<PAGE>
Supplement dated January 28, 2000 to Prospectus of
Penn Series Funds, Inc.
dated May 1, 1999
Penn Series Funds, Inc. ("Penn Series") has filed an application with
the U. S. Securities and Exchange Commission (the "SEC") for exemptions from
certain provisions of the Investment Company Act of 1940, as amended, to permit
its Funds to be managed under a "manager of managers" structure. If the SEC
grants the requested exemptive order, and if the shareholders of the Penn Series
Funds approve the "manager of managers" structure, Independence Capital
Management, Inc. ("ICMI"), investment adviser to Penn Series and an affiliate of
The Penn Mutual Life Insurance Company, will, subject to the supervision and
approval of the Penn Series Board of Directors, be permitted to hire, terminate
or replace investment sub-advisers for each of the Funds without shareholder
approval. The purpose of the "manager of managers" structure is to give ICMI the
means to more directly monitor the management of the Funds and to give ICMI
greater flexibility to react to poor investment performance by an investment
sub-adviser and other service issues at less cost to shareholders. The
monitoring function will include analyzing economic and market trends,
formulating and continuing assessments of investment policies, reviewing and
overseeing sub-adviser compliance procedures and activities, evaluating
sub-adviser performance and compensation paid to sub-advisers for services
rendered.
Penn Series is also proposing to shareholders that they approve a new
investment advisory agreement with ICMI, primarily for the purpose of changing
the fees paid to ICMI with respect to the Money Market, Quality Bond, Value
Equity, International Equity, Flexibly Managed, Growth Equity and Small
Capitalization Funds. The following table shows the current fees, proposed fees
and the proposed change in percentage points.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________
Fee as a % of Average Daily Net Assets
____________________________________________________________________________________________________________
Fund Current New Change
____________________________________________________________________________________________________________
<S> <C> <C> <C>
Money Market 0.40% for the first 0.20% for the first
$100,000,000; 0.35% of $100,000,000; 0.15% of
the assets in excess of the assets in excess of -0.20%
$100,000,000 $100,000,000
____________________________________________________________________________________________________________
Quality Bond 0.45% for the first 0.35% for the first
$100,000,000; 0.40% of $100,000,000; 0.30% of
the assets in excess of the assets in excess of -0.10%
$100,000,000 $100,000,000
____________________________________________________________________________________________________________
Value Equity 0.50% 0.60% +0.10%
____________________________________________________________________________________________________________
International Equity 0.75% 0.85% +0.10%
____________________________________________________________________________________________________________
Flexibly Managed 0.50% 0.60% +0.10%
____________________________________________________________________________________________________________
Growth Equity 0.50% for the first 0.65% for the first
$100,000,000; 0.45% of $100,000,000; 0.60% of
the assets in excess of the assets in excess of +0.15%
$100,000,000 $100,000,000
____________________________________________________________________________________________________________
Small Capitalization 0.50% 0.85% +0.35%
____________________________________________________________________________________________________________
</TABLE>
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The changes in advisory fees are being proposed so that they better
reflect the costs of managing the Funds and properly compensate the investment
adviser for services rendered to the Funds. In the case of the Quality Bond and
Money Market Funds, the fees will decrease in recognition of lower costs
involved in managing these Funds. In the case of the Value Equity, International
Equity, Growth Equity and Small Capitalization Funds, the fees will increase.
The proposed new fees recognize, among other things, the additional
responsibilities ICMI will assume in acting as manager of manager and increased
fees ICMI will pay to certain sub-advisers to obtain quality investment
management services. Management believes that the proposed fees will more
closely track the industry averages for variable products mutual funds in each
Fund's respective peer group and will help in achieving the goal of obtaining
the best investment management for the Funds.
Finally, Penn Series is proposing that shareholders of the Value Equity
and Small Capitalization Funds approve a new investment sub-advisory agreement
between OpCap Advisors and ICMI. On October 31, 1999, PIMCO Advisors, the
indirect parent of OpCap Advisors, entered into an Implementation and Merger
Agreement with Allianz of America, Inc. ("Allianz of America"). Under the Merger
Agreement, Allianz of America will acquire PIMCO Advisors Holding L.P. ("PAH"),
the general partner of PIMCO Advisors, through a merger of a subsidiary of
Allianz of America, with and into PAH. If the transaction takes place, it will
result in a change of control of OpCap Advisors which will be deemed an
assignment and, therefore, a termination of the current sub-advisory agreement
between OpCap Advisors and ICMI. The proposed new sub-advisory agreement is
identical to the current sub-advisory agreement except for dates of execution
and initial term.
If the "manager of managers" structure is approved by the SEC and by
Penn Series shareholders, ICMI may, subject to oversight and approval of the
Penn Series Board of Directors, replace OpCap Advisors as investment sub-adviser
to Value Equity and Small Capitalization Funds. It is currently anticipated that
Penn Series management will recommend to the Penn Series Board that Putnam
Investment Management, Inc. replace OpCap Advisors as sub-adviser to the Value
Equity Fund and that Royce & Associates, Inc. replace OpCap Advisors as
sub-adviser to the Small Capitalization Fund, effective May 1, 2000. With a new
investment sub-adviser, the Value Equity and Small Capitalization Funds would
continue to have the same investment objective and management expects that the
new sub-advisers would continue to use similar investment policies and
strategies in managing these Funds.
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