such associations are at a
high risk for anticompetitive activity and are closely scrutinized by
regulators. Attorneys for trade associations, such as the Investment
Company Institute, are typically present at meetings of members to
assist in avoiding violations.
Permissible Activities:
o Discussion of how to make the industry more competitive.
o An exchange of information or ideas that have
procompetitive or competitively neutral effects, such as:
methods of protecting the health or safety of workers;
methods of educating customers and preventing abuses; and
information regarding how to design and operate training
programs.
o Collective action to petition government entities.
Activities to be Avoided:
o Any discussion or direct exchange of current information
about prices, salaries, fees, or terms and conditions of
sales. Even if such information is publicly available,
problems can arise if the information available to the
public is difficult to compile or not as current as that
being exchanged.
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Exception: A third party consultant can, with appropriate
safeguards, collect, aggregate and disseminate some of
this information, such as salary information.
o Discussion of future business plans, strategies, or
arrangements that might be considered to involve
competitively sensitive information.
o Discussion of specific customers, markets, or territories.
o Negative discussions of service providers that could give
rise to an inference of a joint refusal to deal with the
provider (a "boycott").
Investment-Related Discussions
Permissible Activities: Buyers or sellers with a common
economic interest may join together to facilitate securities
transactions that might otherwise not occur, such as the
formation of a syndicate to buy in a private placement or
initial public offering of a issuer's stock, or negotiations
among creditors of an insolvent or bankrupt company.
Competing investment managers are permitted to serve on
creditors committees together and engage in other similar
activities in connection with bankruptcies and other judicial
proceedings.
Activities to be Avoided: It is important to avoid anything
that suggests involvement with any other firm in any threats
to "boycott" or "blackball" new offerings, including making
any ambiguous statement that, taken out of context, might be
misunderstood to imply such joint action. Avoid careless or
unguarded comments that a hostile or suspicious listener might
interpret as suggesting prohibited coordinated behavior
between T. Rowe Price and any other potential buyer.
Example: After an Illinois municipal bond default
where the state legislature retroactively abrogated
some of the bondholders' rights, several investment
management complexes organized to protest the state's
action. In doing so, there was arguably an implied
threat that members of the group would boycott future
Illinois municipal bond offerings. Such a boycott
would be a violation of the Act. The investment
management firms' action led to an 18-month
Department of Justice investigation. Although the
investigation did not lead to any legal action, it
was extremely expensive and time consuming for the
firms and individual managers involved.
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If you are present when anyone outside of T. Rowe Price
suggests that two or more investors with a grievance against
an issuer coordinate future purchasing decisions, you should
immediately reject any such suggestion. As soon as possible
thereafter, you should notify the Legal Department, which will
take whatever further steps are necessary.
Benchmarking. Benchmarking is the process of measuring and comparing an
organization's processes, products and services to those of industry
leaders for the purpose of adopting innovative practices for
improvement.
o Because benchmarking usually involves the direct exchange
of information with competitors, it is particularly
subject to the risk of violating the antitrust laws.
o The list of issues that may and should not be discussed in
the context of a trade association also applies in the
benchmarking process.
o All proposed benchmarking agreements must be reviewed by
the T. Rowe Price Legal Department before T. Rowe Price
agrees to participate in such a survey.
March, 2000
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<PAGE>
VONTOBEL USA INC.
CODE OF ETHICS
1. STATEMENT OF GENERAL PRINCIPLES
1.1 Adherence to Ethical Standards of Vontobel Group
The emphasis placed on the observance of the highest ethical standards
by the Vontobel Group's management is well known to the Swiss financial
marketplace. The cornerstones of its standing in the financial
community are its integrity and, as a predominantly family-controlled
organization, its independence from commercial considerations that
could lead it to place its own interest before that of its clients. As
a subsidiary of Vontobel Holding, Vontobel USA is held to the same
standards of ethical conduct that govern the business activities of the
Vontobel Group. The Company Charter of the Vontobel Group is attached
hereto as Appendix A and incorporated herein by reference.
1.2 Compliance with Applicable US Legislation
As an investment adviser registered with the US Securities and Exchange
Commission (SEC), Vontobel USA is subject to the provisions of the
Investment Advisers Act of 1940 (the "Advisers Act"). Section 206 of
the Advisers Act provides that it is unlawful for any investment
adviser:
(1) to employ any device, scheme, or artifice to defraud any client
or prospective client;
(2) to engage in any transaction, practice, or course of business
which operates as a fraud or deceit upon any client or
prospective client;
(3) acting as principal for his own account, knowingly to sell any
security to or purchase any security from a client, or acting as
broker for a person other than such client, knowingly to effect
any sale or purchase of any security for the account of such
client, without disclosing to such client in writing before the
completion of such transaction the capacity in which he is
acting and obtaining the consent of the client to such
transaction;
(4) to engage in any act, practice, or course of business which is
fraudulent, deceptive, or manipulative.
Vontobel USA is also subject to certain provisions of the Investment
Company Act of 1940 with respect to fraudulent trading, as discussed in
Section 4 hereunder, and the Insider Trading and Securities Fraud
Enforcement Act of 1988, as discussed in Section 5 hereunder.
Vontobel Personnel shall at all times comply with these and all other
laws and regulations that may be applicable to Vontobel USA's business.
In some instances, where such laws and regulations may be ambiguous and
difficult to interpret, Vontobel Personnel shall seek the advice of
Vontobel USA's management, who shall obtain the advice of outside
counsel as is necessary to comply with this policy of observance of all
applicable laws and regulastions. Excerpts from the securities
legislation cited above are provided in Appendix B.
<PAGE>
1.3 General Principles
This Code of Ethics is based on the following principles:
(a) The officers, directors and employees of Vontobel USA owe a
fiduciary duty to all Vontobel Clients and, therefore, must at
all times place the interests of Vontobel Clients ahead of
their own.
(b) Vontobel Personnel shall avoid any conduct that could create
any actual or potential conflict of interest, and must ensure
that their personal securities transactions do not in any way
interfere with, or appear to take advantage of, the portfolio
transactions undertaken on behalf of Vontobel Clients.
(c) Vontobel Personnel shall not take inappropriate advantage of
their positions with Vontobel USA to secure personal benefits
that would otherwise be unavailable to them.
It is imperative that all Vontobel Personnel avoid any situation that
might compromise, or call into question, the exercise of fully
independent judgment in the interests of Vontobel Clients. All Vontobel
Personnel are expected to adhere to these general principles in the
conduct of the firm's business, even in situations that are not
specifically addressed in this Code's provisions, procedures and
restrictions. Serious and/or repeated violations of this Code may
constitute grounds for dismissal.
2. Definitions
For purposes of this Code:
"Beneficial Ownership" and "Beneficial Owner(s)" shall be as defined in
Section 16 of the Securities Exchange Act of 1934, which, generally
speaking, encompasses those situations where the Beneficial Owner has
the right to enjoy some economic benefits which are substantially
equivalent to ownership regardless of who is the registered owner (see
Appendix B). This would include:
(a) securities which a person holds for his or her own benefit
either in bearer form, registered in his or her own name or
otherwise, regardless of whether the securities are owned
individually or jointly;
(b) securities held in the name of a member of his or her
immediate family or any adult living in the same household;
(c) securities held by a trustee, executor, administrator,
custodian or broker;
(d) securities owned by a general partnership of which the person
is a member or a limited partnership of which such person is a
general partner;
(e) securities held by a corporation which can be regarded as a
personal holding company of a person; and
(f) securities recently purchased by a person and awaiting
transfer into his or her name.
The "Corporation" shall mean Vontobel USA Inc.
"Security" shall have the meaning set forth in Section 202(a)(18)of the
Investment Advisers Act of 1940 (see Appendix B), irrespective of
whether the issuer is a US or non-US entity and whether the security is
being held by a US or non-US custodian or, directly or indirectly, in
personal custody; except that it shall not include:
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o shares of registered open-end investment companies (mutual
funds),
o shares of an investment club account
o securities issued by the US Government or US federal agencies
that are direct obligations of the US - bankers' acceptances,
bank certificates of deposits and commercial paper.
The following are expressly deemed to be securities subject to this
Code:
o securities issued by any foreign government or agency thereof
o futures or options on futures
o corporate bonds
o closed-end investment funds.
"Purchase or sale of a security" shall include the writing of an option
to purchase or sell a security.
A security is "being considered for purchase or sale" or is "being
purchased or sold" when a recommendation to purchase or
sell the security by a Vontobel USA portfolio manager is under
serious consideration or has already been made and the
transaction executed.
"Vontobel Client(s)" shall mean both individual and institutional
clients (including corporations, investment companies, trusts,
endowments, foundations and other legal entities), whether resident or
non-US-resident, for whom Vontobel USA provides investment supervisory
services (discretionary management) or manages investment advisory
accounts not involving investment supervisory services
(non-discretionary management).
"Vontobel Employee(s)" shall include officers and employees of Vontobel
USA Inc.
"Vontobel Personnel" shall include officers, employees and directors of
Vontobel USA Inc.
3. PRINCIPLES FOR DOING BUSINESS
3.1 Confidentiality
Confidentiality is a fundamental principle of the investment management
business. Vontobel Employees must maintain the confidential
relationship between the Corporation and each of its Clients.
Confidential information such as the identity of Vontobel Clients and
the exent of their account relationship, must be held inviolate by
those to whom it is entrusted and must never be discussed outside the
normal and necessary course of the Corporation's business. To the
extent possible, all information concerning Vontobel Clients and their
accounts shall be shared among Vontobel Employees on a strictly
need-to-know basis. In this regard, Vontobel Employees shall be careful
not to divulge to their colleagues or any third party any information
concerning a Vontobel Client that could be considered "inside
information", as that term is defined in Section 5 hereof.
3.2 Conflicts of Interest
It shall be the first obligation of every Vontobel Employee to fulfill
his or her fiduciary duty to Vontobel Clients. No Vontobel Employee
shall undertake any outside employment, or engage in any personal
business interest, that would interfere with the performance of this
fiduciary duty. No Vontobel Employee may act on behalf of the
Corporation in any transaction involving persons or organizations with
whom he or she, or his or her family, have any significant connection
or financial interest. In any closely held enterprise, even a modest
financial interest held by the Vontobel Employee, or any member of his
or her family, should be viewed as significant.
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3.3 Service as a Director
No Vontobel Employee shall become a director or any official of a
business organized for profit without first obtaining written approval
from the Board of Directors of the Corporation based upon its
determination that such board service would not be inconsistent with
the interests of the Corporation and its Clients.
3.4 Personal Fiduciary Appointments
No Vontobel Employee shall accept a personal fiduciary appointment
without first obtaining the written approval of the Board of Directors
of the Corporation, unless such appointment results from a close family
relationship.
3.5 Service on Civic and Charitable Organizations
The Corporation encourages its employees to participate in local civic
and charitable activities. In some cases, however, it may be improper
for a Vontobel Employee to serve as a member, director, officer or
employee of a municipal corporation, agency, school board, or library
board. Such service is appropriate when adequate assurances, in
writing, are first given to the Corporation that business relationships
between the Corporation and such entities would not be prohibited or
limited because of statutory or administrative requirements regarding
conflicts of interest.
3.6 Fees to Consultants and Agents
Any and all fees and payments, direct or indirect, to consultants,
agents, solicitors and other third-party providers of professional
services must be approved by the Chief Executive Officer prior to
conclusion of any formal arrangements for services. No remuneration or
consideration of any type shall be given by any Vontobel Employee to
any person or organization outside of a contractual relationship that
has received the prior approval of the Chief Executive Officer.
3.7 Personal Benefits
No Vontobel Employee, or member of his or her family, may accept a
personal gift, benefit, service, form of entertainment or anything of
more than de minimis value ("gift") from Vontobel Clients, suppliers,
service providers, brokers and all other parties with whom the
Corporation has contractual or other business arrangements if such gift
is made because of the recipient's affiliation with the Corporation or
with a Vontobel Employee. Any Vontobel Employee who receives a gift of
more than de minimis value, or a gift with an unclear status under this
Section 3.7, shall promptly notify the Compliance Officer and may
accept the gift only upon the latter's written approval. The Compliance
Officer shall determine whether the gift shall be retained by the
Vontobel Employee or member of his or her family, returned to the
donor, or donated without tax deduction to a charitable organization
selected by the Compliance Officer, subject to the approval of the
Chief Executive Officer.
3.8 Personal Fees and Commissions
No Vontobel Employee shall accept personal fees, commissions or any
other form of remu-neration in connection with any transactions on
behalf of the Corporation or any of its Clients.
3.9 Dealings with Suppliers
Vontobel Employees shall award orders or contracts to outside suppliers
on behalf of the Corporation solely on the basis of merit and
competitive pricing, without regard to favoritism or nepotism.
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3.10 Borrowing
No Vontobel Employee, or member of his or her family, may borrow money
from any Vontobel Client or any of the Corporation's suppliers, service
providers, brokers and all other parties with whom the Corporation has
contractual or other business arrangements under any circumstances.
3.11 Political Contributions
Vontobel USA shall make no contributions to political parties or
candidates for public office.
3.12 Duty to Report Violations or Potential Conflicts of Interest
The Corporation's management and Board of Directors must be informed at
all times of matters that may constitute violations of this Code of
Ethics, or that may be considered of fraudulent or illegal nature, or
potentially injurious to the good reputation of the Corporation or the
Vontobel Group. Vontobel Employees shall have a duty to report such
events immediately to the Compliance Officer or the Chief Executive
Officer or, if such events concern the Corporation's management, they
should be reported to the Chairman.
3.13 Full Disclosure
In responding to requests for information concerning the Corporation's
business practices from the Corporation's internal or independent
accountants and auditors, counsel, regulatory agencies or other third
parties, Vontobel Employees shall be truthful in their communications
and shall make full disclosure at all times.
4. PERSONAL SECURITIES TRANSACTIONS
4.1 Summary
This Section 4 of the Code of Ethics is based on the recommendations of
the Advisory Group on Personal Investing of the Investment Company
Institute in its May 1994 report. The key provisions of this Code with
respect to personal trading are summarized as follows:
o Prohibition on investing in initial public offerings
o Restrictions on investing in private placements
o Prior written clearance of personal trades
o Seven-day blackout period
o Sixty-day ban on short-term trading profits of securities
held, or likely to be held, in portfolios of Vontobel Clients
o Full disclosure of all securities trades and securities
holdings
4.2 Prohibited and Restricted Transactions
4.2.1 In addition to the prohibitions of Section 206 of the Advisers Act
cited in Section 1.2 above, Vontobel USA is subject to the provisions
of Rule 17j-1 under the Investment Company Act of 1940 (the "Company
Act"). Rule 17j-1 requires investment advisers to investment companies
to adopt written codes of ethics designed to prevent fraudulent trading
and, further, to use reasonable diligence and institute procedures
reasonably necessary to prevent violations of their code of ethics.
Vontobel Employees shall not engage in any act, practice or course of
conduct that would violate the provisions of Rule 17j-1.
With respect to Vontobel's function as investment adviser to mutual
funds, certain Vontobel Employees are considered "access persons" as
that term is defined under Rule 17j-1 of the Company Act. Access
persons of Vontobel are listed in Appendix C. As may be required by the
investment companies for which it acts as adviser or subadviser,
Vontobel provides periodic reports with respect to the personal
securities transactions of its access persons, as well as an annual
compliance report.
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No Vontobel Employee shall purchase or sell, directly or indirectly,
any security in which he/she has, or by reason of such transaction
acquires, Beneficial Ownership and which, to his/her actual knowledge
at the time of such purchase or sale, (i) is being considered for
purchase or sale on behalf of a Vontobel Client; or (ii) is being
purchased or sold by a Vontobel Client; except that the prohibitions of
this section shall not apply to:
(a) purchases or sales which are nonvolitional on the part of any
Vontobel Employee;
(b) purchases which are part of an automatic dividend reinvestment
or other plan established by any Vontobel Employee prior to
the time the security involved came within the purview of this
Code; and
(c) purchases effected upon the rights issued by an issuer pro
rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales
of such rights so acquired.
4.2.2 No Vontobel Employee shall acquire any securities in an initial public
offering.
4.2.3 No Vontobel Employee shall acquire securities in a private placement
without the prior written approval of the Compliance Officer or other
officer designated by the Chief Executive Officer. In considering a
request to invest in a private placement, the Compliance Officer will
take into account, among other factors, whether the investment
opportunity should be reserved for a Vontobel Client, and whether the
opportunity is being offered to a Vontobel Employee by virtue of his or
her position with the Corporation.
4.3 Blackout Period*
4.3.1 No Vontobel Employee shall execute a securities transaction on a day
during which Vontobel USA has a pending "buy" or "sell" order in that
same security for a Vontobel Client or its own account until that order
is executed or withdrawn.
4.3.2 Vontobel Employees are prohibited from purchasing or selling a security
within seven (7) calendar days before or after the date on which a
transaction in the same security is effected for a Vontobel Client.
Should any Vontobel Employee make an authorized personal trade within
such blackout period, the Compliance Officer (or, in his absence, any
officer authorized to approve trades), shall, in his sole discretion
and based on his assessment of the facts and circumstances surrounding
such personal trade, determine whether it can be deemed to have
benefited, or appear to have benefited, from the market effect of the
trade for the Vontobel Client. If such officer so determines, the
Vontobel Employee shall cancel the trade or promptly disgorge the
imputed profit, if any, from his or her personal trade that shall have
accrued between the date thereof and the trade date of the transaction
in the same security for the Vontobel Client. Imputed profit shall in
all cases mean the difference between the price at which the Vontobel
Employee transacted and the price at which the trade for the Vontobel
Client was transacted. The prohibitions of this section shall not apply
to:
(a) purchases or sales which are nonvolitional on the part of
either the Vontobel Employee or the Vontobel Client account;
(b) purchases or sales which are part of an automatic dividend
reinvestment or other plan established by Vontobel Employees
prior to the time the security involved came within the
purview of this Code; and
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* The purpose of the blackout period before a client trade is to address
front-running violations that occur when personal trades are made shortly
before a client trade and benefit from the market effect of that trade. The
blackout period after a client trade is intended to allow dissipation of the
market effect of the client trade. It is also designed to prevent individuals
from benefiting from a trade that is opposite the client trade (e.g., selling
a security shortly after a purchase of the same security for a client boosted
its price, or purchasing a security shortly after a sale of the same security
for a client lowered its price).
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(c) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer, and
sales of such rights so acquired.
4.4 Short-Term Trading
No Vontobel Employee shall profit from the purchase and sale, or sale
and purchase, of the same (or equivalent) securities which are owned by
a Vontobel Client or which are of a type suitable for purchase on
behalf of Vontobel Clients, within sixty (60) calendar days. Any
profits realized on such short-term trades must be disgorged and the
profits will be paid to a charity selected by the Compliance Officer
and the Chief Executive Officer. The Compliance Officer and any other
officer authorized by the Chief Executive Officer to approve trades
(see Appendix C) may permit exemptions to the prohibition of this
section in writing, on a case-by-case basis, when no abuse is involved
and the circumstances of the subject trades, as they are best able to
determine, support an exemption.
4.5 Prior Written Clearance of Personal Securities Trades
and Full Disclosure of Securities Holdings
4.5.1 All Vontobel Employees shall obtain written authorization of their
personal securities transactions prior to executing an order. A written
request must be submitted to one of the officers listed in Appendix D,
and such officer must give his written authorization prior to the
Vontobel Employee's placing a purchase or sell order with a broker.
Should such officer deny the request, he will give a reason for the
denial. An approved request will remain valid for two (2) business days
from the date of the approval.
Should any Vontobel Employee make an unauthorized personal trade in a
security, he or she shall be obliged, without benefit of tax deduction,
to promptly sell the position and/or disgorge any imputed or realized
profit that shall have accrued between the date of such unauthorized
personal trade and the date of disgorgement. Profits disgorged by
Vontobel Employees pursuant to this Code shall be paid to a charity
selected by the Compliance Officer and approved by the Chief Executive
Officer.
Attached hereto as Appendix D is the personal securities trading
authorization form.
4.5.2 Vontobel Employees shall instruct their broker(s), including the
Corporation's affiliate brokers, to supply the Compliance Officer, on a
timely basis, with duplicate copies of confirmations of all personal
securities transactions and copies of all periodic statements for all
securities accounts containing securities in which Vontobel Employees
have Beneficial Ownership.
4.5.3 Vontobel Personnel shall submit written reports on a quarterly basis
(or at such lesser intervals as may be required from time to time)
showing all transactions in securities as defined herein in which they
and their families have, or by reason of such transaction acquire,
Beneficial Ownership.
4.5.4 Every report to be made under subparagraph 4.6.3 above shall be made
not later than ten (10) days after the end of the calendar quarter in
which the transaction to which the report relates was effected. The
report shall contain the following information concerning any
transaction required to be reported therein:
(a) the date of the transaction;
(b) the title and number of shares;
(c) the principal amount involved;
(d) the nature of the transaction (i.e., purchase, sale or other
type of acquisition or disposition);
(e) the price at which the transaction was effected; and
(f) the name of the broker, dealer or bank with or through whom
the transaction was effected.
4.5.5 The Compliance Officer shall receive all reports required hereunder.
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4.5.6 The Compliance Officer shall promptly report to the Corporation's Board
of Directors (a) any apparent violation of the prohibitions contained
in this Section 4 and (b) any reported transactions in a security which
was purchased or sold by the Corporation for a Vontobel Client account
within seven (7) days before or after the date of the reported
transaction.
4.5.7 The Corporation's Board of Directors shall consider reports made to the
Board of Directors hereunder and shall determine whether or not this
Section 4 has been violated and what sanctions, if any, should be
imposed.
4.5.8 This Code of Ethics, a copy of each report made by Vontobel Personnel,
each memorandum made by the Compliance Officer hereunder, and a record
of any violation hereof and any action taken as a result of such
violation, shall be maintained by the Compliance Officer, as required
by Rule 17j-1 of the Company Act.
4.5.9 Upon the commencement of employment, all Vontobel Personnel shall
disclose all personal securities holdings to the Compliance Officer.
4.5.10 Annually, all Vontobel Personnel shall be required to certify that they
have (a) read and understand the Code, and recognize that they are
subject thereto; (b) instructed each financial institution through
which they, or any member of their household, effect securities
transactions to send duplicate copies of their account statements and
trading confirmations to Vontobel; (c) complied with the requirements
of the Code; (d) disclosed and reported all personal securities
transactions required to be disclosed; and (e) disclosed all personal
securities holdings.
4.5.11 The Compliance Officer shall prepare an annual report to the
Corporation's Board of Directors. Such report shall (a) include a copy
of the Code of Ethics; (b) summarize existing procedures concerning
personal investing and any changes in the Code's policies or procedures
during the past year; (c) identify any violations of the Code; and (d)
identify any recommended changes in existing restrictions, policies or
procedures based upon the Corporation's experience under the Code, any
evolving practices, or developments in applicable laws or regulations.
5. INSIDER TRADING
The Insider Trading and Securities Fraud Enforcement Act of 1988
("ITSFEA") requires that all investment advisers and broker-dealers
establish, maintain and enforce written policies and procedures
designed to detect and prevent the misuse of material nonpublic
information by such investment adviser and/or broker-dealer, or any
person associated with the investment adviser and/or broker-dealer.
Section 204A of the Advisers Act states that an investment adviser must
adopt and disseminate written policies with respect to ITSFEA, and an
investment adviser must also vigilantly review, update and enforce
them. Accordingly, Vontobel USA has adopted the following policy,
procedures and supervisory procedures as an integral part of its Code
of Ethics applicable to all of its officers, employees and directors
(sometimes referred to herein as Vontobel Personnel).
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5.1 Policy
The purpose of this Section 5 is to familiarize Vontobel Personnel with
issues concerning insider trading and assist them in putting into
context the policy and procedures on insider trading.
Policy Statement:
No Vontobel Personnel may trade in a security, either personally or on
behalf of Vontobel Clients, while in possession of material, nonpublic
information regarding that security; nor may any officer, employee or
director communicate material, nonpublic information to others in
violation of the law. This conduct is commonly referred to as "insider
trading". This policy extends to activities within and without the
individual job functions of Vontobel Personnel and covers not only
their personal transactions, but indirect trading by family, friends
and others, or the nonpublic distribution of inside information from
them to others. Any questions regarding the policy and procedures
should be referred to the Compliance Officer.
The term "insider trading" is not defined in federal securities laws,
but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider")
or the communication of material nonpublic information to others who
may then seek to benefit from such information.
While the law concerning insider trading is not static and may undergo
revisions from time to time, it is generally understood that the law
prohibits:
(a) trading by an insider, while in possession of material
nonpublic information, or
(b) trading by a non-insider, while in possession of material
nonpublic information, where the information either was
disclosed to the non-insider in violation of an insider's duty
to keep it confidential or was misappropriated, or
(c) communicating material nonpublic information to others.
5.2 Elements of Insider Trading
5.2.1 Who Is an Insider?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary
insider" if he or she enters into a special confidential relationship
in the conduct of a company's affairs and as a result is given access
to information solely for the company's purposes. A temporary insider
can include, among others, a company's attorneys, accountants,
consultants, bank lending officers, and the employees of such service
providers. In addition, an investment adviser may become a temporary
insider of a company it advises or for which it performs other
services. According to the Supreme Court, the company must expect the
outsider to keep the disclosed nonpublic information confidential and
the relationship must at least imply such a duty before the outsider
will be considered an insider.
5.2.2 What Is Material Information?
Trading on inside information can be the basis for liability when the
information is material. In general, information is "material" when
there is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment decisions, or
information that is reasonably certain to have a substantial effect on
the price of a company's securities. Information that officers,
directors and employees should consider material includes, but is not
limited to: dividend changes, earnings estimates, changes in previously
released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems and
extraordinary management developments.
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5.2.3 What Is Nonpublic Information?
Information is nonpublic until it has been effectively communicated to
the marketplace. One must be able to point to some fact to show that
the information is generally public. For example, information found in
a report filed with the SEC, or appearing in Bloomberg electronic news
reports, or in The Wall Street Journal or other publications of general
circulation would be considered public. (Depending on the nature of the
information, and the type and timing of the filing or other public
release, it may be appropriate to allow for adequate time for the
information to be "effectively" disseminated.)
5.2.4 Legal Bases for Liability
(a) Fiduciary Duty Theory: In 1980 the Supreme Court found that
there is no general duty to disclose before trading on
material nonpublic information, but that such a duty arises
only where there is a direct or indirect fiduciary
relationship with the issuer or its agents. That is, there
must be a relationship between the parties to the transaction
such that one party has a right to expect that the other party
will disclose any material nonpublic information or refrain
from trading.
(b) Misappropriation Theory: Another basis for insider trading
liability is the "misappropriation theory", where liability is
established when trading occurs on material on nonpublic
information that was stolen or misappropriated from any other
person.
5.3 Penalties for Insider Trading
Penalties for trading on or communicating material nonpublic
information are severe, both for individuals and their employers. An
individual can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation:
o civil injunctions
o treble damages
o disgorgement of profits
o jail sentences
o fines for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or not
the person actually benefitted, and
o fines for the employer or other controlling person of up to
the greater of $1 million or three times the amount of the
profit gained or loss avoided.
5.4. Procedures
The following procedures have been established to aid Vontobel
Personnel in avoiding insider trading, and to aid in preventing,
detecting and imposing sanctions against insider trading. Vontobel
Personnel must follow these procedures or risk serious sanctions,
including dismissal, substantial personal liability and/or criminal
penalties. If you have any questions about these procedures, you should
consult the Compliance Officer.
5.4.1 Identifying Inside Information. Before trading for yourself or others,
including Vontobel Clients, in the securities of a company about which
you may have potential inside information, ask yourself the following
questions:
(a) Is the information material? Is this information that an
investor would consider important in making his or her
investment decisions? If this information that would
substantially affect the market price of the securities if
generally disclosed?
(b) Is the information nonpublic? To whom has this information
been provided? Has the information been effectively
communicated to the marketplace, e.g., by being published
electronically by Bloomberg, or in The Wall Street Journal or
other publications of general circulation?
If, after consideration of the above, you believe that the information
is material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should report the matter
immediately to the Compliance Officer. Until he has had an opportunity
to review the matter, you should not (i) purchase or sell the security
on behalf of yourself or others, including Vontobel Clients, and (ii)
communicate the information to anyone, other than to the Compliance
Officer. After the Compliance Officer has reviewed the issue, you will
be instructed to either continue the prohibitions against trading and
communication, or you will be allowed to communicate the information
and then trade.
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5.4.2 Personal Security Trading. Each officer, director and employee shall
submit to the Compliance Officer, on a quarterly basis (or at such
lesser intervals as may be required from time to time) a report of
every securities transaction in which they, their families (including
the spouse, minor children, and adults living in the same household),
and trusts of which they are trustees or in which they have beneficial
ownership have participated. The report shall include the name of the
security, date of the transaction, quantity, price and broker-dealer
through which the transaction was effected. Each officer, director and
employee must also instruct their broker(s) to supply the Compliance
Officer, on a timely basis, with duplicate copies of confirmations of
all personal securities transactions and copies of all periodic
statements for all securities accounts.
5.4.3 Restricting Access to Material Nonpublic Information. Any information
in your possession that you identify as material and nonpublic may not
be communicated other than in the course of performing your duties to
anyone, including your colleagues at Vontobel USA, with the exception
of the Compliance Officer as provided in subparagraph 5.4.1 above. In
addition, care should be taken so that such information is secure. For
example, files containing material nonpublic information should be
locked; access to computer files containing material nonpublic
information should be restricted.
5.4.4 Resolving Issues Concerning Insider Trading. If, after considerations
of the items set forth in Section 5.2, doubt remains as to whether
information is material or nonpublic, or if there is any unresolved
question as to the applicability or interpretation of the foregoing
procedures, or as to the propriety of any action, it must be discussed
with the Compliance Officer before trading or communicating the
information to anyone.
5.5 Supervision
The supervisory role of the Compliance Officer is critical to the
implementation and maintenance of this Statement on Insider Trading,
and encompasses the following.
5.5.1 Prevention of Insider Trading
To prevent insider trading, the Compliance Officer shall:
o answer promptly any questions regarding the Statement on
Insider Trading
o resolve issues of whether information received by any officer,
employee or director is material and nonpublic
o update the Statement on Insider Trading and distribute
amendments thereto, as necessary, to all officers, employees
and directors
o obtain an annual written acknowledgement from all officers,
employees and directors that they have reviewed the
Corporation's Code of Ethics, including the Statement on
Insider Trading contained in this Section 5
o when it has been determined that any officer, director or
employee has material nonpublic information:
(i) implement measures to prevent dissemination of such
information, and
(ii) if necessary, restrict officers, directors and employees
from trading the securities.
5.5.2 Detection of Insider Trading
To detect insider trading, the Compliance Officer shall:
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o review the trading activity reports filed quarterly by each
officer, director and employee, as well as the duplicate
confirmations and periodic account statements forwarded by
their brokers, to ensure that no trading took place in
securities in which the Corporation was in possession of
material nonpublic information;
o review the trading activity of the mutual funds and private
account portfolios managed by the Corporation quarterly
o coordinate, if necessary, the review of such reports with
other appropriate officers, directors or employees of the
Corporation.
5.5.3 Special Reports to Management
Promptly upon learning of a potential violation of the Statement on
Insider Trading, the Compliance Officer shall prepare a written report
to the Chief Executive Officer and the Board of Directors of the
Corporation and, if the violation occurred with respect to an
investment company client, provide a copy of such report to the Board
of Directors of the investment company concerned.
5.5.4 Annual Reports
On an annual basis, the Compliance Officer shall prepare a written
report to the Corporation's Board of Directors setting forth the
following:
o a summary of the existing procedures to detect and prevent
insider trading;
o full details of any investigation, either internal or by a
regulatory agency, of any suspected insider trading and the
results of such investigation;
o an evaluation of the current procedures and any
recommendations for improvement.
An annual compliance report shall be furnished to the Board of
Directors of the investment companies to which the Corporation acts as
investment adviser.
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