<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF THE FUND PERFORMANCE
QUALITY BOND FUND
Interest rates continued to push higher in the fourth quarter spurred by
stronger than expected economic growth and a gnawing perception that the Federal
Reserve was taking a too gradualistic approach to monetary tightening and
allowing inflationary pressures to build. The rapid strength in the stock market
in the quarter also led bond market participants to assume that the growing
"wealth" effect would enhance future spending as well.
The rise in yields in the fourth quarter was significant, with the 2-year
treasury rising 61 basis points and the 30-year rising 43 basis points. The
quarter capped one of the worst years in overall fixed income market
performance. In fact for the year, the 30-year treasury yields rose 150 basis
points and posted its worst total return year ever.
The meteoric rise in yields over the past 15 months has taken the bond market to
historically cheap levels. In comparison to inflation, real yields now approach
5%, an area, which historically has produced very attractive returns in
subsequent months. Comparison on an asset allocation basis to the stock market
is stunning. The bond yield/stock yield ratio (using AAA bonds Vs the S&P
Industrials) has reached a ratio of 8 times, a level unheard of in this century.
The prior high reached was in October of 1987 when the ratio reached 4.5 times
prior to the stock market collapse.
While pressure is likely to continue in the interim as the Federal Reserve
tightens monetary policy incrementally; the bond market has to be recognized as
having discounted a significant amount of bearish news. Indeed, 75 basis points
of tightening by the summer is priced into the forward yield curve. Clearly
however, a catalyst or shift in the current paradigm is needed to sustain a
change of fortune in the bond market.
Unless or more likely until the Federal Reserve gets serious about slowing the
economy down, the obvious candidate for a catalyst is the stock market, a market
which at the moment shows no inclination toward weakness. Our guess is that when
the Federal Reserve decides to move more aggressively the stock market will feel
the greater brunt of its actions and the oversold bond market may stabilize
and/or get a bid contributing to a flatter yield curve. Our concern over the
reliance on the "wealth" effect generating outsized consumer spending and now
generating an increasing portion of corporate earnings implies that weakness in
the stock market should beget weakness in the economy and the virtuous cycle of
the past several years could reverse.
Relative performance in the fund continues to be strong. Although we ended the
year at merely 0.00% total return, that total beat most of our competitors in
the Lipper universe. Our active management style has allowed us to generate top
decile returns for the one, three, five and seven year history of our running
the fund.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
[GRAPH]
---------------------
Quality Bond Fund
--------------------
Penn Lehman
Series Index
--------------------
3/1/1987
12/31/1987
12/31/1988
12/31/1989
12/31/1990
12/31/1991
11/1/1992 $10,000 $10,000
11/2/1992
12/31/1992 $10,198 $10,161
12/31/1993 $11,388 $11,152
12/31/1994 $10,778 $10,826
3/1/1995
12/31/1995 $12,949 $12,826
12/31/1996 $13,485 $13,289
5/1/1997
12/31/1997 $14,568 $14,576
12/31/1998 $16,049 $15,839
12/31/1999 $16,049 $15,709
---------------------
Avgerage
Annual
Returns
1 Year 0.00% -0.83%
5 Years 8.29% 7.73%
10 Years N/A N/A
Since Inc 6.82% 6.50%
The performance information shown here does not reflect variable account charges
and fees nor does it reflect the period prior to November 1, 1992, when
Independence Capital Management, Inc. became the Fund's investment sub-adviser.
Past performance is not predictive of future performance. Shares may be worth
more or less when redeemed than when purchased. Assumes reinvestment of all
dividends.
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF THE FUND PERFORMANCE
HIGH YIELD BOND FUND
The economy's remarkable resilience was good news for many stock investors but
generally bad news for bond investors in 1999. In an attempt to forestall higher
inflation, the Federal Reserve raised interest rates three times from May to
November. These actions plus bouts of inflation jitters sent interest rates up
and bond prices down, especially for Treasuries and other high-quality bonds.
Although the year ended with a moderate show of strength, the high-yield market
had a second disappointing year. High-yield bond returns were positive but
modest, with income more than offsetting principal declines. Typically, the kind
of robust economic growth that has been benefiting consumers and job seekers
would also be a boon to high-yield bonds and, indeed, these bonds performed
better than high-quality issues, especially Treasuries.
But other developments undercut the positive influence of a healthy economy.
Rising interest rates were a negative, although their direct impact was greater
on the upper-quality tier of high-yield bonds (B rated) than on lower-quality
issues. Higher rates can also pressure highly leveraged companies, which
includes most in the noninvestment-grade universe.
Another negative was a supply and demand imbalance. New issues cascaded into the
market for the third consecutive year, and demand, particularly from mutual
funds, cooled markedly in the second and third quarters of this year. While the
1999 new issue total did not top 1997 or 1998, it was substantially higher than
any other year in the last 20. The combination of a significant demand/supply
imbalance and Y2K considerations contributed to declining liquidity in the
marketplace, which further depressed prices, especially of smaller issues.
Lastly, after a long period of relative stability the bond default rate spiked
in recent months, rising to about 4% of the U.S. market's outstanding principal
amount from approximately 1.5% at the beginning of 1999. Many of the defaulting
issues were among those brought to market in recent years, when more favorable
conditions enabled companies with less-than-robust balance sheets to sell bonds.
Not all was gloom, however. Some sectors of the high-yield market bucked the
trend, particularly the dynamic telecommunications area, which now accounts for
a quarter of the high-yield bond universe. Wireless companies were especially
strong, reflecting solid fundamentals, improving cash flow, and a consolidation
trend in their industry. In addition, the market strengthened at year-end as the
new issue volume moderated and buyers reappeared, attracted by the unusually
wide yield advantage offered by lower-quality bonds and the many securities
trading at discounts.
The difficult environment left its mark on your fund, which provided a moderate
return generated solely by income. Thanks to our risk-conscious strategy,
however, the fund held up better than the average high-yield fund and the
overall market. For the 12-month period, the fund's modest gain exceeded the
market index and the average competitor fund. These comparative results
reflected the strong performance in late 1998 and early 1999 of low-quality
bonds (rated below B) that our competitors tend to favor more than we do. The
fund's dividend yield rose during the year and is now well over 6% in real
(inflation-adjusted) terms.
Throughout the year, we continued the strategy that has proved beneficial to the
fund during the past two-year bear market in high-yield bonds. The foundations
of this strategy are intensive credit research, wide diversification, and
balanced sector allocation. In managing the portfolio's credit quality, we use a
middle-of-the-road approach in which we focus on B-rated issues while making
marginal adjustments to higher- and lower-quality bonds in line with our current
market and economic outlook. For instance, as interest rates climbed in recent
months, we trimmed our bond holdings rated BB or higher, since the higher the
quality of a bond, the more its price falls as rates rise (and vice versa). At
the same time, we also trimmed holdings rated below B as market liquidity
decreased particularly for lower-quality issues. As a result, the fund's average
credit quality remained unchanged at B+.
This credit positioning means that the fund may give up some upside potential if
the high-yield market recovers sharply, because lower-quality bonds rise the
most in a rally. Conversely, this strategy helps us reduce exposure to credit
problems, and we are comfortable with the trade-off. On the whole, your fund has
fared well during the recent rising tide of defaults. The two holdings that hit
potholes together composed less than 1% of net assets, based on their original
cost to the fund. Thus, our default experience was far better than that of the
market as a whole. Overall, the fund holds approximately 250 issues representing
about 200 different companies in 33 industries.
We continued to overweight the telecommunications area in our holdings because
of its favorable prospects. Including wireless communications, satellites,
wireline communications, long distance, and Internet service providers, the
telecom area was approximately one-quarter of fund net assets at year-end.
Wireless, which, as mentioned, performed very well, was the fund's largest
industry sector, and Nextel Communications,
<PAGE>
a wireless provider, was among the largest positions. During the fourth quarter,
we increased holdings in this sector with the addition of Voicestream Wireless.
With the revival of some commodity prices - especially oil -- from 1998's
deflationary cycle, we became a little more comfortable with bonds of "deep
cyclical" companies. Our major change in this area was to increase exposure to
energy from about 5% to 9% of net assets. We also nudged holdings higher in the
paper and paper products, but they remain modest.
While high-yield bond returns were below their long-term average in the past
couple of years, their high income and shorter durations enabled them to deliver
better performance than high-quality bonds - as you would expect in a rising
rate environment. Several factors support a more optimistic outlook for 2000,
including continued strength in the economy, the end of Y2K anxiety, and lighter
supply. However, the recent precipitous rise in Treasury bond yields and some
increased demand for high-yield bonds has narrowed the previously attractive
difference (spread) between investment-grade and noninvestment-grade bonds.
Therefore, high-yield bond valuations are not as compelling as even a few weeks
ago, so our near-term outlook is tempered.
We will continue our commitment to research and diversification, which we
believe is prudent for a fund that operates in the riskier area of the overall
bond market. Our aim is to deliver high current income and attractive total
returns over time while seeking to cushion the volatility inherent in this
market.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
T.ROWE PRICE & ASSOCIATES, INC.
INVESTMENT SUB-ADVISER
[GRAPH]
-------------------
High Yield Bond
Fund
-------------------
Penn First
Series Boston
-------------------
3/1/1987 $10,000 $10,000
12/31/1987 $9,677 $10,101
12/31/1988 $11,397 $11,480
12/31/1989 $11,330 $11,523
12/31/1990 $10,316 $10,788
12/31/1991 $14,122 $15,508
11/1/1992
11/2/1992
12/31/1992 $16,354 $18,092
12/31/1993 $19,587 $21,513
12/31/1994 $18,151 $21,302
3/1/1995
12/31/1995 $21,128 $25,010
12/31/1996 $24,042 $28,116
5/1/1997
12/31/1997 $27,836 $31,667
12/31/1998 $29,169 $35,068
12/31/1999 $30,406 $36,218
--------------------
Avgerage
Annual
Returns
1 Year 4.24% 3.28%
5 Years 10.87% 11.20%
10 Years 10.38% 12.13%
Since Inc 9.05% 10.54%
The performance information shown here does not reflect variable account charges
and fees nor does it reflect the period prior to March 1, 1987, when T. Rowe
Price became the Fund's investment sub-adviser. Past performance is not
predictive of future performance. Shares may be worth more or less when redeemed
than when purchased. Assumes reinvestment of all dividends
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF THE FUND PERFORMANCE
GROWTH EQUITY FUND
For several years now we have focused on our modest expectations for the
financial markets in the upcoming twelve months. While we understood and
generally identified the forces that would enable the stock market to continue
its advance, it was difficult to fully anticipate the ability of these factors
to drive that market ahead as strongly as they have. Rapid technological change
and its acceptance have transformed our economy and our financial markets at a
mind-boggling pace.
Consider the Internet. It began as a way for scientists and researchers to share
information, moved on to be a vehicle for email, homework help and an
alternative to catalog shopping, and has now gone "B2B" and is a critical factor
in much of corporate strategic planning. Similarly, technology-driven advances
in traditional pharmaceuticals and genetically derived biopharmaceuticals,
medical instruments and equipment, and the delivery and management of health
care are transforming society in ways we are only beginning to fathom. And,
finally, dramatic changes in telecommunications continue to draw the world
closer together. The aggregate impact of how individuals, companies, and
governments utilize and embrace these and related opportunities and challenges
will have a great deal to do with how much longer and further this economic
expansion and its derivative stock market advance can carry.
The fourth quarter of 1999 was an especially rewarding one for the Penn Series
Growth Equity Fund. For the quarter the Fund returned 27.93% which was decidedly
better than its traditional benchmarks of the S&P 500 Index (14.94%), the S&P
500/BARRA Growth Index (19.74%) and the Lipper Growth Fund Average (21.20%). The
Fund also managed to outperform the new Lipper Large Cap Growth Index that
returned 25.54% for the three-month period.
As a result of the strong fourth quarter the Growth Equity Fund was propelled to
a full year's performance that again bested its traditional benchmarks. With a
return of 34.10% for all of 1999 the Fund outpaced the 21.03%, 28.26% and 29.27%
returns for the S&P 500 Index, the S&P 500/BARRA Growth Index and the Lipper
Growth Fund Average, respectively. The new Lipper Large Cap Growth Index
slightly outperformed the Fund with a return of 34.82%.
For the three year period just ended the Penn Series Growth Equity fund produced
an annualized return of 34.03% versus 27.55% for the S&P 500, 35.53% for the S&P
500/BARRA Growth Index and 32.90% for the new Lipper Large Cap Growth Index.
This past year again saw the market differentiated along growth and value lines
with growth strongly outperforming value. For all of 1999 the Russell 1000
Growth Index produced a return of 33.16% while its Value counterpart returned
only 7.35%. The Technology sector contributed the most to the Fund's performance
during the year, followed by the Consumer Cyclical sector. Reflective of a very
narrow market in 1999 no other sector contributed meaningfully to the Fund's
performance for the full year.
Once again the characteristics of the Fund's holdings demonstrate a commitment
to investing in those companies generating consistent and sustainable earnings
and sales growth. By applying our disciplined analysis and evaluation to
reported and forecast earnings trends for individual companies we have been able
to maintain a significant edge in identifying firms that do produce positive
earnings surprises and subsequently report growth at rates above historical
trends. Growth remains most robust among select technology, communication
services, consumer cyclical, and financial service companies.
Among the Fund's largest holdings as of December 31st were Microsoft, Cisco
Systems, General Electric, Home Depot, Texas Instruments, Qualcomm, Citigroup,
and Sun Microsystems.
OUTLOOK
As we enter 2000 it is difficult to envision an impending end to what will be,
as of February, this nation's longest-running economic expansion. By most
accounts, economists agree with that assumption given their estimates of real
GDP growth generally running from 3% to 5% or so. Few, if any, are calling for
negative real growth during any quarter this year. Most continue to forecast
reasonable profit growth this year with estimates running from 8% to 15%.
Finally, and perhaps most importantly, the majority of economists continue to
look for inflation to remain subdued at around the 2% to 2 1/2% level this year.
Yet despite the forecast for more good news on inflation, the consensus
viewpoint is that the Federal Reserve will raise rates during the first quarter
of 2000, and possibly again in the second quarter in response to the economy's
continued strength and low unemployment rate. What are the Federal Reserve's
concerns? Recently the Fed stated that, "Based on the available evidence (it)
remains concerned with the possibility that over time increases in demand will
continue to exceed the growth in potential supply, even after taking account of
the remarkable rise in productivity growth. Such trends could foster
inflationary imbalances that would undermine the economy's exemplary
performance."
<PAGE>
In its efforts to steer the economy toward another soft landing the Fed is
clearly caught between its reliance on traditional economic thinking which sees
a direct correlation between reduced unemployment and higher inflation and its
grudging acceptance of something akin to a new economic dynamic that is an
outgrowth of the economy's technology-created productivity improvement. A
significant portion of the market's volatility this year can be attributed to
the Fed's split personality that has manifested itself in often-contradictory
statements by many of its members. To some degree the bond market and the stock
market also reflect this dichotomy. The bond market's rising rates reflect an
"old" economy response to the strong economy while the stock market's rise,
which has been led by the technology sector and continues to generally ignore
the bond market, speaks to an embracing of "new" economy themes.
We have embraced those themes for sometime now and see no reason to retreat
despite the stock market's late year climb. Most of the benefits of the
technology-driven economy lie ahead and the stock market understands this. We
expect that any corrections over the course of the year will be short-lived and
will most likely be the result of some Fed action that surprises the market.
Obviously, the more active or vocal the Fed is in 2000 the more volatile the
financial markets will likely be. On balance we see the overall trend of the
stock market remaining positive, but would not expect returns to match those of
the past several years. Technology might again do well, but the market should
also see a broadening of participation as other sectors will look comparatively
more attractive.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
[GRAPH]
-------------------
Growth Equity Fund
-------------------
Penn S&P 500
Series
-------------------
3/1/1987
12/31/1987
12/31/1988
12/31/1989
12/31/1990
12/31/1991
11/1/1992 $10,000 $10,000
11/2/1992
12/31/1992 $10,661 $10,467
12/31/1993 $11,986 $11,522
12/31/1994 $11,013 $11,687
3/1/1995
12/31/1995 $13,926 $16,075
12/31/1996 $16,678 $19,767
5/1/1997
12/31/1997 $21,140 $26,353
12/31/1998 $29,950 $33,882
12/31/1999 $40,164 $41,011
-------------------
Avgerage
Annual
Returns
1 Year 34.10% 21.04%
5 Years 29.53% 28.54%
10 Years N/A N/A
Since Inc 21.41% 21.76%
The performance information shown here does not reflect variable account charges
and fees nor does it reflect the period prior to November 1, 1992, when
Independence Capital Management, Inc. became the Fund's investment sub-adviser.
Past performance is not predictive of future performance. Shares may be worth
more or less when redeemed than when purchased. Assumes reinvestment of all
dividends.
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
VALUE EQUITY FUND
The stock market continued to advance strongly in 1999 in a favorable
environment of sustained economic growth with low inflation. The S&P 500 Index
rose 21.0%, returning more than 20% for a record fifth consecutive year.
However, even as the popular indexes kept hitting new highs, the market was
characterized by two contradictory trends: the rapid escalation of technology
stocks, especially those associated with the Internet and e-commerce, and the
only modest gains or even price declines for many stocks in other industry
sectors.
Despite the sizable gain of the S&P 500, fully one-third of the stocks on the
New York Stock Exchange declined 20% or more in 1999. Even stocks of non-tech
companies with excellent competitive positions and strong cash flow , the types
of stocks owned by the Fund, tended to fare poorly in this technology-focused
market. As a result, the Fund's negative return of 0.8% trailed the S&P 500.
The Fund owns an eclectic group of stocks that we believe have superior earnings
and cash flow prospects and are undervalued in relation to these prospects. Some
of the stocks, which contributed to the Fund's performance in 1999, included
Computer Associates (computer software), Citigroup (financial services) and
Minnesota Mining (diversified technology-based company). Stocks which detracted
from performance included Freddie Mac (mortgage insurance) and Kroger (grocery
store chain).
The U.S. economy remains strong, perhaps too strong, and there are indications
of excessive optimism in the stock market. Inflation has been kept low for the
past several years by an internationally competitive environment, major
improvements in technology, continued mergers and restructurings, and low
inflation expectations. Recently, however, some of these factors have reversed.
Commodity prices have rebounded strongly, while energy and import prices are on
the rise. These factors suggest to us that inflationary pressures could increase
somewhat in the months ahead and that the Federal Reserve is likely to raise
interest rates further, on top of the three rate increases already implemented
since June 1999.
We think these conditions will favor our value style of investing, which
emphasizes companies that can generate a high level of cash flow throughout the
economic cycle. By investing in these companies and remaining disciplined in our
value style, we are focused on delivering excellent long-term investment results
while controlling risk.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
OPCAP ADVISORS
INVESTMENT SUB-ADVISER
[GRAPH]
-------------------
Value Equity Fund
-------------------
Penn S&P 500
Series
-------------------
3/1/1987
12/31/1987
12/31/1988
12/31/1989
12/31/1990
12/31/1991
11/1/1992 $10,000 $10,000
11/2/1992
12/31/1992 $10,402 $10,467
12/31/1993 $11,138 $11,522
12/31/1994 $11,464 $11,674
3/1/1995
12/31/1995 $15,761 $16,061
12/31/1996 $19,731 $19,748
5/1/1997
12/31/1997 $24,660 $26,328
12/31/1998 $27,025 $33,850
12/31/1999 $26,809 $40,972
-------------------
Avgerage
Annual
Returns
1 Year -0.80% 21.04%
5 Years 18.52% 28.54%
10 Years N/A N/A
Since Inc 14.75% 21.75%
The performance information shown here does not reflect variable account charges
and fees nor does it reflect the period prior to November 1, 1992, OpCap became
the Fund's investment sub-adviser. Past performance is not predictive of future
performance. Shares may be worth more or less when redeemed than when purchased.
Assumes reinvestment of all dividends.
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF THE FUND PERFORMANCE
FLEXIBLY MANAGED FUND
From the view of most investors, the year, decade, century, and millennium
closed with a bang. Propelled by a narrow but powerful rally in technology
stocks - especially those connected in any way with the Internet -- the bull
market stormed into the future. The broad market as measured by the S&P 500
Stock Index recorded an unprecedented fifth straight year of gains over 20%, but
the average stock in the index substantially underperformed. A notable feature
of last year's market was that stocks surged despite a significant rise in
interest rates and resulting weakness in the bond market.
In a market driven by investors focusing almost exclusively on opportunities for
return rather than potential for risk, funds like this one that emphasize
diversification, value, and risk avoidance were left far behind. Our returns for
the year were positive at 7.15% but anemic next to those chalked up by broad
market indices and growth-oriented funds as measured by the 21.04% return for
the S&P 500.
Our asset allocation changed little over the course of 1999, ending the year
with about 55% in common stocks, 25% in convertible securities, 12% in bonds, 1%
in preferred stocks, and the remainder in reserves. One of our largest sectors,
consumer services, was also one of the best-performing, thanks mainly to strong
contributions from media stocks such as the New York Times. Energy, another
sizable sector in the fund, also provided positive results, particularly
Mitchell Energy & Development, Kerr-McGee, Amerada Hess, and Murphy Oil. In the
process industries area, MacMillan Bloedel (now merged into Weyerhaeuser) was a
standout, as was Domtar. Unfortunately, another large exposure of the fund,
utilities, performed poorly in the rising interest rate environment.
Major disappointments for the year included Loews, a diversified holding
company, and Philip Morris, hurt by continued tobacco litigation. Nevertheless,
we see much value in these beaten-down shares and may add to them in the future,
as well as to Rouse, a REIT with major shopping mall holdings. Our substantial
investment in Tennessee Valley Authority bonds was not rewarding last year,
although they held up much better than other government agency bonds because of
their unique features. Given the potential for further interest rate hikes by
the Federal Reserve, we are pondering this TVA position.
We are generally optimistic about the portfolio, since our holdings are cheap
and the underlying companies have significant value. Our bonds and convertibles
meet rational criteria designed to maximize returns over time versus the risks
we take. All wild bull markets come to an end, some in a painful fashion. When
the pendulum swings, this conservative portfolio will still be here seeking to
help investors increase their wealth with minimal risk.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
T.ROWE PRICE & ASSOCIATES, INC.
INVESTMENT SUB-ADVISER
[GRAPH]
--------------------
Flexibly Managed
Fund
--------------------
Penn S&P 500
Series
--------------------
3/1/1987 $10,000 $10,000
12/31/1987 $10,420 $8,915
12/31/1988 $12,390 $10,394
12/31/1989 $15,020 $13,658
12/31/1990 $14,893 $13,278
12/31/1991 $18,118 $17,315
11/1/1992
11/2/1992
12/31/1992 $19,851 $18,634
12/31/1993 $22,986 $20,511
12/31/1994 $23,938 $20,868
3/1/1995
12/31/1995 $29,271 $28,702
12/31/1996 $34,063 $35,292
5/1/1997
12/31/1997 $39,394 $47,051
12/31/1998 $41,793 $60,493
12/31/1999 $44,781 $73,221
------------------
Avgerage
Annual
Returns
1 Year 7.15% 21.04%
5 Years 13.34% 28.54%
10 Years 11.54% 18.28%
Since Inc 12.39% 16.77%
The performance information shown here does not reflect variable account charges
and fees nor does it reflect the period prior to March 1, 1987, when T. Rowe
Price became the Fund's investment sub-adviser. Past performance is not
predictive of future performance. Shares may be worth more or less when redeemed
than when purchased. Assumes reinvestment of all dividends
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
INTERNATIONAL EQUITY FUND
In 1999, Japan's recovery led Asia out of an economic slump that had lasted for
the last several years. The surging yen and the sustained growth in the equity
market suggest that real restructurings and subsequent recovery have taken a
firm foothold in Japan.
There has been a crucial change in Japan and the rest of Asia regarding the
creation of shareholder value. There have been multiple announcements recently
of mega jont ventures, and older traditional systems of valuation, particularly
in the banking sector, are being phased out in favor of using ROE as the primary
benchmark to measure the firm's success, as is currently being done in the U.S.
The convenience store chain Seven Eleven Japan was added to the portfolio during
the fourth quarter. The franchise boasts a 15-year track record of consistent
returns and a balance sheet with no debt. Other new additions in Japan included
Ryohin Keikaku, a leading retail chain, Secom, a security service firm, and
Asatsu-DK, a market leader in adverstising which has given employees equity
ownership, a practice which is still somewhat unique in Japan. These firms share
the qualities of being leaders in their respective industries, supported by
rising operating margins.
Japan was the best performing EAFE market in 1999, and our exposure to Japan
added to performance, with many of our long-term core holdings, such as Murata
and Rohm, providing returns upto 40%. Stocks such as NTT Docomo and Hikara
Tsushin provided lucrative exposure to the fast-growing mobile
telecommunications market in Japan, and they present excellent investment
opportunities.
One year after the introduction of the Euro currency, there is clear evidence
that the European Union is working well as a unified organization, and that the
Euro-11 has not fallen prey to purely French or German political interests.
There was a significant amount of cross-border merger activity in Europe in
1999, as the Euro-11 solidified. Romano Prodi, the Italian president of The
European Commision, has not opposed any cross-border M&A activity. The Vodafone
- - Mannesmann merger represented the biggest cross-border acquisition ever seen
in Europe, and companies increasingly face the risk of being taken over. As the
European equity market matures, company management has begun increasingly to
recognize the importance of generating better returns for shareholders. This was
evidenced by the large number of share cancellations and share buy-backs that
will boost earnings for many companies across Europe.
In December of 1999, the Euro passed the psychological barrier of parity with
the US Dollar, although it was bolstered by the end of the day's trading so as
not to close at a rate less than the dollar. While the declining Euro may have
had negative political connotations, the economic impact has been positive for
European businesses, which have benefited from the weaker Euro in many export
markets.
Stock picking in Europe had a positive impact on returns. Many of our European
holdings, such as Mannesmann and Vodafone, provided returns well in excess of
20% for the year. Telecom stocks performed extraordinarily well and our holdings
exceeded expectations. Our weighting of over 10% in European telecomm paid off
nicely in 1999. Hedges against the Euro which were placed at various points
throughout the year had a net positive impact on returns. The portfolio's
overweight to Europe versus Asia was a liability in the third quarter. In the
Fourth quarter, however, we benefited from Europe's recovery, as the European
overweight had a net positive effect on fourth quarter performance.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
VONTOBEL USA, INC.
INVESTMENT SUB-ADVISER
[GRAPH]
-------------------
Intl Equity Fund
-------------------
Penn EAFE
Series
-------------------
3/1/1987
12/31/1987
12/31/1988
12/31/1989
12/31/1990
12/31/1991
11/1/1992
11/2/1992 $10,000 $10,000
12/31/1992 $10,200 $10,140
12/31/1993 $14,090 $13,446
12/31/1994 $13,201 $14,491
3/1/1995
12/31/1995 $15,023 $16,114
12/31/1996 $17,557 $17,087
5/1/1997
12/31/1997 $19,385 $17,391
12/31/1998 $23,039 $20,869
12/31/1999 $33,586 $26,496
-------------------
Avgerage
Annual
Returns
1 Year 45.78% 26.96%
5 Years 20.53% 12.83%
10 Years N/A N/A
Since Inc 18.42% 14.56%
The performance information shown here does not reflect variable account charges
and fees. Past performance is not predictive of future performance. Shares may
be worth more or less when redeemed than when purchased. Assumes reinvestment of
all dividends.
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
SMALL CAPITALIZATION FUND
Small cap value stocks were an overlooked segment of the stock market in 1999.
While many large cap and technology issues rose sharply, the Russell 2000 Value
Index actually declined 1.5% during the year. In comparison to this decline, and
in comparison to the 21.3% return of the Russell 2000 Index (a small cap
benchmark which includes both value and growth stocks), the Fund's negative
return was 1.33%. Growth stocks include those projected to have steady earnings
increases, while value stocks include those that are believed to be
significantly underpriced in relation to their inherent value.
Some of the stocks that contributed positively to our performance in the fourth
quarter of 1999 included:
* General Semiconductor, an electronic component supplier, experienced a
pickup in volume and improved pricing as the Asian economic crisis
subsided.
* Harman International, which produces high-fidelity audio products,
benefited from a rationalized capital structure and significant new
business from automobile original equipment manufacturers and personal
computer manufacturers.
* Cambrex Corporation, which supplies products and services for the
pharmaceutical and biotechnology industries, benefited from the continued
growth of its markets.
* Air Express, an international airfreight forwarder and provider of global
logistics services for importers and exporters, was acquired by Deutche
Post.
Investments that detracted most from performance in the quarter included:
* AmeriSource, a wholesale distributor of pharmaceutical products and related
health care services, declined due to investor concerns about possible
government controls on pharmaceutical pricing, as well as concerns about
the competitive impact of new Internet-based drugstores. The company also
slightly missed its earnings per share estimates. We added to our position
in the belief that these concerns are overstated and the stock is
inexpensive in relation to the company's earnings and cash flow prospects.
* BMC Industries, a producer of aperture masks, ophthalmic lenses and
photo-etched metal and electroformed parts, reported lower earnings due to
the poor results of an acquired company.
* Shopko, a specialty discount retailer, was down in the quarter due to the
general disfavor of retailing stocks. We think the share price is
inexpensive and added to our holdings.
* Policy Management Systems, which provides enterprise software and
electronic commerce systems to financial service companies, experienced an
earnings shortfall in the fourth quarter as customers delayed new software
purchases to focus on resolving Y2K problems.
Because they have underperformed the overall stock market for an extended
period, we believe there are many opportunities at this time to purchase quality
small cap value stocks inexpensively. We remain confident that the market will
recognize these values over time and that the Fund will deliver excellent
long-term investment results with below-market risk.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
OPCAP ADVISORS
INVESTMENT SUB-ADVISER
[GRAPH]
-----------------------
Small Cap Fund
-----------------------
Penn Series Russell
2000
-----------------------
3/1/1987
12/31/1987
12/31/1988
12/31/1989
12/31/1990
12/31/1991
11/1/1992
11/2/1992
12/31/1992
12/31/1993
12/31/1994
3/1/1995 $10,000 $10,000
12/31/1995 $11,276 $12,490
12/31/1996 $13,504 $14,550
5/1/1997
12/31/1997 $16,613 $17,804
12/31/1998 $15,091 $17,346
12/31/1999 $14,891 $21,034
-----------------------
Avgerage
Annual
Returns
1 Year -1.33% 21.26%
5 Years N/A N/A
10 Years N/A N/A
Since Inc 8.58% 16.61%
The performance information shown here does not reflect variable account charges
and fees. Past performance is not predictive of future performance. Shares may
be worth more or less when redeemed than when purchased. Assumes reinvestment of
all dividends.
<PAGE>
PENN SERIES FUNDS, INC.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
EMERGING GROWTH FUND
We concluded a memorable year of performance in 1999 with very strong 4th
quarter performance, as investors flocked to fast growth stocks in both the
Russell 2000 Growth and the NASDAQ indices.
The Penn Series Emerging Growth Portfolio rose 76.17% in the fourth quarter,
against a gain of 33.39% in the benchmark Russell 2000 Growth. We managed to
outperform the benchmark in every quarter this year, leading to a calendar year
return of 185.03% for the Penn Series Emerging Growth Portfolio, against a
43.09% rise in the Russell 2000 Growth.
Investors' interest in small stocks broadened in the fourth quarter, fueling the
strong rally in the Russell 2000 Growth. In the fourth quarter, eight of the 11
Russell sectors produced positive performance. While we continued to emphasize
technology, our results were bolstered by strong performance from other sectors
as well.
We enjoyed strong returns from a number of stocks in the healthcare sector where
technology is merging into traditional healthcare and biotech to create emerging
growth investment opportunities. The focus of much of this new work is towards
prediction and prevention of illness rather than the traditional detection and
treatment of disease. Companies like Medarex Incorporated and Abgenix, Inc. are
pioneering new techniques in applying the study of DNA within a technology
framework. Typically these companies work closely with large drug companies to
accelerate their research and testing capabilities as the drug companies look to
create and rollout the next blockbuster drug.
Cytyc Corporation has applied new technology to cervical cancer screening.
Historically this test has had a high margin of error. Cytyc has introduced a
new technology that has made their version of the test more dependable. This
enhanced reliability has made Cytyc's ThinPrep System very popular among
healthcare providers. In turn, most HMO's are now providing partial or full
reimbursement on the ThinPrep Test, helping to fuel it's growth in the
marketplace.
We began accumulating the stock in late spring of this year when the stock was
reasonably undiscovered and had a market capitalization under $500 million.
Since then Cytyc has announced triple digit revenue and earnings increases for
the last two quarters, dramatically increasing visibility of the companies
fundamental story. The stock has moved up strongly in the third and fourth
quarters, finishing the year with a market cap over $1 billion.
Investor's appetite for fast growing stocks that are powering technology growth
seemed nearly insatiable in the 4th quarter. The tech heavy NASDAQ rose 48.18%
in the fourth quarter alone! Gains in technology stocks also drove the strong
33.39% return in the benchmark, the Russell 2000 Growth. This strong performance
also helped to expand the technology sector weighting of the Russell 2000 Growth
from 22% at the beginning of the year to 34% at year-end.
Throughout the fourth quarter we maintained our yearlong emphasis on technology
companies. We continue to find many exciting companies that are creating change
in various sectors of the economy including telecommunications, media, hardware,
software, and above all, how businesses leverage the Internet.
Forrester Research estimates the market for internet and e-commerce services to
grow from $5.4 billion in 1998 to $32.7 billion in 2002, creating a business
opportunity with a compounded annual growth rate of 57%. The struggle for most
traditional, large companies is how to make their business more Web friendly,
and then how to integrate these new internet based applications with their
existing "legacy" systems. The supply of systems professionals with these
technical skills is constrained, and corporate America is thin on this
expertise. This creates a major opportunity for small, fast moving consulting
firms to fill the void.
We owned a broad number of companies that provide internet system integration
and consulting services. Earlier in the year, we sensed that Fortune 1000
companies would spend significantly and quickly to get Internet capabilities
built. We took significant positions in companies like Sapient Corporation. We
have known these companies for a long time and believe they are well positioned
to gain in this internet spending race. We also invested in newcomers like
Proxicom, Scient Corporation, and Viant and were rewarded with strong
performance through the third and fourth quarters from these stocks as well.
Many of the stocks came public this year. We often participated in the Initial
Public Offering of these companies, and added to our positions over time.
Valuation of these stocks is not easy as the companies have short operating
histories, and valuations based on revenue multiples accelerated quickly.
Nonetheless, we developed metrics based on factors such as gross margins,
<PAGE>
revenue per billable personnel, average engagement size, and sales force growth
and productivity. In addition we found it useful to build our own, more
realistic revenue and earnings models rather than rely solely on Street models,
which we find are often built to focus on large quarterly outperformance.
Nearly all the stocks have produced meaningful returns to the portfolio, as
investors have been attracted to the companies rapid revenue growth opportunity,
and as investors seeking internet exposure rotated out of more consumer based
internet investment opportunities.
1999 was a banner year for IPO volume as more than $75 billion (though mid
December) of new equity was issued, surpassing the previous record set in 1997.
We aggressively mined the IPO universe for new Emerging Growth investment
supply, participating in over 150 IPOs in calendar 1999. And we held onto many
of these issues as we continued our research process on the companies as they
matured. Interestingly, the IPO position's impact on performance was not that
significant. We calculate that IPOs contributed only about 41 percentage points,
or roughly 22%, out of the portfolio's 182% total return for 1999.
Two of our largest contributors to return, Network Solutions and Knight/Trimark
Group, were companies that came public in 1997 and 1998. We participated in
those companies IPOs and had built a strong knowledge base on the companies,
giving us the edge to own them in a meaningful way in 1999. This provides a
confirmation that our emerging growth research process pays off for investors
over time.
While we enjoyed a banner year in 1999, we remain optimistic as we enter a new
year. At the fundamental level, we see many companies with very compelling
growth opportunities, and with the capabilities in place to succeed in their
respective market. The volume of IPO's has provided us ample supply of
investment ideas. However, we are somewhat concerned about the flood of investor
money into this emerging growth space. It is reasonable to expect continued
volatility. As always, we will seek to take advantage of these periods of
volatility to improve the portfolio for the long term.
We appreciate your confidence in our effort and are very pleased to have you as
a client.
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
RS INVESTMENT MANAGEMENT, INC.
INVESTMENT SUB-ADVISER
[GRAPH]
------------------------
Emerging Growth Fund
------------------------
Penn Series Russell
2000
------------------------
3/1/1987
12/31/1987
12/31/1988
12/31/1989
12/31/1990
12/31/1991
11/1/1992
11/2/1992
12/31/1992
12/31/1993
12/31/1994
3/1/1995
12/31/1995
12/31/1996
5/1/1997 $10,000 $10,000
12/31/1997 $13,922 $12,868
12/31/1998 $18,892 $12,537
12/31/1999 $53,848 $15,203
------------------------
Avgerage
Annual
Returns
1 Year 185.03% 21.26%
5 Years N/A N/A
10 Years N/A N/A
Since Inc 87.87% 16.99%
The performance information shown here does not reflect variable account charges
and fees. Past performance is not predictive of future performance. Shares may
be worth more or less when redeemed than when purchased. Assumes reinvestment of
all dividends. The Russell 2000 Growth Index was added to provide a broader
comparison base.
<PAGE>
[THIS PAGE LEFT INTENTIONALLY BLANK]
<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
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
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
------------
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
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
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
------------
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
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
-----------
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
-----------
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
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
-----------
- ------------------------------------------------------------------
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
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)
----------------
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
----------
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
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
-------------
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
============= ============= ============= =============
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.
<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>
<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>
- --------------------------------------------------------------------------------
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>
<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.
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.
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>
<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
