PENN SERIES FUNDS INC, 485APOS, 2000-02-09

PENN SERIES FUNDS INC
485APOS, 2000-02-09

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<PAGE>

As filed with the Securities and Exchange Commission on February 9, 2000
File No. 2-77284 (811-03459)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 /x/

Pre-Effective Amendment No. __ / /

Post-Effective Amendment No. 48 /x/

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 28 /x/

- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
- --------------------------------------------------------------------------------
600 Dresher Road
Horsham, Pennsylvania 19044
(Address of Principal Executive Offices)
Registrant's Telephone Number: 215-956-8000
- --------------------------------------------------------------------------------
JAMES B. MCELWAIN
President
Penn Series Funds, Inc.
Philadelphia, Pennsylvania 19172
(Name and Address of Agent for Service)

Copy to:
RICHARD W. GRANT
C. RONALD RUBLEY
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921

- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)

___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph a (1) of Rule 485
___ on (date) pursuant to paragraph (a) (1) of Rule 485
_x_ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on May 1, 1999 pursuant to paragraph (a)(2) of Rule 485

- --------------------------------------------------------------------------------
<PAGE>

Prospectus--May 1, 2000
PENN SERIES FUNDS, INC.
600 Dresher Road, Horsham, PA 19044oTelephone (215) 956-8000

MONEY MARKET FUND

LIMITED MATURITY BOND FUND

QUALITY BOND FUND

HIGH YIELD BOND FUND

FLEXIBLY MANAGED FUND

GROWTH AND INCOME FUND

GROWTH EQUITY FUND

LARGE CAP VALUE FUND

INDEX 500 FUND

MID CAP GROWTH FUND

MID CAP VALUE FUND

EMERGING GROWTH FUND

SMALL CAP VALUE FUND

INTERNATIONAL EQUITY FUND

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.

<PAGE>

Penn Series Funds, Inc. ("Penn Series") is a mutual fund that provides
investment funds for variable annuity and variable life insurance contracts
issued by The Penn Mutual Life Insurance Company ("Penn Mutual") and its
subsidiary, The Penn Insurance and Annuity Company ("PIA"). Penn Series offers
14 different portfolios or "Funds" advised by Independence Capital Management,
Inc. ("ICMI") and, in the case of certain Funds, sub-advised by T. Rowe Price
Associates, Inc., Putnam Investment Management, Inc., Royce & Associates, Inc.,
Vontobel USA Inc., RS Investment Management, Inc., Neuberger Berman Management
Inc., Turner Investment Partners, Inc. and Wells Capital Management
Incorporated.

PROSPECTUS CONTENTS

FUND INVESTMENT SUMMARIES
Money Market Fund
Limited Maturity Bond Fund
Quality Bond Fund
High Yield Bond Fund
Flexibly Managed Fund
Growth and Income Fund
Growth Equity Fund
Large Cap Value Fund
Index 500 Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Emerging Growth Fund
Small Cap Value Fund
International Equity Fund

ADDITIONAL INFORMATION

MANAGEMENT
Investment Adviser
Sub-Advisers
Expenses and Limitations

ACCOUNT POLICIES

FINANCIAL HIGHLIGHTS

<PAGE>

INVESTMENT SUMMARY: MONEY MARKET FUND
<TABLE>
<CAPTION>

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Investment Objective: The investment objective of the Fund is to preserve shareholder capital, maintain liquidity and achieve
the highest possible level of current income consistent therewith.

Investment Strategy: The Fund will invest in a diversified portfolio of high quality money market instruments, which are rated
within the two highest credit categories assigned by recognized rating organizations or, if not rated,
are of comparable investment quality as determined by the Adviser. Investments include commercial
paper, U.S. Treasury securities, bank certificates of deposit and repurchase agreements. The Adviser
looks for money market instruments that present minimal credit risks. Important factors in selecting
investments include a company's profitability, ability to generate funds and capital adequacy, and
liquidity of the investment. The Fund will invest only in securities that mature in 397 days or less.
Penn Series policy is to maintain a stable price of $1.00 per share of the Fund.

Risks of Investing: The Fund may be appropriate for investors who want to minimize the risk of loss of principal and maintain
liquidity of their investment, and at the same time receive a return on their investment. The Fund
follows strict rules about credit risk, maturity and diversification of its investments. However,
although the Fund seeks to preserve the value of your investment in shares of the Fund at $1.00 per
share, there is no guarantee and it is still possible to lose money. An investment in the Fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Performance Information: The bar chart and table below show the performance of the Fund both year-by-year and as an average over
different periods of time. They include only those periods in which ICMI managed the Fund's
investments. The bar chart and table demonstrate the variability of performance over time and provide
an indication of the risks and volatility of an investment in the Fund. Past performance does not
necessarily indicate how the Fund will perform in the future. This performance information does not
include the impact of any charges deducted under your insurance contract. If it did, returns would be
lower.
</TABLE>

-3-
<PAGE>

For years ended December 31,

1993 1994 1995 1996 1997 1998 1999
2.53% 3.71% 5.51% 5% 5.15% 5% --%

Best Quarter Worst Quarter
xx.xx% xx.xx%
(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)

- ------------------------------------- -------------------------------------

Money Market Fund
- ------------------------------------- -------------------------------------
1 Year ............................. xx.xx%
- ------------------------------------- -------------------------------------
5 Year ............................. xx.xx%
- ------------------------------------- -------------------------------------
Since November 1, 1992(1) .......... xx.xx%
- ------------------------------------- -------------------------------------
(1) Date ICMI began managing the Fund's investments.

The current yield of the Money Market Fund for the seven-day period ended
December 31, 1999 was ____ %.

-4-
<PAGE>

INVESTMENT SUMMARY: LIMITED MATURITY BOND FUND

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Investment Objective: The investment objective of the Fund is to provide the highest available current income consistent with
liquidity and low risk to principal; total return is secondary.

Investment Strategy: The Fund invests primarily in short- to intermediate term investment-grade debt securities of U.S.
government and corporate issuers. The Adviser uses an active bond management approach. It seeks best
"value" by employing the following strategies: sector and security rotation, yield curve analysis to
determine which maturities to concentrate in, and arbitrage to take advantage of inefficient pricing of
new corporate bond issues. The Adviser seeks to reduce credit risk by diversifying among many issuers
and different types of securities.

Duration: The average duration of a fixed income portfolio measures its exposure to the risk of
changing interest rates. Typically, with a 1% rise in interest rates, an investment's value may be
expected to fall approximately 1% for each year of its duration. Although the Fund may invest in
securities of any duration, under normal circumstances it maintains an average portfolio duration of
one to three years.

Quality: The Fund will invest primarily in investment grade debt securities and no more than 10% of its
assets in "junk bonds."

Sectors: The Fund will invest primarily in Corporate Bonds and U.S. Government Bonds, including
Mortgage-Backed and Asset-Backed Securities.

Turnover: Because the Adviser will look for inefficiencies in the market and sell when they feel a
security is fully priced, turnover can be expected to be relatively high.

</TABLE>
-5-

<PAGE>

<S> <C>
Risks of Investing: An investment in the Fund may be appropriate for investors who are seeking the highest current income
consistent with liquidity and low risk to principal available through an investment in investment grade
debt. The Fund's value will change primarily with the changes in the prices of fixed income securities
(e.g., bonds) held by the Fund. The value of fixed income securities will vary inversely with changes
in interest rates. A decrease in interest rates will generally result in an increase in value of the
Fund. Conversely, during periods of rising interest rates, the value of the Fund will generally
decline. Longer term fixed income securities tend to experience larger changes in value than
shorter-term securities because they are more sensitive to interest rate changes. A portfolio with a
lower average duration generally will experience less price volatility in response to changes in
interest rates as compared to a portfolio with a higher duration. Mortgage-backed securities are
sensitive to changes in interest rates, but may respond to these changes differently from other
fixed-income securities due to the pre-payment of underlying loans. As with investing in other
securities whose prices increase or decrease in market value, you may lose money investing in the Fund.

Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly no performance information is presented.
</TABLE>

-6-

<PAGE>

INVESTMENT SUMMARY: QUALITY BOND FUND
<TABLE>
<CAPTION>

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Investment Objective: The Fund seeks the highest income over the long term that is consistent with the preservation of
principal.

Investment Strategy: The Fund invests primarily in marketable investment-grade debt securities. The portfolio manager heads up
a team of analysts that uses an active bond management approach. They seek the best "value" by
employing the following strategies: sector and security rotation, yield curve analysis to determine
which maturities to concentrate in, and arbitrage to take advantage of inefficient pricing of new
corporate bond issues.

Duration: The average duration of a fixed income portfolio measures its exposure to the risk of
changing interest rates. Typically, with a 1% rise in interest rates, an investment's value may be
expected to fall approximately 1% for each year of its duration. Duration is set for the portfolio
generally at between 3.5 and 5.5 years, depending on the interest rate outlook.

Quality: The Fund will invest primarily in investment grade debt securities and no more than 10% of the
net assets in "junk bonds."

Sectors: The fund will invest primarily in the following sectors: Corporate Bonds, U.S. Government
Bonds, U.S. Government Agency Securities, Commercial Paper, Collateralized Mortgage Obligations, and
Asset Backed Securities.

Turnover: Because the portfolio management team looks for inefficiencies in the market and will sell
when they feel a security is fully priced, turnover can be relatively high. The Fund's annual portfolio
turnover rates for 1999, 1998 and 1997 were ______, 477% and 317.3% respectively.

Risks of Investing: An investment in the Fund may be appropriate for investors who are seeking investment income and
preservation of principal. The Fund's value will change primarily with the changes in the prices of the
fixed income securities (e.g., bonds) held by the Fund. The value of the fixed income securities will
vary inversely with changes in interest rates. A decrease in interest rates will generally result in an
increase in value of the Fund. Conversely, during periods of rising interest rates, the value of the
Fund will generally decline. Longer term fixed income securities tend to experience larger changes in
value than shorter-term securities because they are more sensitive to interest rate changes. A
portfolio with a lower average duration generally will experience less price volatility in response to
changes in interest rates as compared with a portfolio with a higher duration. Mortgage-backed
securities are sensitive to changes in interest rates, but may respond to these changes differently
from other fixed-income securities due to the pre-payment of the underlying loans. As with investing in
other securities whose prices increase and decrease in market value, loss of money is a risk of
investing in the Fund.
</TABLE>
-7-

<S> <C>
Performance Information: The bar chart and table below show the performance of the Fund both year-by-year and as an average over
different periods of time. They only include those periods in which ICMI managed the Fund's
investments. They demonstrate the variability of performance over time and provide an indication of the
risks and volatility of an investment in the Fund. Past performance does not necessarily indicate how
the Fund will perform in the future. This performance information does not include the impact of any
charges deducted under your insurance contract. If it did, returns would be lower.

</TABLE>

For years ended December 31,

1993 1994 1995 1996 1997 1998 1999
11.67% -5.29% 20.14% 4.14% 8.03% 10.17% --%

-8-

<PAGE>

Best Quarter Worst Quarter
xx.xx% xx.xx%
(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
Lehman Brothers
Quality Bond Fund Aggregate Bond Index(1)
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
5 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
Since November 1, 1992(2) ............. xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index that is a
widely recognized benchmark of general bond performance. The index is a passive
measure of equity market returns. It does not factor in the costs of buying,
selling and holding securities -- costs which are reflected in the Fund's
results.
(2) Date ICMI began managing the Fund's investments.

-9-

<PAGE>

INVESTMENT SUMMARY: HIGH YIELD BOND FUND
<TABLE>
<CAPTION>

<S> <C>

Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: T. Rowe Price Associates, Inc.

Investment Objective: The investment objective of the Fund is to realize high current income.

Investment Strategy: The Fund invests in a widely diversified portfolio of high-yield corporate bonds, often called "junk"
bonds, income-producing convertible securities and preferred stocks. High-yield bonds are rated below
investment-grade (BB and lower) and generally provide high income in an effort to compensate investors
for their higher risk of default, that is failure to make required interest or principal payments.
High-yield bond issuers include small or relatively new companies lacking the history or capital to
merit investment-grade status, former blue chip companies downgraded because of financial problems,
companies electing to borrow heavily to finance or avoid a takeover or buyout, and firms with heavy
debt loads. The Fund may also invest in common stocks, warrants, private placements, bank loans, hybrid
instruments, foreign securities, futures and options, various types of bonds such as asset-backed,
pay-in-kind, and zero coupon, and other securities. The Fund's dollar weighted average maturity
generally is expected to be in the eight to twelve year range. In selecting investments for the Fund,
the Sub-Adviser relies extensively on its research analysts. When their outlook for the economy is
positive, they may purchase slightly lower-rated bonds in an effort to secure additional income and
appreciation potential. When they are less positive, they may gravitate toward higher-rated junk bonds.

Risks of Investing: An investment in the Fund may be appropriate for long-term, risk oriented investors who are willing to
accept the greater risks and uncertainties of investing in high yield bonds in the hope of earning high
current income. The Fund's value will change primarily with changes in the prices of the bonds held by
the Fund. The value of bonds will vary inversely with changes in interest rates. A decrease in interest
rates will generally result in an increase in value of the Fund. Conversely, during periods of rising
interest rates, the value of the Fund will generally decline. Longer term fixed income securities tend
to suffer greater declines than shorter-term securities because they are more sensitive to interest
rate changes.
</TABLE>
-10-

<PAGE>

Investing in high yield bonds involves additional risks, including credit risk. High yield bonds may be
considered speculative. The value of high yield, lower quality bonds is affected by the
creditworthiness of the companies that issue the securities, general economic and specific industry
conditions. Companies issuing high-yield bonds are not as strong financially as those with higher
credit ratings, so the bonds are usually considered speculative investments. These companies are more
vulnerable to financial setbacks and recession than more creditworthy companies which may impair their
ability to make interest and principal payments. The share price of the Fund is expected to be more
volatile than the share price of a fund investing in higher quality securities, which react primarily
to the general level of interest rates. In addition, the trading market for lower quality bonds may be
less active and less liquid, that is, the Sub-Adviser may not be able to sell bonds at desired prices
and large purchases or sales of certain high-yield bond issues can cause substantial price swings. As a
result, the price at which lower quality bonds can be sold may be adversely affected and valuing such
lower quality bonds can be a difficult task. Shareholders may also be exposed to foreign investing
risk, including greater volatility, less liquidity, and the possibility that foreign currencies will
decline against the dollar, lower than the value of securities denominated in these currencies. As with
investing in other securities whose prices increase and decrease in market value, you may lose money by
investing in the Fund.

Performance Information: The bar chart and table below show the performance of the Fund both year-by-year and as an average over
different periods of time. They demonstrate the variability of performance over time and provide an
indication of the risks and volatility of an investment in the Fund. Past performance does not
necessarily indicate how the Fund will perform in the future. This performance information does not
include the impact of any charges deducted under your insurance contract. If it did, returns would be
lower.
</TABLE>
-11-

<PAGE>

For years ended December 31,

Best Quarter Worst Quarter
xx.xx% xx.xx%
(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)
<TABLE>
<CAPTION>

- ---------------------------------------- ------------------------------------- -------------------------------------
First Boston
High Yield Bond Fund High Yield Index(1)
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
5 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
10 Year ............................... xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

(1) The First Boston Index is a widely recognized benchmark of high yield bond
performance. The index is a passive measure of equity market returns. It does
not factor in the costs of buying, selling and holding securities -- costs which
are reflected in the Fund's results.

-12-
<PAGE>

INVESTMENT SUMMARY: FLEXIBLY MANAGED FUND
<TABLE>
<CAPTION>

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: T. Rowe Price Associates, Inc.

Investment Objective: The investment objective of the Fund is to maximize total return (capital appreciation and income).

Investment Strategy: The Sub-Adviser invests primarily in common stocks of established companies that it believes have above
average potential for capital growth. Common stocks typically compose at least half of total assets.
The Fund may also invest in other securities, including convertibles, warrants, preferred stocks,
corporate and government debt, foreign securities, futures, and options, in keeping with the Fund's
objective. The Fund's investments in common stocks generally fall into one of two categories. The
larger category comprises long-term core holdings that the Sub-Adviser considers to be underpriced in
terms of company assets, earnings, or other factors at the time they are purchased. The smaller
category comprises opportunistic investments whose prices the Sub-Adviser expects to rise in the
short-term, but not necessarily over the long-term. Since the Sub-Adviser attempts to prevent losses as
well as achieve gains, it typically uses a "value approach" in selecting investments. Its in-house
research team seeks to identify companies that seem undervalued by various measures, such as price/book
value, and may be temporarily out of favor but have good prospects for capital appreciation. The
Sub-Adviser may establish relatively large positions in companies it finds particularly attractive.

The Fund's approach differs from that of many other stock funds. The Sub-Adviser works as hard to
reduce risk as to maximize gains and may realize gains rather than lose them in market declines. In
addition, the Sub-Adviser searches for the best risk/reward values among all types of securities. The
portion of the Fund invested in a particular type of security, such as common stocks, results largely
from case-by-case investment decisions, and the size of the Fund's cash reserve may reflect the
manager's ability to find companies that meet valuation criteria rather than his market outlook. The
Fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy
assets into more promising opportunities.
</TABLE>
-13-

<PAGE>

<S> <C>
Risks of Investing: An investment in the Fund may be appropriate for investors who are seeking a relatively conservative
approach to investing for total return and are willing to accept the risks and uncertainties of
investing in common stocks and bonds. The Fund's value will change primarily with changes in the prices
of the securities held by the Fund. The prices of common stocks will increase and decrease based on
market conditions, specific industry conditions, and the conditions of the individual companies who
issued the common stocks. In general, common stocks are more volatile than fixed income securities.
However, over the long-term, common stocks have shown greater potential for capital appreciation. A
particular risk of the Sub-Adviser's value or "contrarian" approach is that some holdings may not
recover and provide the capital growth anticipated. A sizable cash or fixed income position may hinder
the Fund from participating fully in a strong, rapidly rising bull market. In addition, significant
exposure to bonds increases the risk that the Fund's share value could be hurt by rising interest rates
or credit downgrades or defaults. To the extent that the Fund invests in foreign securities, it is also
subject to the risk that some holdings may lose value because of declining foreign currencies or
adverse political or economic events overseas. To the extent the Fund uses futures and options, it is
exposed to additional volatility and potential losses. As with investing in other securities whose
prices increase and decrease in market value, you may lose money by investing in the Fund.

</TABLE>
-14-

<PAGE>

For years ended December 31,

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -0.82% 21.63% 9.61% 15.79% 4.14% 22.28% 16.37% 15.65% 6.09% --%
</TABLE>

Best Quarter Worst Quarter
xx.xx% xx.xx%
(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)
<TABLE>
<CAPTION>

- ---------------------------------------- ------------------------------------- -------------------------------------
Flexibly Managed Fund S & P 500(1)
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
5 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
10 Year ............................... xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

(1) The S & P 500 is an unmanaged index that is a widely recognized benchmark of
general market performance. The index is a passive measure of equity market
returns. It does not factor in the costs of buying, selling and holding
securities -- costs which are reflected in the Fund's results.

-15-
<PAGE>

INVESTMENT SUMMARY: GROWTH AND INCOME FUND

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Investment Objective: The investment objective of the Fund is to provide total return through a combination of current income
and capital appreciation.

Investment Strategy: The Fund invests primarily in common stocks of well established companies that the Adviser believes have
long-term potential for above average growth in earnings and income. The Adviser may from time to time
invest in non-dividend paying companies with prospects for future income or capital appreciation. The
Adviser may also use convertible bonds or preferred stock to enhance income as well as provide capital
appreciation. The Adviser emphasizes companies that it believes are capable of generating strong
earnings and sales gains in an increasingly global economy. Companies with consistent earnings growth
are most able to provide a predictable level of current income as well as the potential for growth in
income over time. By its nature the Fund invests primarily in large-capitalization companies.

Risks of Investing: An investment in the Fund may be appropriate for investors who are willing to accept the uncertainties of
investing in common stocks in the hope of earning above-average growth in capital and income. The
Fund's value will change primarily with changes in the prices of the stocks and other investments held
by the Fund. The prices of common stocks will increase and decrease based on market conditions,
specific industry conditions, and the conditions of the individual companies who issued the common
stock. Convertible bonds and preferred stocks may also be affected by the change in the level of
interest rates and investor judgements about the quality of the issuer. In general, common stocks are
more volatile than other investments, such as fixed income securities. However, over the long-term,
common stocks have shown greater potential for capital appreciation. By investing in common stocks of
larger, well established companies, the Adviser seeks to avoid some of the volatility associated with
smaller, less well established companies. Investing in companies with dividends may also reduce the
volatility associated with common stock investing. In addition, the Fund is subject to the risk that its
principal market segment, large capitalization growth companies, may underperform compared to other
market segments or the equity markets as a whole. As with investing in other securities whose prices
increase or decrease in market value, you may lose money investing in the Fund.

Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly no performance information is presented.
</TABLE>

-16-

<PAGE>

INVESTMENT SUMMARY: GROWTH EQUITY FUND

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Investment Objective: The investment objective of the Fund is to achieve long-term growth of capital and increase of future
income.

Investment Strategy: The Fund invests primarily in common stocks of well established companies that the Adviser believes have
long-term growth potential. In selecting the Fund's investments, the Adviser seeks companies that are
expected to demonstrate long-term earnings growth that is greater than the projected growth rate of the
economy as a whole. The Adviser emphasizes those companies that it believes are capable of generating
consistently strong earnings and sales gains in an increasingly global economy. The Adviser believes
that, over the long term, the earnings of well-established companies will not be as adversely affected
by unfavorable economic conditions as the earnings of more cyclical companies. Secondarily, the Adviser
also considers the dividend-paying potential of well-established companies.

Risks of Investing: An investment in the Fund may be appropriate for investors who are willing to accept the risks and
uncertainties of investing in common stocks in the hope of earning above-average long-term growth of
capital and income. The Fund's value will change primarily with changes in the prices of the common
stocks held by the Fund. The prices of common stocks will increase and decrease based on market
conditions, specific industry conditions, and the conditions of the individual companies who issued the
common stocks. In general, common stocks are more volatile than other investments, such as fixed income
securities. However, over the long-term, common stocks have shown greater potential for capital
appreciation. By investing in the common stocks of larger, well-established companies, the Adviser seeks
to avoid some of the volatility associated with investment in smaller, less well-established companies.
In addition, the Fund is subject to the risk that its principal market segment, large capitalization
growth companies, may underperform compared to other market segments or the equity markets as a whole. As
with investing in other securities whose prices increase and decrease in market value, you may lose money
by investing in the Fund.
</TABLE>

-17-

<PAGE>

<S> <C>
Performance Information: The bar chart and table below show the performance of the Fund both year-by-year and as an average over
different periods of time. They include only those periods in which ICMI managed the Fund's
investments. The bar chart and table demonstrate the variability of performance over time and provide
an indication of the risks and volatility of an investment in the Fund. Past performance does not
necessarily indicate how the Fund will perform in the future. This performance information does not
include the impact of any charges deducted under your insurance contract. If it did, returns would be
lower.
</TABLE>

For years ended December 31,

1993 1994 1995 1996 1997 1998 1999
12.43% -8.12% 26.45% 19.76% 26.74% 41.67% --%

Best Quarter Worst Quarter
xx.xx% xx.xx%
(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for periods ended December 31, 1999)
<TABLE>
<CAPTION>

- ------------------------------------------ ------------------------------------ ------------------------------------
Growth Equity Fund S & P 500(1)
- ------------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
1 Year .................................. xx.xx% xx.xx%
- ------------------------------------------ ------------------------------------ ------------------------------------
5 Year .................................. xx.xx% xx.xx%
- ------------------------------------------ ------------------------------------ ------------------------------------
Since November 1, 1992(2) ............... xx.xx% xx.xx%
- ------------------------------------------ ------------------------------------ ------------------------------------
</TABLE>

-18-

<PAGE>

INVESTMENT SUMMARY: LARGE CAP VALUE FUND
(formerly the Value Equity Fund)

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: Putnam Investment Management, Inc.

Investment Objective: The investment objective of the Fund is to maximize total return (capital appreciation and income).

Investment Strategy: The Fund invests primarily in common stocks of large capitalization companies that the Sub-Adviser
believes are under-valued. In selecting individual investments for the Fund, the Sub-Adviser attempts to
find value stocks that offer the potential for both current income and capital appreciation. To find such
a stock, the Sub-Adviser considers a company's financial strength, competitive position in its industry
and projected future earnings and dividends. The Sub-Adviser will purchase the common stock of a company
when it believes that the stock is undervalued compared to its true worth.

Risks of Investing: An investment in the Fund may be appropriate for investors who are willing to accept the risks and
uncertainties of investing in common stocks in the hope of earning above-average total return. The
Fund's value will change primarily with changes in the prices of the common stocks held by the Fund.
The prices of common stocks will increase and decrease based on market conditions, specific industry
conditions, and the conditions of the individual companies who issued the common stocks. In general,
common stocks are more volatile than other investments, such as fixed income securities. However, over
the long-term, common stocks have shown greater potential for capital appreciation. A risk of the Fund is
that the Sub-Adviser's judgments about the attractiveness, relative value or potential appreciation of a
particular security may prove to be incorrect. In addition, the Fund is subject to the risk that its
principal market segment, large capitalization value companies, may underperform compared to other market
segments or the equity markets as a whole. As with investing in other securities whose prices increase
and decrease in market value, you may lose money by investing in the Fund.

Performance Information: The bar chart and table below show the performance of the Fund both year-by-year and as an average over
different periods of time. They represent the performance of the Fund's previous Manager, OpCap
Advisors. Since May 1, 2000, Putnam Investment Management, Inc. has been responsible for the Fund's
day-to-day portfolio management. The bar chart and table demonstrate the variability of performance
over time and provide an indication of the risks and volatility of an investment in the Fund. Past
performance does not necessarily indicate how the Fund will perform in the future. This performance
information does not include the impact of any charges deducted under your insurance contract. If it
did, returns would be lower.
</TABLE>

-19-

<PAGE>

For years ended December 31,

1993 1994 1995 1996 1997 1998 1999
7.08% 2.92% 37.48% 25.19% 24.98% 9.59% --%

Best Quarter Worst Quarter
xx.xx% xx.xx%
(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)
<TABLE>
<CAPTION>

- ---------------------------------------- ------------------------------------- -------------------------------------
Large Cap Value Fund S & P 500(1)
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
5 Year ................................ xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
Since November 1, 1992(2) ............. xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

-20-
<PAGE>

INVESTMENT SUMMARY: INDEX 500 FUND

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: Wells Capital Management Incorporated

Investment Objective: The Fund's investment objective is total return (capital appreciation and income) which corresponds to
that of the Standard & Poor's Composite Index of 500 stocks.

Investment Strategy: The Fund invests substantially all of its assets in securities listed in the S&P 500 Index which is
comprised of 500 selected securities (mostly common stocks). The Sub-Adviser does not actively manage
the Fund's assets using traditional investment analysis. Instead, the Sub-Adviser invests in each
company in the S&P 500 Index in proportion to its weighting in the Index. In this manner, the
Sub-Adviser attempts to match the return of the S&P 500 as closely as possible.

Risks of Investing: An investment in the Fund may be appropriate for investors who are willing to accept the uncertainties of
investing in common stocks in the hope of earning a return consistent with the S&P 500 Index. The
Fund's value will change primarily with changes in the prices of the stocks and other investments held
by the Fund. The prices of common stocks will increase and decrease based on market conditions,
specific industry conditions, and the conditions of the individual companies who issued the common
stocks. In general, common stocks are more volatile than other investments, such as fixed income
securities. However, over the long-term, common stocks have shown greater potential for capital
appreciation. The Fund is also subject to the risk that the performance of the Fund may not correlate to
that of the S&P 500 Index. In addition, the Fund is subject to the risk that the securities that comprise
the S&P 500 may underperform other market segments or the equity markets as a whole. As with investing in
other securities whose prices increase or decrease in market value, you may lose money investing in the
Fund.

Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly no performance information is presented.
</TABLE>

-21-

<PAGE>

INVESTMENT SUMMARY: MID CAP GROWTH FUND

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: Turner Investment Partners, Inc.

Investment Objective: The investment objective of the Fund is to maximize capital appreciation.

Investment Strategy: The Fund invests primarily in common stocks of U.S. companies with medium market capitalizations (i.e.,
between $1 billion and $10 billion) that the Sub-Adviser believes have strong earnings growth
potential. The Fund will invest in securities of companies that are diversified across economic
sectors, and will attempt to maintain sector concentrations that approximate those of its current
benchmark, the Russell Mid Cap Growth Index. The Fund's exposure is generally limited to a maximum of
2% in any single issue. However, the Fund may hold up to two times the index weighting of those
securities that comprise between 1% and 5% of the Index, and up to one and one half times the index
weighting of those securities that comprise more than 5% of the Index. Due to its investment strategy,
the Fund may buy and sell securities frequently which may result in higher transaction costs and tax
liabilities.

Risks of Investing: An investment in the Fund may be appropriate for investors who are willing to accept the risks and
uncertainties of investing in mid-cap stocks in the hope of achieving above-average capital
appreciation. The Fund's value will change primarily with the changes in prices of the common stocks
held by the Fund. The prices of common stocks will increase and decrease based on market conditions,
specific industry conditions, and the conditions of individual companies that issued the common stocks.
In addition to the general risks of common stocks, an investment in mid-cap stocks may entail special
risks. The prices of mid-cap stocks may be more volatile than investments in larger, more established
companies. In addition, the Fund is subject to the risk that its principal market segment, medium
capitalization growth companies, may underperform compared to other market segments or the equity
markets as a whole. As with investing in other securities whose prices increase and decrease in market
value, you may lose money by investing in the Fund.

Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly no performance information is presented.

</TABLE>

-22-

<PAGE>

INVESTMENT SUMMARY: MID CAP VALUE FUND

<S> <C>
Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: Neuberger Berman Management Inc.

Investment Objective: The investment objective of the Fund is to achieve growth of capital.

Investment Strategy: The Fund invests primarily in common stocks of U.S. companies with medium market capitalizations that the
Sub-Adviser believes are undervalued. In selecting individual securities, the Sub-Adviser seeks
well-managed companies whose stock prices are undervalued. To identify these companies, the Sub-Adviser
looks for strong business fundamentals, consistent cash flow, and a sound track record through all
phases of the market cycle. The Sub-Adviser may also consider the company's position relative to
competitors, a high level of stock ownership among management and a recent sharp decline in the stock
price that appears to be the result of a short-term market over-reaction to negative news. The
Sub-Adviser generally considers selling a stock when it reaches the Sub-Adviser's target price, when it
fails to perform as expected, or when other opportunities appear more attractive. The Sub-Adviser seeks
to reduce risk by diversifying among many companies and industries.

Risks of Investing: An investment in the Fund may be appropriate for investors who are willing to accept the risks and
uncertainties of investing in mid-cap stocks in the hope of achieving above-average capital
appreciation. The Fund's value will change primarily with the changes in prices of the common stocks
held by the Fund. The prices of common stocks will increase and decrease based on market conditions,
specific industry conditions, and the conditions of individual companies that issued the common stocks.
In addition to the general risks of common stocks, an investment in mid-cap stocks may entail special
risks. The prices of mid-cap stocks may be more volatile than investments in larger, more established
companies. In addition, the Fund is subject to the risks that its principal market segment, medium
capitalization value companies, may underperform compared to other market segments or the equity
markets as a whole. As with investing in other securities whose prices increase and decrease in market
value, you may lose money by investing in the Fund.

Performance Information: The Fund had no assets prior to May 1, 2000 and accordingly no performance information is presented.

</TABLE>

-23-

<PAGE>

INVESTMENT SUMMARY: EMERGING GROWTH FUND

Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: RS Investment Management, Inc.

Investment Objective: The investment objective of the Fund is capital
appreciation.

Investment Strategy: The Fund will invest primarily in common stocks of
emerging growth companies. In selecting the Fund's
investments, the Sub-Adviser seeks companies that have
the potential, based on superior products or services,
operating characteristics, and financial capabilities,
for growth more rapid than the overall economy. The
Sub-Adviser considers a company's rate of earnings
growth and the quality of management, the return on
equity, and the financial condition of the company. In
addition to these factors, the Sub-Adviser focuses on
companies that enjoy a competitive advantage in the
marketplace. The Sub-Adviser emphasizes companies in
those sectors of the economy that are experiencing
rapid growth.

Risks of Investing: An investment in the Fund may be appropriate for
investors who are willing to accept the risks and
uncertainties of investing in emerging growth
companies in the hope of earning above-average capital
appreciation. The Fund's value will change with changes
in the prices of the investments held by the Fund. The
prices of common stocks held by the Fund will increase
and decrease based on market conditions, specific
industry conditions, and the conditions of the
individual companies who issued common stocks. In
addition to the general risks of common stocks, an
investment in small-cap stocks may entail special
risks. Small-cap stocks may be more volatile and less
liquid than investments in larger, more established
companies. Smaller capitalization companies may have
limited product lines, markets or financial resources
and may depend on a limited management group. As a
result, smaller capitalization companies may be more
vulnerable to adverse business or market developments.
In addition, the Fund is subject to the risk that its
principal market segment, small capitalization emerging
growth companies, may underperform compared to other
market segments or the equity markets as a whole. As
with investing in other securities whose prices
increase and decrease in market value, you may lose
money by investing in the Fund.

-24-

<PAGE>

Performance Information: The bar chart and table show the performance of the
Fund for both year-by-year and as an average over
different periods of time. They demonstrate the
variability of performance over time and provide an
indication of the risks and volatility of an investment
in the Fund. Past performance does not necessarily
indicate how the Fund will perform in the future. This
performance information does not include the impact of
any charges deducted under your insurance contract. If
it did, returns would be lower.

For years ended December 31,

1998 1999
35.7% --%

Best Quarter Worst Quarter

xx.xx% xx.xx%

(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
Emerging Growth Fund Russell 2000
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year xx.xx% xx.xx%(1)
- ---------------------------------------- ------------------------------------- -------------------------------------
Since May 1, 1997(2) xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

(1) The Russell 2000 Index is an unmanaged index that is a widely recognized
benchmark of general market performance. The index is a passive measure of
equity market returns. It does not factor in the costs of buying, selling
and holding securities -- costs which are reflected in the Fund's results.
(2) Date of inception.

-25-

<PAGE>

INVESTMENT SUMMARY: SMALL CAP VALUE FUND
(formerly the Small Capitalization Fund)

Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: Royce & Associates, Inc.

Investment Objective: The investment objective of the Fund is to seek capital
appreciation.

Investment Strategy: The Fund invests primarily in common stocks of small
cap and micro-cap companies in an attempt to take
advantage of what the Sub-Adviser believes are
opportunistic situations for undervalued securities.
Such opportunities may include turnarounds, emerging
growth companies with interrupted earnings patterns,
companies with unrecognized asset value or undervalued
growth companies. The Fund will invest primarily in
companies with a market capitalization of $1.5 billion
or less.

Risks of Investing: An investment in the Fund may be appropriate for
investors who are willing to accept the risks and
uncertainties of investing in small-cap stocks in
the hope of earning above-average capital
appreciation. The Fund's value will change primarily
with changes in the prices of the stocks and other
investments held by the Fund. The prices of common
stocks will increase and decrease based on market
conditions, specific industry conditions, and the
conditions of the individual companies who issued
the common stocks. In general, common stocks are
more volatile than those of other investments, such
as fixed income securities. However, over the
long-term, common stocks have shown greater
potential for capital appreciation.

In addition to the general risks of common stocks, an
investment in small-cap stocks may entail special
risks. Small-cap stocks may be more volatile and
less liquid than investments in larger, more
established companies. Smaller capitalization
companies may have limited product lines, markets or
financial resources and may depend on a limited
management group. As a result, smaller
capitalization companies may be more vulnerable to
adverse business or market developments. These risks
are even greater for the micro-cap companies that
the Fund owns. Micro-cap companies are followed by
relatively few securities analysts and

-26-

<PAGE>

there tends to be less information about them. Their
securities generally have limited trading volumes
and are subject to even more abrupt erratic price
movements. Micro-cap companies are even more
vulnerable to adverse business and market
developments.

The Fund's ability to achieve its goal will depend
largely on the Sub-Advisers skill in selecting the
Fund's investments using its opportunistic approach.
In addition, the Fund is subject to the risk that
its principal market segment, small capitalization
companies, may underperform compared to other market
segments or the equity markets as a whole. As with
investing in other securities whose prices increase
and decrease in market value, you may lose money by
investing in the Fund.

Performance Information: The bar chart and table show the performance of the
Fund for both year-by-year and as an average over
different periods of time. They represent the
performance of the Fund's previous manager, OpCap
Advisors. Since May 1, 2000, Royce & Associates,
Inc. has been responsible for the Fund's day-to-day
portfolio management. The bar chart and table
demonstrate the variability of performance over time
and provide an indication of the risks and
volatility of an investment in the Fund. Past
performance does not necessarily indicate how the
Fund will perform in the future. This performance
information does not include the impact of any
charges deducted under your insurance contract. If
it did, returns would be lower.

For years ended December 31,

1996 1997 1998 1999
19.76% 23.02% -9.16% --%

-27-

<PAGE>

Best Quarter Worst Quarter

xx.xx% xx.xx%

(xx/xx/xx) (xx/xx/xx)

Average Annual Total Return (for Periods Ended December 31, 1999)
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
Small Cap Value Fund Russell 2000
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year xx.xx% xx.xx%(1)
- ---------------------------------------- ------------------------------------- -------------------------------------
Since March 1, 1995(2) xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

(1) The Russell 2000 Index is an unmanaged index that is a widely recognized
benchmark of general market performance. The index is a passive measure
of equity market returns. It does not factor in the costs of buying,
selling and holding securities -- costs which are reflected in the Fund's
results.
(2) Date of Inception

-28-

<PAGE>

INVESTMENT SUMMARY: INTERNATIONAL EQUITY FUND

Investment Adviser: Independence Capital Management, Inc.

Sub-Adviser: Vontobel USA Inc.

Investment Objective: The investment objective of the Fund is to achieve
capital appreciation.

Investment Strategy: The Fund invests primarily in common stocks of
companies operating in the countries in Europe and the
Pacific Basin that are generally considered to have
developed markets. These include the eleven
euro-zone countries (France, Germany, Italy, Spain,
Portugal, Finland, Ireland, Belgium, the
Netherlands, Luxembourg and Austria), the United
Kingdom, Switzerland, Norway, Japan, Hong Kong,
Australia, and Singapore. Using a bottom-up
investment approach, the Sub-Adviser invests in
large- and medium-capitalization companies that have
a long record of successful operations in their core
business. Typically such companies occupy a leading
position in their industry, have consistently
generated free cash flow, and have achieved earnings
growth through increasing market share and unit
sales volumes. The Sub-Adviser's goal is to
construct a portfolio of the best companies in the
developed markets of Europe and the Pacific Basin
without making any country bets. With approximately
80-100 issuers, the Fund also seeks to be well
diversified in terms of industry exposure.

Risks of Investing: An investment in the Fund may be appropriate for
investors who are willing to accept the risks and
uncertainties of international investing in the hope
of realizing capital appreciation while diversifying
their investment portfolio. The Fund's value will
change primarily with changes in the prices of the
common stocks held by the Fund. The prices of common
stocks held by the Fund will increase and decrease
based on market conditions, specific industry
conditions, and the conditions of the individual
companies who issued the common stocks. In addition
to the general risks of common stocks, foreign
investing involves the risk that news and events
unique to a country or region will affect those
markets and their issuers. These same events will
not necessarily have an effect on the U.S. economy
or similar issuers located in the United States. In
addition, the Fund's investments in foreign
countries generally will be denominated in foreign
currencies. As a result, changes in

-29-

<PAGE>

the value of a country's currency compared to the U.S.
dollar may affect the value of the Fund's
investments. These changes may happen separately
from and in response to events that do not otherwise
affect the value of the security in the issuing
company's home country. The Sub-Adviser may invest
in certain instruments, such as forward currency
exchange contracts and may use certain techniques
such as hedging, to manage these risks. However, the
Sub-Adviser cannot guarantee that it will succeed in
doing so. In certain markets, it may not be possible
to hedge currency risk. As with investing in other
securities whose prices increase and decrease in
market value, you may lose money by investing in the
Fund.

Performance Information: The bar chart and table show the performance of the
Fund both year-by-year and as an average over different
periods of time. They demonstrate the variability of
performance over time and provide an indication of
the risks and volatility of an investment in the
Fund. Past performance does not necessarily indicate
how the Fund will perform in the future. This
performance information does not include the impact
of any charges deducted under your insurance
contract. If it did, returns would be lower.

-30-

<PAGE>

For years ended December 31,

1993 1994 1995 1996 1997 1998 1999
38.14% -6.31% 13.8% 16.87% 10.41% 18.85% --%

Best Quarter Worst Quarter

xx.xx% xx.xx%

(xx/xx/xx) (xx/xx/xx)

- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1 Year xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
5 Year xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
Since November 2, 1992(2) xx.xx% xx.xx%
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>

(1) The Morgan Stanley Capital International EAFE Index is an unmanaged index
that is a widely recognized benchmark of International Equity
performance. The index is a passive measure of equity market returns. It
does not factor in the costs of buying, selling and holding securities --
costs which are reflected in the Fund's results.
(2) Date of Inception.

-31-

<PAGE>

ADDITIONAL INFORMATION

Temporary Investing: When a Fund's Adviser or Sub-Adviser believes that changes
in economic, financial or political conditions warrant, each Fund, except for
the Index 500 Fund, may invest without limit in money market instruments and
other short-term fixed income securities. If they incorrectly predict the
effects of these changes, such defensive investments may adversely affect Fund
performance.

Portfolio Turnover: Consistent with their investment objectives, the Funds may
sell securities without regard to the effect on portfolio turnover. A high rate
of portfolio turnover may result in increased transaction costs.

Year 2000. Penn Series and its service providers do not appear to have been
adversely affected by computer problems related to the transition to the year
2000. However, there remains a risk that such problems could arise or be
discovered in the future. Year 2000 related problems also may negatively affect
issuers whose securities the Funds purchase, which could have an impact on the
value of your investment.

MANAGEMENT

Investment Adviser

Independence Capital Management, Inc. Independence Capital Management, Inc.
("ICMI") serves as investment adviser to each of the Funds. ICMI is a
wholly-owned subsidiary of Penn Mutual, a life insurance company that has been
in the insurance and investment business since the late 1800s. Penn Mutual and
its subsidiaries currently have assets under management of over $10.5 billion.
ICMI was organized in June 1989 and, in addition to serving as investment
adviser to the Funds, also serves as investment adviser to corporate and pension
fund accounts. Its offices are located at 600 Dresher Road, Horsham,
Pennsylvania 19044. As of December 31, 1999, ICMI serves as investment adviser
for over $1.9 billion of investment assets.

ICMI provides day-to-day portfolio management services for the Money Market,
Limited Maturity, Quality Bond, Growth and Income, and Growth Equity Funds.

Richardson T. Merriman, Senior Vice President of Independence Capital
Management, Inc., manages the Growth and Income and Growth Equity Funds. He has
served as portfolio manager of the Growth Equity Fund since 1995 and the Growth
and Income Fund since its inception in May, 2000. Mr. Merriman is also President
of The Pennsylvania Trust Company, a Penn Mutual subsidiary.

Peter M. Sherman, President and Portfolio Manager of Independence Capital
Management, Inc., manages the Money Market, Limited Maturity Bond and Quality
Bond Funds. He has served as portfolio manager of the Money Market and Quality
Bond Funds since November 1992 and the

-32-

<PAGE>

Limited Maturity Bond Fund since its inception in May, 2000. He served as
Executive Vice President, ICMI, prior to becoming President. Mr. Sherman is
Executive Vice President and Chief Investment Officer of Penn Mutual; prior to
May 1996, he was Vice President, Fixed Income Portfolio Management, Penn Mutual.

In addition, ICMI provides investment management services to the High Yield
Bond, Flexibly Managed, Large Cap Value, Index 500, Mid Cap Growth, Mid Cap
Value, Small Cap Value, Emerging Growth and International Equity Funds through
Sub-Advisers that are specially selected and qualified to manage the Funds.

Manager of Managers Structure. ICMI acts as "manager of managers" for the Funds.
In this capacity, ICMI has hired sub-advisers to manage the assets of the High
Yield Bond, Flexibly Managed, Large Cap Value, Index 500, Mid Cap Growth, Mid
Cap Value, Emerging Growth, Small Cap Value and International Equity Funds. ICMI
remains responsible for the performance of these Funds as it recommends hiring
or changing sub-advisers to the Company's Board of Directors. Each Sub-Adviser
makes investment decisions for the Fund it manages. ICMI over-sees the
sub-advisers to ensure compliance with the Fund's investment policies and
guidelines, and monitors each sub-adviser's adherence to its investment style.

Shareholders of the High Yield Bond, Flexibly Managed, Growth and Income, Large
Cap Value, Emerging Growth, Small Cap Value and International Equity Funds have
authorized ICMI, subject to the supervision and approval of the Company's Board
of Directors, to hire and terminate sub-advisers without shareholder approval.

ICMI currently manages the assets of the Money Market, Quality Bond and Growth
Equity Funds. While it has no present intention to do so, shareholders of these
Funds have authorized ICMI, subject to the supervision and approval of the
Company's Board of Directors, to hire sub-advisers without shareholder approval.

Shareholders of the Limited Maturity Bond, Index 500, Mid Cap Growth and Mid Cap
Value Funds may, in the future, be asked to approve a proposal authorizing ICMI
subject to the supervision and approval of the Company's Board of Directors, to
hire, terminate and replace sub-advisers without shareholder approval.

Sub-Advisers

T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. ( "Price
Associates") is sub-adviser to the Flexibly Managed and the High Yield Bond
Funds. As sub-adviser, Price Associates provides day-to-day portfolio management
services to the Funds. Price Associates was incorporated in 1947 as successor to
the investment counseling firm founded by the late Mr. Thomas Rowe Price, Jr. in
1937. Its corporate home office is located at 100 East Pratt Street, Baltimore,
Maryland 21202. Price Associates serves as investment adviser to a variety of

-33-

<PAGE>

individual and institutional investors accounts, including other mutual funds.
As of December 31, 1999, Price Associates and its affiliates, managed more than
[$147] billion of assets.

Richard P. Howard, Vice President of Price Associates, has been primarily
responsible for the day-to-day investment management of the Flexibly Managed
Fund since 1989. During the past five years, he has served as a Vice President
and an Equity Portfolio Manager of Price Associates.

Mark J. Vaselkiv, Vice President of Price Associates, has been primarily
responsible for the day-to-day investment management of the High Yield Bond Fund
since 1994. During the past five years, he has been a Vice President and a
portfolio manager in the taxable bond department of Price Associates.

Putnam Investment Management, Inc. Putnam Investment Management, Inc. ("Putnam")
is sub-adviser to the Large Cap Value Fund. As sub-adviser, Putnam provides
investment management services to the Fund. Putnam is located at One Post Office
Square, Boston, MA 02109. As of December 31, 1999, Putnam and its affiliates had
approximately $391 billion in assets under management.

Edward P. Bousa is responsible for the day-to-day portfolio management of the
Large Cap Value Fund. Mr. Bousa is a Senior Vice President of Putnam and has
been employed by Putnam since 1992.

Wells Capital Management Incorporated. Wells Capital Management Incorporated
("Wells") is sub-adviser to the Index 500 Fund. As sub-adviser, Wells provides
day-to-day portfolio management services to the Fund. Wells is located at 525
Market Street, 10th Floor, San Francisco, California 94105. As of December 31,
1999, Wells and its affiliates had approximately $71 billion in assets under
management.

David D. Sylvester and Laurie R. White have primary responsibility for the
day-to-day management of the Fund. Mr. Sylvester is an Executive Vice President
at Wells, and has been affiliated with Wells or its affiliates since 1979. Ms.
White has been a Managing Director at Wells and has been affiliated with Wells
or its affiliates since 1991.

Turner Investment Partners, Inc. Turner Investment Partners, Inc. ("Turner") is
sub-adviser to the Mid Cap Growth Fund. As sub-adviser, Turner provides
investment management services to the Fund. Turner is located at 1235 Westlakes
Drive, Suite 350, Berwyn, Pennsylvania 19312. As of December 31, 1999, Turner
had approximately $5.6 billion in assets under management.

Chris McHugh, Bill McVail and Robert Turner are primarily responsible for the
day-to-day portfolio management of the Mid Cap Growth Fund. Mr. McHugh is Senior
Equity Fund Portfolio Manager of Turner and joined Turner in 1990. Mr. McVail is
Senior Equity Portfolio

-34-

<PAGE>

Manager of Turner and joined Turner in 1998. Prior to 1998, Mr. McHugh was
Portfolio Manager at PNC Equity Advisors. Mr. Turner founded Turner in 1990 and
serves as Turner's Chairman and Chief Investment Officer.

Neuberger Berman Investment Inc. Neuberger Berman Management, Inc. ("Neuberger
Berman") is sub-adviser to the Mid Cap Value Fund. As sub-adviser, Neuberger
Berman provides investment management services to the Fund. Neuberger Berman is
located at 605 Third Avenue, 2nd Floor, New York, New York 10158. As of December
31, 1999, Neuberger Berman and its affiliates had approximately $54.4 billion in
assets under management.

Robert I. Gendelman and S. Basu Mullick have primary responsibility for managing
the Mid Cap Value Fund's assets. Messrs. Gendelman and Mullick are Vice
Presidents of Neuberger Berman and are Managing Directors of Neuberger Berman,
LLC. Mr. Gendelman has been a portfolio manager with Neuberger Berman since
1994. Mr. Mullick joined Neuberger Berman in 1998. Prior to 1998, he was
portfolio manager at another firm.

Royce & Associates, Inc. Royce & Associates, Inc. ("Royce") is sub-adviser to
the Small Cap Value Fund. As sub-adviser, Royce provides investment management
services to the Fund. Royce is located at 1414 Avenue of the Americas, New York,
New York 10019. As of December 31, 1999, Royce had approximately $3 billion in
assets under management.

Boniface A. Zaino has primary responsibility for the day-to-day investment
management of the Fund. Mr. Zaino is a Managing Director and Senior Portfolio
Manager at Royce. He has joined Royce in 1998 from Trust Company of the West
where he was Group Managing director since 1984.

RS Investment Management , Inc. (formerly, Robertson Stephens Investment
Management, Inc.) RS Investment Management, Inc. ("RSIM") is sub-adviser to the
Emerging Growth Fund. As sub-adviser, RSIM provides day-to-day portfolio
management services to the Fund. RSIM is located at 555 California Street, San
Francisco, CA 94104. As of December 31, 1999, RSIM managed more than [$3.8]
billion for individual and institutional clients.

James Callinan, Portfolio Manager of RSIM, is responsible for managing the
Emerging Growth Fund. Mr. Callinan has more than ten years of investment
research and management experience. From 1986 until June 1996, Mr. Callinan was
employed by Putnam Investments, where, beginning in June 1994, he served as
portfolio manager of the Putnam OTC Emerging Growth Fund. Mr. Callinan received
an A.B. in economics from Harvard College, and M.S. in accounting from New York
University, and an M.B.A. from Harvard Business School, and is a Chartered
Financial Analyst.

Vontobel USA Inc. Vontobel USA Inc. ("Vontobel") is sub-adviser to the
International Equity Fund. As sub-adviser, Vontobel provides day-to-day
portfolio services to the Fund. Vontobel is a wholly owned subsidiary of
Vontobel Holding Ltd., and an affiliate of Bank J. Vontobel & Co.

-35-

<PAGE>

Ltd., one of the largest private banks and brokerage firms in Switzerland. Its
principal place of business is located at 450 Park Avenue, New York, New York
10022. As of December 31, 1999, Vontobel managed assets of over [$1.9 billion],
a substantial part of which was invested outside of the United States. The
Vontobel group of companies has investments in excess of [$40] billion under
management.

Fabrizio Pierallini, Senior Vice President and Portfolio Manager, Vontobel USA
Inc., is primarily responsible for the day-to-day investment management of the
International Equity Fund. Mr. Pierallini joined Vontobel in April 1994 with
responsibilities for managing international equities. Prior thereto, he served
as Associate Director/Portfolio Manager, Swiss Bank Corporation, New York.

Expenses and Limitations

The Funds bear all expenses of its operations other than those incurred by its
investment adviser and sub-advisers under the investment advisory agreement and
investment sub-advisory agreements and those incurred by Penn Mutual under its
administrative and corporate services agreement. In particular, each Fund pays
investment advisory fees, administrator's fee, shareholder servicing fees and
expenses, custodian and accounting fees and expenses, legal and auditing fees,
expenses of printing and mailing prospectuses and shareholder reports,
registration fees and expenses, proxy and annual meeting expenses, and
directors' fees and expenses.

As explained below, the investment adviser, the investment sub-advisers and/or
Penn Mutual have agreed to waive fees or reimburse expenses to the extent the
Fund's total expense ratio (excluding interest, taxes, brokerage, other expenses
which are capitalized in accordance with generally accepted accounting
principles, and extraordinary expenses, but including investment advisory and
administrative and corporate services fees) exceeds the expense limitation for
the Fund. The expense limitations for the Funds are as follows:

- ----------------------------------------- --------------------------------------
Fund Expense Limitation
- ----------------------------------------- --------------------------------------
Money Market 0.80%
- ----------------------------------------- --------------------------------------
Limited Maturity Bond 0.90%
- ----------------------------------------- --------------------------------------
Quality Bond 0.90%
- ----------------------------------------- --------------------------------------
High Yield Bond 0.90%
- ----------------------------------------- --------------------------------------
Flexibly Managed 1.00%
- ----------------------------------------- --------------------------------------
Growth and Income 1.00%
- ----------------------------------------- --------------------------------------
Growth Equity 1.00%
- ----------------------------------------- --------------------------------------

-36-

<PAGE>

- ----------------------------------------- --------------------------------------
Fund Expense Limitation
- ----------------------------------------- --------------------------------------
Large Cap Value 1.00%
- ----------------------------------------- --------------------------------------
Index 500 0.40%*
- ----------------------------------------- --------------------------------------
Mid Cap Growth 1.00%
- ----------------------------------------- --------------------------------------
Mid Cap Value 1.00%
- ----------------------------------------- --------------------------------------
Emerging Growth 1.15%
- ----------------------------------------- --------------------------------------
Small Cap Value 1.15%
- ----------------------------------------- --------------------------------------
International Equity 1.50%
- ----------------------------------------- --------------------------------------

* Penn Mutual currently intends to voluntarily waive its fees and reimburse
expenses so that the Index 500 Fund's total expenses do not exceed 0.25%.

All waivers of fees or reimbursements of expenses with respect to the Flexibly
Managed, High Yield Bond, and Emerging Growth Funds will be shared equally by
the sub-advisers and Penn Mutual. For the Money Market, Quality Bond, Growth
Equity, Large Cap Value and Small Cap Value Funds the Adviser, will waive fees
with regard to the entirety of the first 0.10% of excess above the expense
limitations; Penn Mutual will waive fees or reimburse expenses for the entirety
of any additional excess above the first 0.10%. For the International Equity
Fund, the sub-adviser will waive fees with regard to the entirety of the first
0.10% of excess above the expense limitations; Penn Mutual will waive fees or
reimburse expenses for the entirety of any additional excess above the first
0.10%. For the Limited Maturity Bond, Growth and Income, Index 500, Mid Cap
Growth, and Mid Cap Value Funds, Penn Mutual will waive fees or reimburse
expenses for the entirety of any excess above the expense limitation.

For the year ended December 31, 1999, the annualized ratios of operating
expenses (after waivers) to the average net assets for each of the Funds were:
Money Market Fund: ____%; Quality Bond Fund: ___%; High Yield Bond Fund: ____%;
Flexibly Managed Fund: ____%; Growth Equity Fund: ____%; Large Cap Value Fund:
___%; Emerging Growth Fund: ____%; Small Cap Value Fund: ____%; International
Equity Fund: ____%.

For providing investment management services to the Limited Maturity Bond,
Growth and Income, Index 500, Mid Cap Growth and Mid Cap Value Funds, the Funds
pay ICMI, on a monthly basis, a fee based on the average daily net assets of the
Fund, at the following annual rate: Limited Maturity Bond Fund, 0.30%; Growth
and Income Fund, 0.50%; Mid Cap Growth Fund, 0.70%; and Mid Cap Value Fund,
0.55%.

-37-

<PAGE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the New York Stock Exchange ("NYSE") is open
for business (a "Business Day").

The Funds offer their shares only to Penn Mutual and PIA for separate accounts
they establish to fund variable life insurance and variable annuity contracts.
Penn Mutual or PIA purchases or redeems shares of the Funds based on, among
other things, the amount of net contract premiums or purchase payments allocated
to a separate account investment division, transfers to or from a separate
account investment division, contract loans and repayments, contract withdrawals
and surrenders, and benefit payments. The contract prospectus describes how
contract owners may allocate, transfer and withdraw amounts to, and from,
separate accounts.

The price per share will be the net asset value per share ("NAV") next
determined after receipt of the purchase order. NAV for one share is the value
of that share's portion of all of the assets in the Portfolio. The Fund
determines the net asset value for the Funds (except for the Money Market Fund)
as of the close of business of the NYSE (normally 4:00 p.m. Eastern Time) on
each day that the NYSE is open for business. The NAV of the Money Market Fund is
calculated at Noon (Eastern Time) on each day that the NYSE is open.

How the Funds Calculate NAV

In calculating NAV, the Funds (except for the Money Market Portfolio) generally
value their portfolio securities at their market price. If market prices are
unavailable or the Funds think that they are unreliable, the Funds may determine
fair value prices using methods approved by the Board of Directors. Some Funds
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Funds do not calculate NAV. As a
result, the value of these Funds' investments may change on days when you cannot
purchase or sell Fund shares. The Money Market Portfolio values its assets by
the amortized cost method, which approximates market value.

Dividends, Distributions and Taxes

Dividends and Distributions

The Funds distribute their investment income annually as dividends and make
distributions of capital gains, if any, at least annually except for
distributions from the Money Market Portfolio which will be made monthly.

-38-

<PAGE>

Taxes

Please consult your tax adviser regarding your specific questions about federal,
state and local income taxes. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.

The Funds expect that they will not have to pay income taxes if they distribute
all of their income and gains. Net income and realized capital gains that the
Funds distribute are not currently taxable to owners of variable annuity or
variable life insurance contracts when left to accumulate in the contracts.

For information on federal income taxation of a life insurance company with
respect to its receipt of distributions from the Funds and federal income
taxation of owners of variable annuity or variable life insurance contracts,
refer to the contract prospectus.

-39-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE MONEY MARKET FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year ......... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ------------
Income from investment operations:
Net investment income ...................... 0.0489 0.0503 0.0489 0.0538
---------- ---------- ----------- ---------- ------------
Total from investment operations ........ 0.0489 0.0503 0.0489 0.0538
---------- ---------- ----------- ---------- ------------
Less dividends:
Dividends from net investment income ....... (0.0489) (0.0503) (0.0489) (0.0538)
---------- ---------- ----------- ---------- ------------
Total dividends ............................ (0.0489) (0.0503) (0.0489) (0.0538)
---------- ---------- ----------- ---------- ------------
Net asset value, end of year ............... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== =========== ========== ============
Total return ........................... 5.00% 5.15% 5.00% 5.51%
Ratios/Supplemental data:
Net assets, end of year (in thousands) ..... $ $ 53,626 $ 37,476 $ 34,501 $ 24,726
========== ========== =========== ========== ============
Ratio of expenses to average net
assets .................................... 0.72% 0.70% 0.73%(a) 0.69%(a)
========== ========== =========== ========== ============
Ratio of net investment income to
average net assets ........................ 4.88% 5.04% 4.88%(a) 5.37%(a)
========== ========== =========== ========== ============
</TABLE>

(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been .74% and
.74%, and the ratios of net investment income to average net assets would
have been 4.87%and 5.32% for the years ended December 31, 1996 and 1995,
respectively.

-40-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE QUALITY BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ $ 10.20 $ 10.00 $ 10.24 $ 9.04
---------- --------- ------------ ------------- -------------
Income from investment operations:
Net investment income .................. 0.51 0.60 0.66 0.61
Net realized and unrealized gain on
investment transactions ............... 0.53 0.20 (0.24) 1.21
---------- --------- ------------ ------------- -------------
Total from investment operations .... 1.04 0.80 0.42 1.82
---------- ----------- ------------- ------------- -------------
Less distributions:
Dividend from net investment income .... (0.51) (0.60) (0.66) (0.61)
Distribution from net realized gain .... (0.33) 0.00 0.00 0.00
Distribution in excess of net
investment income ..................... 0.00 0.00 0.00 (0.01)
--------- ---------- ------------- ------------- -------------
Total distributions ................. (0.84) (0.60) (0.66) (0.62)
--------- ---------- ------------- ------------- -------------
Net asset value, end of year ........... $ $ 10.40 $ 10.20 $ 10.00 $ 10.24
========= =========== ============= ============= =============
Total return 10.17% 8.03% 4.14% 20.14%
Ratios/Supplemental data:
Net assets, end of year (in thousands) . $ $ 53,505 $ 40,077 $ 37,611 $ 38,048
========= =========== ============= ============= =============
Ratio of expenses to average net assets 0.77% 0.75% 0.77%(a) 0.73%
========= =========== ============= ============= =============
Ratio of net investment income to
average net assets .................... 5.26% 5.87% 6.03%(a) 6.20%
========= =========== ============= ============= =============
Portfolio turnover rate ................ 477.2% 317.3% 107.6% 449.2%
========= =========== ============= ============= =============
</TABLE>

(a) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratio of expenses to average net assets would have been .78%
and .78%, and the ratio of net investment income to average net assets
would have been 6.02% and 6.15%, for the years ended December 31, 1996 and
1995, respectively.

-41-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE LARGE CAP VALUE PORTFOLIO
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ $ 22.55 $ 19.32 $ 16.28 $ 12.67
---------- ------------- ------------ -------------- ------------
Income from investment operations:
Net investment income .................. 0.31 0.29 0.22 0.25
Net realized and unrealized gain on
investment transactions ............... 1.85 4.53 3.88 4.50
---------- -------------- ------------ -------------- ------------
Total from investment operations .... 2.16 4.82 4.10 4.75
---------- -------------- ------------ -------------- ------------
Less distributions:
Dividend from net investment income .... (0.31) (0.29) (0.22) (0.25)
Distribution from net realized gains (2.01) (1.30) (0.84) (0.89)
....................................... ---------- -------------- ------------ -------------- ------------
Total distributions (2.32) (1.59) (1.06) (1.14)
....................................... ---------- -------------- ------------ -------------- ------------
Net asset value, end of year ........... $ $ 22.39 $ 22.55 $ 19.32 $ 16.28
========== ============= ============ ============== ============
Total return 9.59% 24.98% 25.19% 37.48%
Ratios/Supplemental data:
Net assets, end of year (in thousands) .. $ $ 335,479 $ 302,960 $ 200,674 $ 127,260
========== ============= =========== ============== ============
Ratio of expenses to average net assets . 0.76% 0.76% 0.78% 0.80%
========== ============= =========== ============== ============
Ratio of net investment income to
average net assets .................... 1.27% 1.43% 1.38% 1.71%
========== ============= =========== ============== ============
Portfolio turnover rate ................. 24.0% 18.7% 25.0% 34.3%
========== ============= =========== ============== ============
</TABLE>

-42-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE GROWTH EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year ... $ $ 24.37 $ 21.46 $ 20.00 $ 18.30
---------- ------------ ------------ ------------ ---------------
Income from investment operations:
Net investment income ................ ---------- 0.02 0.10 0.11 0.09
Net realized and unrealized gain (loss)
on investment transactions
..................................... 10.12 5.64 3.85 4.75
---------- ------------ ----------- ------------- ---------------
Total from investment operations .. 10.14 5.74 3.96 4.84
---------- ------------ ----------- ------------- ---------------
Less distributions:
Dividend from net investment income .. (0.02) (0.10) (0.11) (0.09)
Distribution from net realized gains . (3.61) (2.73) (2.39) (3.05)
---------- ------------ ----------- ------------- ---------------
Total distributions ............... (3.63) (2.83) (2.50) (3.14)
---------- ------------ ----------- ------------- ---------------
Net asset value, end of year ......... $ $ 30.88 $ 24.37 $ 21.46 $ 20.00
========== =========== =========== ============= ===============
Total return ...................... 41.67% 26.74% 19.76% 26.45%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $ $ 195,692 $ 136,058 $ 106,039 $ 95,593
========== ============ =========== ============= ===============
Ratio of expenses to average net assets 0.76% 0.77% 0.80%(a) 0.77%
========== ============ =========== ============= ===============
Ratio of net investment income to
average net assets ................... 0.08% 0.39% 0.48%(a) 0.43%
========== ============ =========== ============= ===============
Portfolio turnover rate ............... 161.3% 169.1% 177.1% 169.8%
========== ============ =========== ============= ===============
</TABLE>

(a) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratio of expenses to average net assets would have been
.81% and .82%, and the ratio of net investment income to average net
assets would have been .47% and .38%, for the years ended December 31,
1996 and 1995, respectively.

-43-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE HIGH YIELD BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ $ 9.52 $ 8.91 $ 8.44 $ 7.94
---------- ---------- --------- ----------- -------------
Income from investment operations:
Net investment income .................. 0.79 0.80 0.70 0.80
Net realized and unrealized gain (loss)
on investment transactions ........... (0.33) 0.61 0.47 0.50
---------- ---------- --------- ----------- -------------
Total from investment operations .... 0.46 1.41 1.17 1.30
---------- ---------- --------- ----------- -------------
Less distributions:
Dividend from net investment income .... (0.79) (0.80) (0.70) (0.80)
Distribution in excess of net
investment income ..................... 0.00 0.00 0.00 0.00
---------- ---------- --------- ----------- -------------
Total distributions ................. (0.79) (0.80) (0.70) (0.80)
---------- ---------- --------- ----------- --------------
Net asset value, end of year ........... $ $ 9.19 $ 9.52 $ 8.91 $ 8.44
========== ========== ========= =========== =============
Total return 4.79% 15.78% 13.87% 16.41%
Ratios/Supplemental data:
Net assets, end of year (in thousands) .. $ $ 69,003 $ 59,138 $ 44,042 $ 36,442
========== ========== ========= =========== =============
Ratio of expenses to average net assets . 0.82% 0.81% 0.84% 0.87%
========== ========== ========= =========== =============
Ratio of net investment income to
average net assets . ................... 8.30% 8.96% 8.14% 9.20%
========== ========== ========= =========== =============
Portfolio turnover rate 82.7% 111.3% 118.5% 84.3%
........................................ ========== ========== ========= =========== =============
</TABLE>

-44-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE FLEXIBLY MANAGED FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year .... $ $ 19.83 $ 18.74 $ 17.40 $ 15.19
------------- ------------ ----------- ------------ ------------
Income from investment operations:
Net investment income ................. 0.60 0.61 0.65 0.53
Net realized and unrealized gain on
investment transactions ............. 0.61 2.33 2.19 2.86
------------- ------------ ----------- ------------ ------------
Total from investment operations ... 1.21 2.94 2.84 3.39
------------- ------------ ----------- ------------ ------------
Less distributions:
Dividend from net investment income ... (0.60) (0.61) (0.65) (0.53)
Distribution in excess of net
investment income ................... (0.00) 0.00 0.00 (0.01)
Distribution from net realized gains .. (2.13) (1.24) (0.85) (0.64)
------------- ------------ ----------- ------------ ------------
Total distributions ................ (2.73) (1.85) (1.50) (1.18)
------------- ------------ ----------- ------------ ------------
Net asset value, end of year .......... $ $ 18.31 $ 19.83 $ 18.74 $ 17.40
============= ============ =========== ============ ============
Total return ....................... 6.09% 15.65% 16.37% 22.28%
Ratios/Supplemental data:
Net assets, end of year (in thousands) $ $ 545,486 $ 516,139 $ 398,544 $ 266,556
============= ============= =========== ============ ============
Ratio of expenses to average net assets 0.76% 0.76% 0.77% 0.79%
============= ============= =========== ============ ============
Ratio of net investment income to
average net assets .................. 2.78% 3.10% 3.90% 3.45%
============= ============= =========== ============ ============
Portfolio turnover rate ............... 48.0% 37.1% 32.9% 37.2%
============= ============= =========== ============ ============
</TABLE>

-45-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE INTERNATIONAL EQUITY PORTFOLIO
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of year ... $ $ 16.13 $ 15.61 $ 14.47 $ 13.01
------------- ------------ -------------- ------------ ------------

Income (loss) from investment
operations:
Net investment income ................. 0.10 0.58 0.63 0.13
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions ......... 2.93 1.04 1.81 1.67
....................................... ------------- ------------ -------------- ------------ ------------
Total from investment operations 3.03 1.62 2.44 1.80
....................................... ------------- ------------ -------------- ------------ ------------
Less distributions:
Dividend from net investment income .... (0.10) (0.53) (0.56) (0.12)
Distribution in excess of net
investment income .................... (0.08) 0.00 (0.74) (0.22)
Distribution from net realized gains .. (0.61) (0.57) 0.00 0.00
Distribution from capital .............. 0.00 0.00 0.00 0.00
------------- ------------ -------------- ------------ ------------
Total distributions ................ (0.79) (1.10) (1.30) (0.34)
------------- ------------ -------------- ------------ ------------
Net asset value, end of year ........... $ $ 18.37 $ 16.13 $ 15.61 $ 14.47
============ ============ ============== ============ ============
Total return ........................ 18.85% 10.41% 16.87% 13.80%
Ratios/Supplemental data:
Net assets, end of year (in thousands) . $ $ $153,822 $ 129,638 $ 104,418 $ 69,531
============ =========== ============== ============ ============
Ratio of expenses to average net assets 1.08% 1.13% 1.17% 1.23%
============ ============ ============== ============ ============
Ratio of net investment income to
average net assets ................... ============ 0.45% 0.62% 0.66% 0.91%
============ ============== ============ ============
Portfolio turnover rate ................ ============ 43.5% 35.7% 54.8% 62.5%
============ ============== ============ ============
</TABLE>

-46-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE SMALL CAP VALUE FUND
The following table includes selected data for a share outstanding throughout
each period or year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
or year ............................ $ $ 14.43 $ 12.53 $ 10.96 $ 10.00
----------- ----------- ------------ -------------- -------------
Income from investment operations:
Net investment income ................ 0.08 0.07 0.07 0.09
Net realized and unrealized gain
(loss) on investment transactions .. (1.41) 2.81 2.09 1.19
----------- ----------- ----------- ------------- -------------
Total from investment operations .. (1.33) 2.88 2.16 1.28
----------- ----------- ----------- ------------- -------------
Less distributions:
Dividend from net investment income .. (0.08) (0.07) (0.07) (0.09)
Distribution from net realized gains . (0.21) (0.91) (0.52) (0.23)
----------- ----------- ----------- ------------- ------------
Total distributions ............... (0.29) (0.98) (0.59) (0.32)
----------- ----------- ----------- ------------- ------------
Net asset value, end of period or year $ $ 12.81 $ 14.43 $ 12.53 $ 10.96
========== =========== ============ ============== ============
Total return ...................... (9.16)% 23.02% 19.76% 12.76%
Ratios/Supplemental data:
Net assets, end of period or year
(in thousands) ..................... $ $ 43,635 38,726 16,134 $ 4,828
=========== =========== ============ ============== ============
Ratio of expenses to average net assets 0.82% 0.85% 0.99%(a) 1.00%
=========== =========== ============ ============== ============
Ratio of net investment income to
average net assets .................. 0.65% 0.66% 0.85%(a) 1.53%
=========== ============ ============ ============== ============
Portfolio turnover rate 61.9% 71.1% 39.2% 64.3%
...................................... =========== ============ ============ ============== ============
</TABLE>

(a) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratios of expenses to average net assets would have been
1.06% and 1.29%, and the ratios of net investment loss to average net
assets would have been 0.78% and 1.24%, respectively, for the year ended
December 31, 1996 and the period ended December 31, 1995.
(b) Not annualized.
* For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.

-47-

<PAGE>

PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

THE EMERGING GROWTH FUND
The following table includes selected data for a share outstanding throughout
each period or year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.

<TABLE>
<CAPTION>
Period ended
Year ended December 31, December 31,
1999 1998 1997*
---- -----
<S> <C> <C> <C>
Net asset value, beginning of period
or year ....................................... $ $ 12.85 $ 10.00
--------- --------------- -----------------
Income from investment operations:
Net investment loss ............................. (0.06) 0.00
Net realized and unrealized gain
(loss) on investment transactions ............ (4.65) 3.92
--------- --------------- -----------------
Total from investment operations ............. 4.59 3.92
--------- --------------- -----------------
Less distributions:
Distribution from net realized gains ............ (0.01) (1.07)
--------- --------------- -----------------
Total distributions .......................... 0.00 (1.07)
--------- --------------- -----------------
Net asset value, end of period or year .......... $ $ 17.43 $ 12.85
========= =============== =================
Total return 35.70% 39.22%(c)
Ratios/Supplemental data:
Net assets, end of period or year
(in thousands) ................................ $ $ 38,664 $ 17,942
========= =============== =================
Ratio of expenses to average net assets ......... 1.15%(b) 1.15%(a)(b)
========= =============== =================
Ratio of net investment income to
average net assets ............................ (0.66)%(b) (0.73)%(a)(b)
========= =============== =================
Portfolio turnover rate ......................... 240.9% 392.3%
========= =============== =================
</TABLE>

(a) Annualized.
(b) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratios of expenses to average net assets would have been
1.21% and 1.41%, and the ratios of net investment loss to average net
assets would have been (0.73)% and (0.99)%, respectively, for the
periods ended December 31, 1998 and December 31, 1997.
(c) Not annualized.
* For the period from May 1, 1997 (commencement of operations) through December
31, 1997.

-48-

<PAGE>

Statement of Additional Information

In addition to this Prospectus, Penn Series has a Statement of Additional
Information ("SAI"), dated May 1, 2000, which contains additional, more detailed
information about the Funds. The SAI is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus.

Shareholder Reports

Penn Series publishes annual and semi-annual reports containing additional
information about each Fund's investments. In Penn Series' shareholder reports,
you will find a discussion of the market conditions and the investment
strategies that significantly affected each Fund's performance during that
period.

You may obtain the SAI and shareholder reports without charge by contacting the
Fund at 1-800-523-0650.

Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington, D.C. (for information call
1-202-942-8090); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail; you may request documents,
upon payment of a duplicating fee, by electronic request at [email protected]
or by writing to Securities Exchange Commission, Public Reference Section,
Washington, D.C. 20549-0102. To aid you in obtaining this information, Penn
Series' Investment Company Act registration number is 811-03459.

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STATEMENT OF ADDITIONAL INFORMATION

PENN SERIES FUNDS, INC.

600 Dresher Road
Horsham, Pennsylvania 19044

Penn Series Funds, Inc. ("Penn Series") is a no-load mutual fund with fourteen
separate investment portfolios (the "Funds").

MONEY MARKET FUND
LIMITED MATURITY BOND FUND
QUALITY BOND FUND
HIGH YIELD BOND FUND
FLEXIBLY MANAGED FUND
GROWTH AND INCOME FUND
GROWTH EQUITY FUND
LARGE CAP VALUE FUND
INDEX 500 FUND
MID CAP GROWTH FUND
MID CAP VALUE FUND
EMERGING GROWTH FUND
SMALL CAP VALUE FUND
INTERNATIONAL EQUITY FUND

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Penn Series prospectus dated May 1, 2000. A copy of the
prospectus is available, without charge, by writing to The Penn Mutual Life
Insurance Company, Customer Service Group - H3F, Philadelphia, PA, 19172. Or,
you may call, toll free, 1-800-548-1119.

The date of this Statement of Additional Information is May 1, 2000.

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TABLE OF CONTENTS

Investment Objectives ..................................................... 3

Investment Policies ....................................................... 4

Securities and Investment Techniques ...................................... 11
Investments in Debt Securities ................................... 11
Investments in Foreign Equity Securities ......................... 14
Investments in Smaller Companies ................................. 14
Foreign Currency Transactions .................................... 15
Repurchase Agreements ............................................ 16
Lending of Portfolio Securities .................................. 17
Illiquid Securities .............................................. 17
Warrants ......................................................... 17
When-Issued Securities ........................................... 18
The Quality Bond Fund's Policy
Regarding Industry Concentration ................................. 18
Options .......................................................... 18
Futures Contracts ................................................ 19
Investment Companies ............................................. 20
Loan Participations and Assignments .............................. 20
Trade Claims ..................................................... 21

Investment Restrictions ................................................... 22
Money Market Fund ................................................ 22
Limited Maturity Bond Fund ....................................... 23
Quality Bond Fund ................................................ 23
High Yield Bond Fund ............................................. 24
Flexibly Managed Fund ............................................ 26
Growth and Income Fund ........................................... 27
Growth Equity Fund ............................................... 27
Large Cap Value Fund ............................................. 28
Index 500 Fund ................................................... 29
Mid Cap Growth Fund .............................................. 30

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Mid Cap Value Fund ............................................... 30
Emerging Growth Fund ............................................. 31
Small Cap Value Fund ............................................. 32
International Equity Fund ........................................ 33

General Information ....................................................... 34
Investment Advisory Services ..................................... 34
Administrative and Corporate Services ............................ 36
Accounting Services .............................................. 37
Limitation on Fund Expenses ...................................... 38
Portfolio Transactions ........................................... 38
Directors and Officers ........................................... 40
Custodial Services ............................................... 41
Independent Auditors ............................................. 41

Legal Matters .................................................... 41
Net Asset Value of Shares ........................................ 41
Ownership of Shares .............................................. 42
Tax Status ....................................................... 43
Voting Rights .................................................... 44

Performance Information ................................................... 44
Total Return ..................................................... 44

Ratings of Commercial Paper ............................................... 45

Ratings of Corporate Debt Securities ...................................... 46

Financial Statements of Penn Series ....................................... 48

Report of Independent Auditors ............................................ 48

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INVESTMENT OBJECTIVES

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The investment objectives of the Funds are as follows. There can be no
assurance that these objectives will be achieved.

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Money Market Fund preserve shareholder capital, maintain
liquidity and achieve the highest possible
level of current income consistent
therewith;

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Limited Maturity Bond Fund highest available current income consistent
with liquidity and low risk to principal;
total return is secondary;

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Quality Bond Fund the highest income over the long term
consistent with the preservation of
principal;

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High Yield Bond Fund high current income;

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Flexibly Managed Fund maximize total return (capital appreciation
and income);

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Growth and Income Fund provide total return through a combination
of current income and capital appreciation;

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Growth Equity Fund long-term growth of capital and increase of
future income;

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Large Cap Value Fund maximize total return (capital appreciation
and income);

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Index 500 Fund total return (capital appreciation and
income) which corresponds to that of the
Standard & Poor's Composite Index of 500
stocks;

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Mid Cap Growth Fund maximize capital appreciation;

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Mid Cap Value Fund achieve growth of capital;

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Emerging Growth Fund capital appreciation;

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Small Cap Value Fund capital appreciation;

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International Equity Fund capital appreciation.

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INVESTMENT POLICIES

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Information in this Statement of Additional Information supplements the
discussion in the Penn Series Prospectus regarding investment policies and
restrictions of the Funds. Unless otherwise specified, the investment policies
and restrictions are not fundamental policies and may be changed by the Board of
Directors without shareholder approval. Fundamental policies and restrictions of
each Fund may not be changed without the approval of at least a majority of the
outstanding shares of that Fund or, if it is less, 67% of the shares represented
at a meeting of shareholders at which the holders of 50% or more of the shares
are represented.

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Money Market Fund

Investment Program. The Fund invests in a diversified portfolio of money
market securities, limited to those described below, which are rated within the
two highest credit categories assigned by nationally recognized statistical
rating organizations, or, if not rated, are of comparable investment quality as
determined by Independence Capital Management and approved by the Penn Series
Board of Directors. Such securities include: (i) U.S. Government Obligations;
(ii) U.S. Government Agency Securities; (iii) Bank Obligations; (iv) Commercial
Paper; (v) Short-Term Corporate Debt Securities; (vi) Canadian Government
Securities, limited to 10% of the Fund's assets; (vii) Savings and Loan
Obligations; (viii) Securities of Certain Supranational Organizations; (ix)
Repurchase Agreements involving these securities other than Foreign Securities;
(x) Foreign Securities--U.S. dollar-denominated money market securities issued
by foreign issuers, foreign branches of U.S. banks and U.S. branches of foreign
banks; and (xi) Asset Backed Securities. Certain of the securities may have
adjustable rates of interest with periodic demand features. The Fund may also
invest in securities of investment companies that invest in money market
securities meeting the foregoing criteria.

Portfolio Quality. The Fund will invest in U.S. dollar-denominated money
market instruments determined by Independence Capital Management, under
guidelines adopted by the Penn Series Board of Directors, to present minimum
credit risk. This determination will take into consideration such factors as
liquidity, profitability, ability to generate funds and capital adequacy. In
addition, the Fund will observe investment restrictions contained in Rule 2a-7
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940, including the following: (a) the Fund will not invest in a
money market instrument if, as a result, more than the greater of 1% of the
Fund's total assets or $1,000,000 would be invested in securities of that issuer
which are not rated in the highest rating category of nationally recognized
statistical rating organizations (or, if not rated, are not of comparable
quality); and (b) the Fund will not invest in a money market instrument if, as a
result, more than 5% of the Fund's total assets would be invested in securities
which are not rated in the highest rating category of nationally recognized
statistical rating organizations (or, if not rated, are not of comparable
quality).

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Limited Maturity Bond Fund

The Fund invests in a diversified portfolio of short to intermediate
term debt securities. The Fund will invest primarily in investment grade
securities (e.g., AAA, AA, A or BBB by S&P) by at least one of the established
rating agencies (S&P, Moody's, Duff & Phelps, Inc., Fitch Investors Service,
Inc., or McCarthy, Crisanti & Maffei, Inc.) or, if not rated, are of equivalent
investment quality as determined by the investment adviser. The Fund may also
invest up to 10% of its net assets in "high yield" securities which are rated BB
or B by S&P (or securities with a comparable rating by another established
rating agency), and are sometimes referred to as "junk bonds." In normal times,
at least 80% of the Fund's total assets will be invested in income producing
securities. At least 75% of the value of the Fund's total assets (not including
cash) will be invested in one or more of the following categories of
investments: (i) Marketable Corporate Debt Securities; (ii) U.S. Government
Obligations; (iii) U.S. Government Agency Securities; (iv) Bank Obligations; (v)
Savings and Loan Obligations; (vi) Commercial Paper; (vii) Collateralized
Mortgage Obligations; (viii) Securities of Certain Supranational Organizations;
(ix) Repurchase Agreements involving these securities; (x) Private Placements
(restricted securities); (xi) Asset Backed Securities; and (xii) Municipal
Obligations. In addition, the Fund may, as part of this minimum 75% of its
assets, write covered call options and purchase put options on its portfolio
securities, purchase call or put options on securities indices and invest in
interest rate futures contracts (and options thereon) for hedging purposes.

Without regard to the above described quality of investments, the Fund may
invest up to 25% of the value of its total assets (not including cash) in
convertible securities, which can be converted into or which carry warrants to
purchase common stock or other equity interests, and Preferred and common
stocks. The Fund may from time to time purchase these securities on a

3
<PAGE>

when-issued basis; the value of such income-producing securities may decline or
increase prior to settlement date.

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Quality Bond Fund

The Fund invests in a diversified portfolio primarily consisting of long,
intermediate, and short-term marketable (i.e., securities for which market
quotations are readily available) debt securities. Except as provided below, the
Fund will only purchase debt securities that are considered investment grade
securities (e.g., AAA, AA, A, or BBB by S&P) by at least one of the established
rating agencies (S&P, Moody's, Duff & Phelps, Inc., Fitch Investors Service,
Inc., or McCarthy, Crisanti & Maffei, Inc.) or, if not rated, are of equivalent
investment quality as determined by the investment adviser. The Fund may also
invest up to 10% of its net assets in securities rated BB or B by S&P (or
securities with a comparable rating by another established rating agency), which
are sometimes referred to as "junk bonds." In normal times, at least 80% of the
Fund's total assets will be invested in income producing securities. At least
75% of the value of the Fund's total assets (not including cash) will be
invested in one or more of the following categories of investments: (i)
Marketable Corporate Debt Securities; (ii) U.S. Government Obligations; (iii)
U.S. Government Agency Securities; (iv) Bank Obligations; (v) Savings and Loan
Obligations; (vi) Commercial Paper; (vii) Collateralized Mortgage Obligations;
(viii) Securities of Certain Supranational Organizations; (ix) Repurchase
Agreements involving these securities; (x) Private Placements (restricted
securities); (xi) Asset Backed Securities; and (xii) Municipal Obligations. In
addition, the Fund may, as part of this minimum 75% of its assets, write covered
call options and purchase put options on its portfolio securities, purchase call
or put options on securities indices and invest in interest rate futures
contracts (and options thereon) for hedging purposes. Without regard to the
above described quality of investments, the Fund may invest up to 25% of the
value of its total assets (not including cash) in Convertible Securities, which
can be converted into or which carry warrants to purchase common stock or other
equity interests, and Preferred and Common Stocks. The Fund may from time to
time purchase these securities on a when-issued basis; the value of such
income-producing securities may decline or increase prior to settlement date.

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High Yield Bond Fund

The Fund will invest at least 80% of the value of its total assets in a
widely diversified portfolio of high-yield corporate bonds, often called "junk"
bonds, income-producing convertible securities and preferred stocks. The Fund
seeks to invest its assets in securities rated Ba or lower by Moody's, or BB or
lower by S&P, or, if not rated, of comparable investment quality as determined
by Price Associates.

Because high yield bonds involve greater risks than higher quality bonds,
they are referred to as "junk bonds." The Fund may, from time to time, purchase
bonds that are in default, rated Ca by Moody's or CC by S&P, if, in the opinion
of Price Associates, there is potential for capital appreciation. Such bonds are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation (see "Ratings of Corporate Debt Securities"). In addition, the Fund
may invest its portfolio in medium quality investment grade securities (rated
Baa by Moody's or BBB by S&P) which provide greater liquidity than lower quality
securities. Moreover, the Fund may, for temporary defensive purposes under
extraordinary economic or financial market conditions, invest in higher quality
securities.

Investments in the Fund's portfolio may include: (i) Corporate Debt
Securities; (ii) U.S. Government Obligations; (iii) U.S. Government Agency
Securities; (iv) Bank Obligations; (v) Savings and Loan Obligations; (vi)
Commercial Paper; (vii) Securities of Certain Supranational Organizations;
(viii) Repurchase Agreements involving these securities; (ix) Private Placements
(restricted securities); (x) Foreign Securities; (xi) Convertible
Securities--debt securities convertible into or exchangeable for equity
securities or debt securities that carry with them the right to acquire equity
securities, as evidenced by warrants attached to such securities or acquired as
part of units of the securities; (xii) Preferred Stocks--securities that
represent an ownership interest in a corporation and that give the owner a prior
claim over common stock on the company's earnings and assets; (xiii) Loan
Participation and Assignments; (xiv) Trade Claims; and (xv) Zero Coupon and
Pay-in-Kind Bonds. Zero Coupon and Pay-in-Kind Bonds can be more volatile than
coupon bonds. There is no limit on the Fund's investment in these securities.
The Fund may purchase securities, from time to time, on a when-issued basis; the
value of such securities may decline or increase prior to settlement date.

Credit Analysis. Because investment in lower and medium quality
fixed-income securities involves greater investment risk, including the
possibility of default or bankruptcy, achievement of the Fund's investment
objectives will be more dependent on Price Associates' credit analysis than
would be the case if the Fund were investing in higher quality fixed-income

4
<PAGE>

securities. Although the ratings of Moody's or S&P are used as preliminary
indicators of investment quality, a credit rating assigned by such a commercial
rating service will not measure the market risk of lower quality bonds and may
not be a timely reflection of the condition and economic viability of an
individual issuer.

Price Associates therefore places primary significance on its own in-depth
credit analysis and security research. All of the Fund's investments will be
selected from an approved list of securities deemed appropriate for the Fund by
Price Associates, which maintains a credit rating system based upon comparative
credit analyses of issuers within the same industry and individual credit
analysis of each company. These analyses take into consideration such factors as
a corporation's present and potential liquidity, profitability, internal
capability to generate funds, and adequacy of capital. Although some issuers do
not seek to have their securities rated by Moody's or S&P, such unrated
securities will also be purchased by the Fund only after being subjected to
analysis by Price Associates. Unrated securities are not necessarily of lower
quality than rated securities, but the market for rated securities is usually
broader.

Maturity. The maturity of debt securities may be considered long (10 plus
years), intermediate (1 to 10 years), or short-term (12 months or less). The
proportion invested by the Fund in each category can be expected to vary
depending upon the evaluation of market patterns and trends by Price Associates.
The Fund's dollar weighted average maturity is expected to be in the 8 to 12
year range.

Yield and Price. Lower to medium quality, long-term fixed-income
securities typically yield more than higher quality, long-term fixed-income
securities. Thus, the Fund's yield normally can be expected to be higher than
that of a fund investing in higher quality debt securities. The yields and
prices of lower quality fixed income securities may tend to fluctuate more than
those for higher rated securities. In the lower quality segments of the fixed
income markets, changes in perception of issuers' creditworthiness tend to occur
more frequently and in a more pronounced manner than do changes in higher
quality securities, which may result in greater price and yield volatility. For
a given period of time, the Fund may have a high yield but a negative total
return.

Other Investments. The Fund may invest up to 20% of its total assets in
dividend-paying common stocks (including up to 10% in warrants to purchase
common stocks) that are considered by Price Associates to be consistent with the
Fund's current income and capital appreciation investment objectives. In seeking
higher income or a reduction in principal volatility, the Fund may write covered
call options and purchase covered put options and spreads and purchase uncovered
put options and uncovered call options; and the Fund may invest in interest rate
futures contracts (and options thereon) for hedging purposes. There are also
special risks associated with investments in foreign securities whether
denominated in U.S. dollars or foreign currencies. These risks include
potentially adverse political and economic developments overseas, greater
volatility, less liquidity and the possibility that foreign currencies will
decline against the dollar, lowering the value of securities denominated in
those currencies. Currency risk affects the Fund to the extent that it holds
nondollar foreign bonds.

Additional Risks of High Yield Investing. There can be no assurance that
the High Yield Bond Fund will achieve its investment objective. The high yield
securities in which the Fund may invest are predominantly speculative as regards
the issuer's continuing ability to meet principal and interest payments. The
value of the lower quality securities in which the Fund may invest will be
affected by the creditworthiness of individual issuers, general economic and
specific industry conditions, and will fluctuate inversely with changes in
interest rates. Furthermore, the share price and yield of the Fund are expected
to be more volatile than the share price and yield of a fund investing in higher
quality securities, which react primarily to movements in the general level of
interest rates. Price Associates carefully considers these factors and the Fund
attempts to reduce risk by diversifying its portfolio, by analyzing the
creditworthiness of individual issuers, and by monitoring trends in the economy,
financial markets, and specific industries. Such efforts, however, will not
eliminate risk. High yield bonds may be more susceptible than investment grade
bonds to real or perceived adverse economic and competitive industry conditions.
High yield bond prices may decrease in response to a projected economic downturn
because the advent of a recession could lessen the ability of highly leveraged
issuers to make principal and interest payments on their debt securities. Highly
leveraged issuers also may find it difficult to obtain additional financing
during a period of rising interest rates. In addition, the secondary trading
market for lower quality bonds may be less active and less liquid than the
trading market for higher quality bonds. As such, the prices at which lower
quality bonds can be sold may be adversely affected and valuing such lower
quality bonds can be a difficult task. If market quotations are not available,
these securities will be valued by a method that, in the good faith belief of
the Fund's Board of Directors, accurately reflects fair value. The judgment of
the Penn Series Board of Directors plays a greater role in valuing high yield
securities than is the case with respect to securities for which more objective
market data are available.

5
<PAGE>

During 1999 the dollar weighted average ratings (computed monthly) of the
debt obligations held by the Fund (excluding equities and reserves), expressed
as a percentage of the Fund's total net investments, were as follows:

Standard and Poor's Ratings Percentage of Total Net Investments**
AAA
AA
A
BBB
BB
B
CCC
CC
C
D
Unrated*

* Price Associates has advised that in its view the unrated debt obligations
were comparable in quality to debt obligations rated in the S&P categories
as follows: BBB: 0.0% ; BB: 0.7% ; B: 3% ; CCC: 0.3% ; CC: 0.0% ; C: 0.0% ;
D: 0.0% ; Unrated: 4.1%.
** Unaudited.

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Flexibly Managed Fund

In addition to investing in common stocks, the Fund may invest in the
following securities:

o Equity-related securities, such as convertible securities (i.e., bonds
or preferred stock convertible into or exchangeable for common stock),
preferred stock, warrants, futures, and options.

o Corporate debt securities within the four highest credit categories
assigned by established rating agencies, which include both high and
medium-quality investment grade bonds. The Fund may also invest in
non-investment grade corporate debt securities, which are sometimes
referred to as "junk bonds," if immediately after such investment the
Fund would not have more than 15% of its total assets invested in such
securities. The Fund's investment in all corporate debt securities will
be limited to 35% of net assets. The Fund's convertible bond holdings
will not be subject to these debt limits, but rather, will be treated as
equity-related securities. Medium-quality investment grade bonds are
regarded as having an adequate capacity to pay principal and interest
although adverse economic conditions or changing circumstances are more
likely to lead to a weakening of such capacity than that for higher
grade bonds.

o Short-term reserves (i.e., money market instruments), which may be used
to reduce downside volatility during uncertain or declining equity
market conditions. The Fund's reserves will be invested in the following
high-grade money market instruments: U.S. Government obligations,
certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate debt securities and repurchase agreements.

If the Fund's position in money market securities maturing in one year or
less equals 35% or more of the Fund's total assets, the Fund will normally have
25% or more of its assets concentrated in securities of the banking industry.
Investments in the banking industry may be affected by general economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. The adviser believes that any risk to the Fund which might result
from concentrating in the banking industry will be minimized by diversification
of the Fund's investments, the short maturity of money market instruments, and
the advisers' credit research.

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Growth and Income Fund

The Fund will invest at least 65% of its assets in equity securities of
U.S. issuers. The Fund will invest primarily in common stocks of issuers with
above-average growth potential. The Fund may also invest in convertible
securities, preferred stocks, foreign securities and ADRs. The Fund's holdings
are generally listed on a national securities exchange. While the Fund may

6
<PAGE>

invest in unlisted securities, such securities will usually have an established
over-the-counter market. In addition, the Fund may increase its reserves for
temporary defensive purposes or to enable it to take advantage of buying
opportunities. The Fund's reserves will be invested in money market instruments,
such as U.S. Government obligations, certificates of deposit, bankers'
acceptances, commercial paper, and short-term corporate debt securities or
shares of investment companies that invest in such instruments. The Fund may
write covered call options and purchase put options on its portfolio securities,
purchase call or put options on securities indices and invest in stock index
futures contracts (and options thereon) for hedging purposes. As a matter of
fundamental policy, the Fund will not purchase the securities of any company if,
as a result, more than 25% of its total assets would be concentrated in any one
industry.

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Growth Equity Fund

Ordinarily, the Fund's assets will be invested primarily in common stocks,
but the Fund may also invest in convertible securities, preferred stocks, and
securities of foreign issuers which hold the prospect of contributing to the
achievement of the Fund's objectives. The Fund's holdings are generally listed
on a national securities exchange. While the Fund may invest in unlisted
securities, such securities will usually have an established over-the-counter
market. In addition, the Fund may increase its reserves for temporary defensive
purposes or to enable it to take advantage of buying opportunities. The Fund's
reserves will be invested in money market instruments, such as U.S. Government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
and short-term corporate debt securities or shares of investment companies that
invest in such instruments. The Fund may write covered call options and purchase
put options on its portfolio securities, purchase call or put options on
securities indices and invest in stock index futures contracts (and options
thereon) for hedging purposes. As a matter of fundamental policy, the Fund will
not purchase the securities of any company if, as a result, more than 25% of its
total assets would be concentrated in any one industry.

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Large Cap Value Fund

Prior to May 1, 2000, the Large Cap Value Fund was named the Value Equity
Fund.

The Fund will invest at least 65% of its assets in equity securities of
U.S. issuers. The Fund's assets will be invested primarily in common stocks of
issuers that the Sub-Adviser believes are undervalued. The Fund may also invest
in convertible securities, preferred stocks, and securities of foreign issuers
which hold the prospect of contributing to the achievement of the Fund's
objectives. The Fund may invest an unlimited amount in foreign securities.
Generally, the Fund will not invest more than 20% of its assets in foreign
securities. The Fund's holdings are generally listed on a national securities
exchange. In addition, the Fund may increase its reserves for temporary
defensive purposes or to enable it to take advantage of buying opportunities.
The Fund's reserves will be invested in money market instruments, such as U.S.
Government obligations, certificates of deposit, bankers' acceptances,
commercial paper, and short-term corporate debt securities or shares of
investment companies that invest in such instruments. The Fund may invest in
derivatives including covered call options and purchase put options on its
portfolio securities, purchase call or put options on securities indices and
invest in stock index futures contracts (and options thereon) for hedging
purposes. As a matter of fundamental policy, the Fund will not purchase the
securities of any company if, as a result, more than 25% of its total assets
would be concentrated in any one industry.

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Index 500 Fund

The Fund seeks to replicate the return of the S&P 500 Index, which is
comprised of 500 approximated securities selected by Standard & Poor's (most of
which are common stocks listed on the New York Stock Exchange). The Fund will
normally invest in all of the stocks and other securities which comprise the S&P
500 Index. The Fund's policy is to be substantially invested in common stocks
included in the S&P 500 Index, and it is expected that cash reserves items held
to accomodate shareholder transactions would be hedged with S&P 500 Index
futures. Over time, the correlation between the performance of the Fund and the
S&P 500 Index is expected to be over 0.95. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when the net asset value of the

7
<PAGE>

Fund, including the value of its dividend and capital gains distributions,
increasing or decreasing in exact proportion to changes in the S&P 500 Index.

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Mid Cap Growth Fund

The Fund will invest at least 65% of the value of its total assets in a
diversified portfolio of equity securities of U.S. issuers. The Fund will
primarily invest in common stocks of issuers, that have market capitalizations
between $1 billion and $10 billion at the time of purchase that the Sub-Adviser
believes to have strong earnings growth potential. Any remaining assets may be
invested in securities issued by smaller capitalization companies and larger
capitalization companies, warrants and rights to purchase common stocks, ADRs
and foreign securities. The Fund seeks to purchase securities that are well
diversified across economic sectors and to maintain sector concentrations that
approximate the economic sector weightings comprising the Russell Midcap Growth
Index (or such other appropriate index selected by the Sub-Adviser). In
addition, the Fund may increase its reserves for temporary defensive purposes or
to enable it to take advantage of buying opportunities. The Fund's reserves will
be invested in money market instruments, such as U.S. Government obligations,
certificates of deposit, bankers' acceptances, commercial paper, and short-term
corporate debt securities or shares of investment companies that invest in such
instruments. The Fund may invest in derivatives including covered call options
and purchase put options on its portfolio securities, purchase call or put
options on securities indices and invest in stock index futures contracts (and
options thereon) for hedging purposes. As a matter of fundamental policy, the
Fund will not purchase the securities of any company if, as a result, more than
25% of its total assets would be concentrated in any one industry.
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Mid Cap Value Fund

The Fund will invest at least 65% of the value of its assets in equity
securities of U.S. issuers. The Fund will primarily invest in common stocks
issued by medium capitalization companies. Any remaining assets may be invested
in securities issued by smaller capitalization companies and larger
capitalization companies, warrants and rights to purchase common stocks, foreign
securities and ADRs. The Fund will invest primarily in a diversified portfolio
of common stocks of issuers that have market capitalizations between $1 billion
and $8 billion that the Sub-Adviser believes to be undervalued relative to the
stock market. The Adviser selects securities that are undervalued in the
marketplace either in relation to strong fundamentals, such as a low
price-to-earnings ratio, consistent with cash flow, and successful track records
through all parts of the market cycles. In addition, the Fund may increase its
reserves for temporary defensive purposes or to enable it to take advantage of
buying opportunities. The Fund's reserves will be invested in money market
instruments, such as U.S. Government obligations, certificates of deposit,
bankers' acceptances, commercial paper, and short-term corporate debt securities
or shares of investment companies that invest in such instruments. The Fund may
invest in derivatives including covered call options and purchase put options on
its portfolio securities, purchase call or put options on securities indices and
invest in stock index futures contracts (and options thereon) for hedging
purposes. As a matter of fundamental policy, the Fund will not purchase the
securities of any company if, as a result, more than 25% of its total assets
would be concentrated in any one industry.

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Emerging Growth Fund

The Fund will invest primarily in common stocks, and may also invest in
bonds, convertible securities, preferred stocks and securities of foreign
issuers which hold the prospect of contributing to the achievement of the Fund's
objective. The Fund may also invest in bonds rated below Baa by Moody's or BBB
by S&P (sometimes referred to as "junk bonds"), but presently does not expect
such investments in any such bonds to exceed 5% of the Fund's assets. The Fund
may write covered call options and purchase put options on its portfolio
securities, purchase put and call options on securities indices and invest in
stock index futures contracts (and options thereon) for hedging and other
non-speculative purposes.

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Small Cap Value Fund

Prior to May 1, 2000, the Small Cap Value Fund was named the Small
Capitalization Fund.

The Fund will invest at least 65% of its assets in common stocks and
convertible securities. The Fund will primarily invest of companies with less
than $1.5 billion in market capitalization. The Sub-Adviser may also invest in
companies with market capitalizations above $1.5 billion, non-convertible
preferred stocks and debt securities. The Fund uses "value" method in managing
the Fund's assets, by identifying and investing in securities of companies which

8
<PAGE>

the Fund believes are trading significantly below its estimate of the company's
current worth, with the expectation that the market price of its securities
should increase over a three- to five-year period. In addition, the Fund may
invest in short-term fixed income securities for temporary defensive purposes.
The Fund may invest up to 5% of its total assets in warrants, rights or options.
As a matter of fundamental policy, the Fund will not purchase the securities of
any company if, as a result, more than 25% of its total assets would be
concentrated in any one industry.

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International Equity Fund

Under normal circumstances the Fund will have at least 65% of its assets
invested in European and Pacific Basin equity securities. The Fund intends to
diversify investment broadly among countries and to invest in the securities of
companies in not less than three different countries, in addition to the United
States.

The Fund may not always purchase securities on the principal market. For
example, American Depository Receipts ("ADRs") may be purchased if trading
conditions make them more attractive than the underlying security. ADRs are
registered receipts typically issued in the U.S. by a bank or trust company
evidencing ownership of an underlying foreign security. The Fund may invest in
ADRs which are structured by a U.S. bank without the sponsorship of the
underlying foreign issuer. In addition to the risks of foreign investment
applicable to the underlying securities, such unsponsored ADRs may also be
subject to the risks that the foreign issuer may not be obligated to cooperate
with the U.S. bank, may not provide additional financial and other information
to the bank or the investor, or that such information in the U.S. market may not
be current. The Fund may likewise utilize European Depository Receipts ("EDRs"),
which are receipts typically issued in Europe by a bank or trust company
evidencing ownership of an underlying foreign security. Unlike ADRs, EDRs are
issued in bearer form. For purposes of determining the country of origin, ADRs
and EDRs will not be deemed to be domestic securities.

The Fund may also acquire fixed income investments where these fixed income
securities are convertible into equity securities (and which may therefore
reflect appreciation in the underlying equity security), and where anticipated
interest rate movements, or factors affecting the degree of risk inherent in a
fixed income security, are expected to change significantly so as to produce
appreciation in the security consistent with the objective of the Fund. Fixed
income securities in which the Fund may invest will be rated at the time of
purchase Baa or higher by Moody's Investor Service, Inc., or BBB or higher by
Standard and Poor's Ratings Group or, if they are foreign securities which are
not subject to standard credit ratings, the fixed income securities will be
"investment grade" issues (in the judgment of the adviser) based on available
information.

The Fund may invest in securities which may be considered to be
"thinly-traded" if they are deemed to offer the potential for appreciation, but
does not presently intend to invest more than 5% of its total assets in such
securities. The trading volume of such securities is generally lower and their
prices may be more volatile as a result, and such securities are less likely to
be exchange-listed securities. The Fund may also invest, subject to
restrictions, in options (puts and calls) and restricted securities.

Additional Risk Considerations. Investments in foreign securities involve
sovereign risk in addition to the credit and market risks normally associated
with domestic securities. Such foreign investments may also be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
the financial markets on which they are traded may be subject to less strict
governmental supervision, and foreign brokerage commissions and custodian fees
are generally higher than in the United States. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and currency blockage (which would prevent cash
from being brought back to the United States). A contract owner who selects this
Fund will incur the risks generally associated with investment in equity
securities and, in addition, the risk of losses attributable to changes in
currency exchange rates to the extent that those risks are not adequately hedged
by the investment adviser.
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9
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SECURITIES AND INVESTMENT TECHNIQUES

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Investments in Debt Securities

Debt securities in which one or more of the Funds may invest in include
those described below.

U.S. Government Obligations. The Funds may invest in bills, notes, bonds,
and other debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in the length of their
maturities.

U.S. Government Agency Securities. The Funds may invest in debt securities
issued or guaranteed by U.S. Government sponsored enterprises, federal agencies,
and international institutions. These include securities issued by the Federal
National Mortgage Association, Government National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm
Credit Banks, and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the U.S. Treasury, others are
supported by the right of the issuer to borrow from the Treasury, and the
remainder are supported only by the credit of the instrumentality.

Long-Term, Medium to Lower Quality Corporate Debt Securities. The High
Yield Bond Fund will invest in outstanding convertible and nonconvertible
corporate debt securities (e.g., bonds and debentures) that generally have
maturities between 8 and 12 years. This Fund will generally invest in long-term
corporate obligations which are rated BBB or lower by Standard & Poor's Ratings
Group ("Standard & Poor's") or Baa or lower by Moody's Investors Service, Inc.
("Moody's"), or, if not rated, are of equivalent quality as determined by the
Fund 's investment adviser. Other Funds may invest limited amounts in medium to
lower quality corporate debt securities in accordance with their stated
investment policies. The Flexibly Managed Fund may invest up to 15% of its
assets in medium to lower quality corporate debt.

Investment Grade Corporate Debt Securities. The Limited Maturity Bond and
Quality Bond Funds will invest principally in corporate debt securities of
various maturities that are considered investment grade securities by at least
one of the established rating services (e.g., AAA, AA, A, or BBB by Standard &
Poor's) or, if not rated, are of equivalent quality as determined by the Fund's
investment adviser, Independence Capital Management, Inc. ("ICMI").

Bank Obligations. The Funds may invest in certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Certificates of deposit are
short-term obligations of commercial banks. A bankers' acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with
international commercial transactions.

No Fund will invest in any security issued by a commercial bank unless: (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank by any
one Income Fund is limited to $100,000 and the principal amount of such
investment is insured in full by the Federal Deposit Insurance Corporation, (ii)
in the case of a U.S. Bank, it is a member of the Federal Deposit Insurance
Corporation, and (iii) in the case of foreign banks, the security is, in the
opinion of the Fund's investment adviser, of an investment quality comparable
with other debt securities which may be purchased by the Fund. These limitations
do not prohibit investments in securities issued by foreign branches of U.S.
banks, provided such U.S. banks meet the foregoing requirements.

Commercial Paper. The Funds may invest in short-term promissory notes
issued by corporations primarily to finance short-term credit needs. The Money
Market Fund will only invest in commercial paper which is rated A-2 or better by
Standard & Poor's, Prime-2 or better by Moody's or, if not rated, is of
equivalent quality as determined by the investment adviser, and further will
invest only in instruments permitted under the SEC Rule 2a-7 which governs money
market fund investing.

Canadian Government Securities. The Funds may invest in debt securities
issued or guaranteed by the Government of Canada, a Province of Canada, or an
instrumentality or political subdivision thereof. However, the Money Market Fund
will only purchase these securities if they are marketable and payable in U.S.
dollars. The Money Market Fund will not purchase any such security if, as a
result, more than 10% of the value of its total assets would be invested in such
securities.

Savings and Loan Obligations. The Limited Maturity Bond, Quality Bond, High
Yield Bond, and Money Market Funds may invest in negotiable certificates of
deposit and other debt obligations of savings and loan associations. They will
not invest in any security issued by a savings and loan association unless: (i)
the savings and loan association has total assets of at least $1 billion, or, in

10
<PAGE>

the case of savings and loan associations which do not have total assets of at
least $1 billion, the aggregate investment made in any one savings and loan
association is limited to $100,000 and the principal amount of such investment
is insured in full by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation; (ii) the savings and loan association issuing the
security is a member of the Federal Home Loan Bank System; and (iii) the
security is insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation.

No Fund will purchase any security of a small bank or savings and loan
association which is not readily marketable if, as a result, more than 10% of
the value of its total assets would be invested in such securities, other
illiquid securities, and securities without readily available market quotations,
such as restricted securities and repurchase agreements maturing in more than
seven days.

Municipal Obligations. The Limited Maturity Bond, Quality Bond and Large
Cap Value Funds may invest in Municipal Obligations that meet the Fund's quality
standards. The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.

Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.

Municipal Obligations may include variable and floating rate instruments.
If such instruments are unrated, they will be determined by the adviser to be of
comparable quality at the time of the purchase to rated instruments purchasable
by a Fund.

To the extent a Fund's assets are to a significant extent invested in
Municipal Obligations that are payable from the revenues of similar projects,
the Fund will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects to a greater extent than it would
be if its assets were not so invested.

Foreign Debt Securities. Subject to the particular Fund's quality and
maturity standards, the Limited Maturity Bond, Quality Bond, High Yield Bond and
Money Market Funds may invest without limitation in the debt securities (payable
in U.S. dollars) of foreign issuers in developed countries and in the securities
of foreign branches of U.S. banks such as negotiable certificates of deposit
(Eurodollars). The High Yield Bond Fund may also invest up to 20% of its assets
in non-U.S. dollar--denominated fixed-income securities principally traded in
financial markets outside the United States.

The International Equity Fund may invest in debt securities of foreign
issuers. The securities will be rated Baa or higher by Moody's Investor
Services, Inc. or BBB or higher by Standard and Poor's Ratings Group or, if they
have not been so rated, will be the equivalent of investment grade (Baa or BBB)
as determined by the adviser or sub-adviser. The Large Cap Value Fund may also
invest up to 15% of its assets in U.S.-traded dollar denominated debt securities
of foreign issuers, and up to 5% of its assets in non-dollar denominated fixed
income securities issued by foreign issuers.

The Emerging Growth Fund may also invest up to 15% of its assets in
U.S.-traded dollar denominated debt securities of foreign issuers, and up to 5%
of its assets in non-dollar denominated fixed income securities issued by
foreign issuers.

For information on risks involved in investing in foreign securities, see
information on "Investments in Foreign Equity Securities" below.

Prime Money Market Securities Defined. Prime money market securities
include: U.S. Government obligations; U.S. Government agency securities; bank or
savings and loan association obligations issued by banks or savings and loan
associations whose debt securities or parent holding companies' debt securities
or affiliates' debt securities guaranteed by the parent holding company are

11
<PAGE>

rated AAA or A-1 or better by Standard & Poor's, AAA or Prime-1 by Moody's, or
AAA by Fitch; commercial paper rated A-1 or better by Standard & Poor's, Prime-1
by Moody's, or, if not rated, issued by a corporation having an outstanding debt
issue rated AAA by Standard & Poor's, Moody's, or Fitch; short-term corporate
debt securities rated AAA by Standard & Poor's, Moody's, or Fitch; Canadian
Government securities issued by entities whose debt securities are rated AAA by
Standard & Poor's, Moody's, or Fitch; and repurchase agreements where the
underlying security qualifies as a prime money market security as defined above.

Collateralized Mortgage Obligations. The Limited Maturity Bond and Quality
Bond Funds may invest in collateralized mortgage obligations ("CMS"). CMS are
obligations fully collateralized by a portfolio of mortgages or mortgage-related
securities. Payments of principal and interest on the mortgages are passed
through to the holders of the CMS on the same schedule as they are received,
although certain classes of CMS have priority over others with respect to the
receipt of prepayments on the mortgages. Therefore, depending on the type of CMS
in which the Fund invests, the investment may be subject to a greater or lesser
risk of prepayment than other types of mortgage-related securities. CMS may also
be less marketable than other securities.

Asset-Backed Securities. The Limited Maturity Bond, Quality Bond and Money
Market Funds may invest a portion of their assets in debt obligations known as
"asset-backed securities." The credit quality of most asset-backed securities
depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit support provided to the securities. The rate of
principal payment on asset-backed securities generally depends on the rate of
principal payments received on the underlying assets which in turn may be
affected by a variety of economic and other factors. As a result, the yield on
any asset-backed security is difficult to predict with precision and actual
yield to maturity may be more or less than the anticipated yield to maturity.
Asset-backed securities may be classified as "pass through certificates" or
"collateralized obligations."

"Pass through certificates" are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets. Pass
through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because pass
through certificates represent an ownership interest in the underlying assets,
the holders thereof bear directly the risk of any defaults by the obligors on
the underlying assets not covered by any credit support.

Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or automobile
receivables. The assets collateralizing such asset-backed securities are pledged
to a trustee or custodian for the benefit of the holders thereof. Such issuers
generally hold no assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments on such
asset-backed securities are obligations of the issuers, in the event of defaults
on the underlying assets not covered by any credit support, the issuing entities
are unlikely to have sufficient assets to satisfy their obligations on the
related asset-backed securities.

Zero Coupon and Pay-in-Kind Bonds. The High Yield Bond and Flexibly Managed
Funds may invest in zero coupon and pay-in-kind bonds. A zero coupon security
has no cash coupon payments. Instead, the issuer sells the security at a
substantial discount from its maturity value. The interest received by the
investor from holding this security to maturity is the difference between the
maturity value and the purchase price. The advantage to the investor is that
reinvestment risk of the income received during the life of the bond is
eliminated. However, zero coupon bonds like other bonds retain interest rate and
credit risk and usually display more price volatility than those securities that
pay a cash coupon.

Pay-in-Kind (PIK) Instruments are securities that pay interest in either
cash or additional securities, at the issuer's option, for a specified period.
PIK's, like zero coupon bonds, are designed to give an issuer flexibility in
managing cash flow. PIK bonds can be either senior or subordinated debt and
trade flat (i.e., without accrued interest). The price of PIK bonds is expected
to reflect the market value of the underlying debt plus an amount representing
accrued interest since the last payment. PIK's are usually less volatile than
zero coupon bonds, but more volatile than cash pay securities.

Convertible Securities. The Funds may invest in debt securities or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than nonconvertible

12
<PAGE>

securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertible securities have developed which combine higher or
lower current income with options and other features.

For federal income tax purposes, these types of bonds will require the
recognition of gross income each year even though no cash may be paid to the
Fund until the maturity or call date of the bond. The Fund will nonetheless be
required to distribute substantially all of this gross income each year to
comply with the Internal Revenue Code, and such distributions could reduce the
amount of cash available for investment by the Fund.

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Investments in Foreign Equity Securities

The Growth and Income, Growth Equity, Large Cap Value, Mid Cap Growth, Mid
Cap Value, Small Cap Value, Emerging Growth and Flexibly Managed Funds may
invest in the equity securities of foreign issuers, subject to the following
limitations based upon the total assets of each Fund: Growth and Income - 30%,
Growth Equity - 30%; Large Cap Value - 25%; Small Cap Value Fund - 15%; Mid Cap
Growth Fund -25%; Mid Cap ValueFund -25%; Emerging Growth Fund - 10%; and
Flexibly Managed Fund - 25%. The International Equity Fund, under normal
circumstances, will have at least 65% of its assets in such investments. Because
these Funds may invest in foreign securities, selection of these Funds involves
risks that are different in some respects from an investment in a fund which
invests only in securities of U.S. domestic issuers. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing, and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Investments in foreign securities may also be
subject to other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets, imposition of withholding taxes on dividend or
interest payments, and currency blockage (which would prevent cash from being
brought back to the United States).

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Investments in Smaller Companies

The Small Cap Value and Emerging Growth Funds may invest a substantial
portion of their assets in securities issued by smaller companies. Such
companies may offer greater opportunities for capital appreciation than larger
companies, but investments in such companies may involve certain special risks.
Such companies may have limited product lines, markets, or financial resources
and may be dependent on a limited management group. While the markets in
securities of such companies have grown rapidly in recent years, such securities
may trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply than those
of other securities, and a Fund may experience some difficulty in establishing
or closing out positions in these securities at prevailing market prices. There
may be less publicly available information about the issuers of these securities
or less market interest in such securities than in the case of larger companies,
and it may take a longer period of time for the prices of such securities to
reflect the full value of their issuers' underlying earnings potential or
assets. Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of a Fund to dispose of such
securities may be greatly limited, and a Fund may have to continue to hold such
securities during periods when they would otherwise be sold.
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Foreign Currency Transactions

As a means of reducing the risks associated with investing in
securities denominated in foreign currencies, a Fund, other than the Money
Market Fund, may purchase or sell foreign currency on a forward basis ("forward
contracts"), enter into foreign currency futures and options on futures
contracts ("forex futures") and foreign currency options ("forex options").
These investment techniques are designed primarily to hedge against anticipated
future changes in currency prices that otherwise might adversely affect the
value of the Fund's investments.

<PAGE>

Forward contracts involve an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.

Forex futures are standardized contracts for the future delivery of a
specified amount of a foreign currency at a future date at a price set at the
time of the contract. Forex futures traded in the United States are traded on
regulated futures exchanges. A Fund will incur brokerage fees when it purchases
or sells forex futures and it will be required to maintain margin deposits.
Parties to a forex future must make initial margin deposits to secure
performance of the contract, which generally range from 2% to 5% of the contract
price. There also are requirements to make "variation" margin deposits as the
value of the futures contract fluctuates. Forex futures and forex options will
be used only to hedge against anticipated future changes in exchange rates that
might otherwise adversely affect the value of the Fund's securities or adversely
affect the prices of the securities the Fund intends to purchase at a later
date.

The Funds may enter into forward foreign contracts only under two
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transactions, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received. Second, when the adviser or sub-adviser to
one of these Funds believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, the Fund may enter
into a forward contract to sell, for a fixed amount of dollars, the amount of
the foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The International Equity Fund may enter into a
forward contract to buy or sell foreign currency (or another currency which acts
as a proxy for that currency) approximating the value of some or all of the
Fund's portfolio securities denominated in such currency. In certain
circumstances the adviser or sub-adviser to the International Equity Fund may
commit a substantial portion of the portfolio to the consummation of forward
contracts. The Growth & Income Fund, Growth Equity Fund, Large Cap Value Fund,
Mid Cap Growth Fund, Mid Cap ValueFund, Small Cap Value Fund, Emerging Growth
Fund and High Yield Bond Fund do not intend to enter into such forward contracts
under this second circumstance on a regular or continuous basis, and will not do
so if, as a result, the Fund will have more than 15% of the value of its total
assets committed to the consummation of such contracts. The Funds will also not
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate them to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. A Fund's custodian bank will place cash or liquid equity or debt
securities in a separate account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of forward foreign
currency exchange contracts entered into under the second circumstance, as set
forth above. If the value of the securities placed in the separate account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts.

At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.

It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if

<PAGE>

a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.

If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between a Fund's entering into a forward contract for the sale
of a foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent that the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.

It also should be realized that this method of protecting the value of a
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which one can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result from the value of such
currency increase.

Although the International Equity Fund, Growth and Income, Growth Equity
Fund, Large Cap Value Fund, Small Cap Value Fund, Mid Cap Growth, Mid Cap
Equity, Emerging Growth Fund, Flexibly Managed Fund and High Yield Bond Fund
value their assets daily in terms of U.S. dollars, they do not intend to convert
their holdings of foreign currencies into U.S. dollars on a daily basis. They
will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.

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Repurchase Agreements

Each Fund, other than the Growth Equity Fund, may enter into repurchase
agreements through which an investor (such as a Fund) purchases a security
(known as the "underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Concurrently, the bank
or securities dealer agrees to repurchase the underlying security at a future
point at the same price, plus specified interest. Repurchase agreements are
generally for a short period of time, often less than a week. A Fund will not
enter into a repurchase agreement with a maturity of more than seven business
days if, as a result, more than 10% of the value of its total assets would then
be invested in such repurchase agreements. The Limited Maturity Bond and Quality
Bond Funds will only enter into a repurchase agreement where the underlying
securities are (excluding maturity limitations) rated within the four highest
credit categories assigned by established rating services (AAA, Aa, A, or Baa by
Moody's or AAA, AA, A, or BBB by Standard & Poor's), or, if not rated, of
equivalent investment quality as determined by the investment adviser. With the
exception of the Money Market Fund, the underlying security must be rated within
the top three credit categories, or, if not rated, must be of equivalent
investment quality as determined by the investment adviser or sub-adviser. In
the case of the Money Market Fund, the underlying security must be rated within
the top credit category or, if not rated, must be of comparable investment
quality as determined by the investment adviser and the repurchase agreement
must meet the other quality and diversification standards of Rule 2a-7 under the
Investment Company Act of 1940. In addition, each Fund will only enter into a
repurchase agreement where (i) the market value of the underlying security,
including interest accrued, will be at all times equal to or exceed the value of
the repurchase agreement, and (ii) payment for the underlying security is made
only upon physical delivery or evidence of book-entry transfer to the account of
the custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, a Fund could experience both
delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
a Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.

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Lending of Portfolio Securities

For the purpose of realizing additional income, each Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. This policy is a fundamental policy for all the Funds. Securities loans
are made to unaffiliated broker-dealers or institutional investors pursuant to

<PAGE>

agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent. The collateral
received will consist of government securities, letters of credit or such other
collateral as may be permitted under its investment program and by regulatory
agencies and approved by the Board of Directors. While the securities are being
lent, the Fund will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Each Fund has a right
to call each loan and obtain the securities on five business days' notice. No
Fund will have the right to vote securities while they are being lent, but it
will call a loan in anticipation of any important vote. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. Loans will only be made to firms deemed by the adviser to be of
good standing and will not be made unless, in the judgment of the adviser, the
consideration to be earned from such loans would justify the risk.

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Illiquid Securities

Illiquid securities generally are those which may not be sold in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued them.

The Funds may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the adviser or sub-adviser,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the adviser or sub-adviser will consider, among other relevant
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades. A
Fund's treatment of Rule 144A securities as liquid could have the effect of
increasing the level of fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. The adviser or sub-adviser will continue to monitor the liquidity of
any Rule 144A security which has been determined to be liquid. If a security is
no longer liquid because of changed conditions, the holdings of illiquid
securities will be reviewed to determine if any steps are required to assure
compliance with applicable limitations on investments in illiquid securities.

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Warrants

The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and
Mid Cap Value Funds may, consistent with their investment objectives and
policies invest an unlimited amount in warrants. The Flexibly Managed and High
Yield Bond Funds may invest in warrants if, after such investment, no more than
10% of the value of a Fund's net assets would be invested in warrants. The Large
Cap Value, Small Cap Value, Emerging Growth, International Equity, Quality Bond
and Money Market Funds may invest in warrants; however, not more than 5% of any
such Fund's assets (at the time of purchase) will be invested in warrants other
than warrants acquired in units or attached to other securities. Of such 5% not
more than 2% of such assets at the time of purchase may be invested in warrants
that are not listed on the New York or American Stock Exchange. Warrants
basically are options to purchase equity securities at a specific price valid
for a specific period of time. They do not represent ownership of the
securities, but only the right to buy them. They have no voting rights, pay no
dividends and have no rights with respect to the assets of the corporation
issuing them. Warrants differ from call options in that warrants are issued by
the issuer of the security which may be purchased on their exercise, whereas
call options may be written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities.

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When-Issued Securities

The Limited Maturity Bond, Quality Bond, High Yield Bond, Flexibly Managed,
Growth and Income, Large Cap Value, Index 500, Mid Cap Growth, Mid Cap Value,
Emerging Growth, Small Cap Value and International Equity Funds may from time to
time purchase securities on a "when-issued" basis. The price of such securities,
which may be expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued securities take
place at a later date. Normally, the settlement date occurs within one month of
the purchase. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund purchasing
the when-issued security. Forward commitments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,

<PAGE>

which risk is in addition to the risk of decline in value of the Fund's other
assets. While when-issued securities may be sold prior to the settlement date,
the Funds intend to purchase such securities with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time the particular Fund makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The advisers do not believe that
the net asset value or income of the Funds will be adversely affected by the
respective Fund's purchase of securities on a when-issued basis. The Funds will
maintain cash and marketable securities equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.

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The Quality Bond Fund's Policy Regarding Industry Concentration

When the market for corporate debt securities is dominated by issues in the
gas utility, gas transmission utility, electric utility, telephone utility, or
petroleum industries, the Quality Bond Fund will as a matter of fundamental
policy concentrate 25% or more, but not more than 50%, of its assets in any one
such industry, if the Fund has cash for such investment (i.e., will not sell
portfolio securities to raise cash) and, if in Independence Capital Management's
judgment, the return available and the marketability, quality, and availability
of the debt securities of such industry justifies such concentration in light of
the Fund's investment objective. Domination would exist with respect to any one
such industry, when, in the preceding 30-day period, more than 25% of all
new-issue corporate debt offerings (within the four highest grades of Moody's or
S&P and with maturities of 10 years or less) of $25,000,000 or more consisted of
issues in such industry. Although the Fund will normally purchase corporate debt
securities in the secondary market as opposed to new offerings, Independence
Capital Management believes that the new issue-based dominance standard, as
defined above, is appropriate because it is easily determined and represents an
accurate correlation to the secondary market. Investors should understand that
concentration in any industry may result in increased risk. Investments in any
of these industries may be affected by environmental conditions, energy
conservation programs, fuel shortages, difficulty in obtaining adequate return
on capital in financing operations and large construction programs, and the
ability of the capital markets to absorb debt issues. In addition, it is
possible that the public service commissions which have jurisdiction over these
industries may not grant future increases in rates sufficient to offset
increases in operating expenses. These industries also face numerous legislative
and regulatory uncertainties at both federal and state government levels.
Independence Capital Management believes that any risk to the Fund which might
result from concentration in any industry will be minimized by the Fund's
practice of diversifying its investments in other respects. The Quality Bond
Fund's policy with respect to industry concentration is a fundamental policy.
See INVESTMENT RESTRICTIONS below.

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Options

Each Fund, other than the Money Market Fund, may write covered call (except
for Small Cap Value Fund) and buy put options on its portfolio securities and
purchase call or put options on securities indices. The aggregate market value
of the portfolio securities covering call or put options will not exceed 25% of
a Fund's total assets. Such options may be exchange-traded or dealer options. An
option gives the owner the right to buy or sell securities at a predetermined
exercise price for a given period of time. Although options will primarily be
used to minimize principal fluctuations, or to generate additional premium
income for the Funds, they do involve certain risks. Writing covered call
options involves the risk of not being able to effect closing transactions at a
favorable price or participate in the appreciation of the underlying securities
or index above the exercise price. The High Yield Bond Fund may engage in other
options transactions described in INVESTMENT RESTRICTIONS below, including the
purchase of spread options, which give the owner the right to sell a security
that it owns at a fixed dollar spread or yield spread in relation to another
security that the owner does not own, but which is used as a benchmark.

A Fund will write call options only if they are "covered." This means that
a Fund will own the security or currency subject to the option or an option to
purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to the fluctuating market value of the optioned
securities.

Options trading is a highly specialized activity which entails greater than
ordinary investment risks. Options on particular securities may be more volatile
than the underlying securities, and therefore, on a percentage basis, more risky
than an investment in the underlying securities themselves.

There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation

<PAGE>

between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange
("Exchange"), may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.

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Futures Contracts

Each Fund, other than the Money Market Fund, may invest in futures
contracts and options thereon (interest rate futures contracts, currency futures
or stock index futures contracts, as applicable). Each Fund will limit its use
of futures contracts so that: (i) no more than 5% of the Fund's total assets
will be committed to initial margin deposits or premiums on options and (ii)
immediately after entering into such contracts, no more than 30% of the Fund's
total assets would be represented by such contracts. Such futures contracts
would not be entered into for speculative purposes, but to hedge risks
associated with the Fund's securities investments or to provide an efficient
means of regulating its exposure to the market. To enter into a futures
contract, a Fund must make a deposit of initial margin with its custodian in a
segregated account in the name of its futures broker. Initial margin on futures
contracts is in the nature of a performance bond or good faith deposit.
Subsequent payments to or from the broker, called variation margin, will be made
on a daily basis as the price of the underlying index or instrument fluctuates,
making the long and short positions in the futures contracts more or less
valuable.

Successful use of futures by a Fund is subject, first, to the investment
adviser's or sub-adviser's ability to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit of the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions.

Even if the investment adviser or sub-adviser has correctly predicted
market movements, the success of a futures position may be affected by imperfect
correlations between the price movements of the futures contract and the
securities being hedged. A Fund may purchase or sell futures contracts on any
stock index or interest rate index or instrument whose movements will, in the
investment adviser's or sub-adviser's judgment, have a significant correlation
with movements in the prices of all or portions of the Fund's portfolio
securities. The correlation between price movements in the futures contract and
in the portfolio securities probably will not be perfect, however, and may be
affected by differences in historical volatility or temporary price distortions
in the futures markets. To attempt to compensate for such differences, the Fund
could purchase or sell futures contracts with a greater or lesser value than the
securities it wished to hedge or purchase. Despite such efforts, the correlation
between price movements in the futures contract and the portfolio securities may
be worse than anticipated, which could cause the Fund to suffer losses even if
the investment adviser had correctly predicted the general movement of the
market.

A Fund which engages in the purchase or sale of futures contracts may also
incur risks arising from illiquid markets. The ability of a Fund to close out a
futures position depends on the availability of a liquid market in the futures
contract, and such a market may not exist for a variety of reasons, including
daily limits on price movements in futures markets. In the event a Fund is
unable to close out a futures position because of illiquid markets, it would be
required to continue to make daily variation margin payments, and could suffer
losses due to market changes in the period before the futures position could be
closed out.

The trading of futures contracts is also subject to the risks of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.

Options on futures contracts are subject to risks similar to those
described above, and also to a risk of loss due to an imperfect correlation
between the option and the underlying futures contract.

<PAGE>

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Investment Companies

Each Fund may invest in securities issued by other investment companies
which invest in short-term, high quality debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method of valuation. The International Equity Fund may invest in securities of
mutual funds that invest in foreign securities. Securities of investment
companies will be acquired by a Fund within the limits prescribed by the 1940
Act. The High Yield and Flexibly Managed Funds may invest cash reserves in
shares of the T. Rowe Price Reserve Investment Fund, an internally-managed money
market fund. In addition to the advisory fees and other expenses a Fund bears
directly in connection with its own operations, as a shareholder of another
investment company, a Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses.

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Loan Participations and Assignments

The High Yield Bond Fund may invest in loan participations and assignments
(collectively "participations"). Such participations will typically be
participating interests in loans made by a syndicate of banks, represented by an
agent bank which has negotiated and structured the loan, to corporate borrowers
to finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buyouts and other corporate activities. Such loans may also have been made to
governmental borrowers, especially governments of developing countries (LDC
debt). LDC debt will involve the risk that the governmental entity responsible
for the repayment of the debt may be unable or unwilling to do so when due. The
loans underlying such participations may be secured or unsecured, and the Fund
may invest in loans collateralized by mortgages on real property or which have
no collateral. The loan participations themselves may extend for the entire term
of the loan or may extend only for short "strips" that correspond to a quarterly
or monthly floating rate interest period on the underlying loan. Thus, a term or
revolving credit that extends for several years may be subdivided into shorter
periods.

The loan participations in which the High Yield Bond Fund will invest will
also vary in legal structure. Occasionally, lenders assign to another
institution both the lender's rights and obligations under a credit agreement.
Since this type of assignment relieves the original lender of its obligations,
it is called a novation. More typically, a lender assigns only its right to
receive payments of principal and interest under a promissory note, credit
agreement or similar document. A true assignment shifts to the assignee the
direct debtor-creditor relationship with the underlying borrower. Alternatively,
a lender may assign only part of its rights to receive payments pursuant to the
underlying instrument or loan agreement. Such partial assignments, which are
more accurately characterized as "participating interests," do not shift the
debtor-creditor relationship to the assignee, who must rely on the original
lending institution to collect sums due and to otherwise enforce its rights
against the agent bank which administers the loan or against the underlying
borrower.

Because the High Yield Bond Fund is allowed to purchase debt securities,
including debt securities at private placement, the Fund will treat loan
participations as securities and not subject to its fundamental investment
restriction prohibiting the Fund from making loans.

There is not a recognizable, liquid public market for the loan
participations. Hence, the High Yield Bond Fund would consider loan
participations as illiquid securities and subject them to the Fund's restriction
on investing no more than 10% of assets in securities for which there is no
readily available market. The Fund would initially impose a limit of no more
than 5% of total assets in illiquid loan participations.

Where required by applicable SEC positions, the Fund will treat both the
corporate borrower and the bank selling the participation interest as an issuer
for purposes of its fundamental investment restriction which prohibits investing
more than 5% of Fund assets in the securities of a single issuer.

Various service fees received by the High Yield Bond Fund from loan
participations may be treated as non-interest income depending on the nature of
the fee (commitment, takedown, commission, service or loan origination). To the
extent the service fees are not interest income, they will not qualify as income
under Section 851(b) of the Internal Revenue Code. Thus the sum of such fees
plus any other non-qualifying income earned by the Fund cannot exceed 10% of
total income.

<PAGE>

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Trade Claims

The High Yield Bond Fund may invest up to 5% of its total assets in trade
claims. Trade claims are non-securitized rights of payment arising from
obligations other than borrowed funds. Trade claims typically arise when, in the
ordinary course of business, vendors and suppliers extend credit to a company by
offering payment terms. Generally, when a company files for bankruptcy
protection payments on these trade claims cease and the claims are subject to a
compromise along with the other debts of the company. Trade claims typically are
bought and sold at a discount reflecting the degree of uncertainty with respect
to the timing and extent of recovery. In addition to the risks otherwise
associated with low-quality obligations, trade claims have other risks,
including the possibility that the amount of the claim may be disputed by the
obligor.

Over the last few years a market for the trade claims of bankrupt companies
has developed. Many vendors are either unwilling or lack the resources to hold
their claim through the extended bankruptcy process with an uncertain outcome
and timing. Some vendors are also aggressive in establishing reserves against
these receivables, so that the sale of the claim at a discount may not result in
the recognition of a loss.

Trade claims can represent an attractive investment opportunity because
these claims typically are priced at a discount to comparable public securities.
This discount is a reflection of a less liquid market, a smaller universe of
potential buyers and the risks peculiar to trade claim investing. It is not
unusual for trade claims to be priced at a discount to public securities that
have an equal or lower priority claim.

As noted above, investing in trade claims does carry some unique risks
which include:

Establishing the Amount of the Claim. Frequently, the supplier's estimate
of its receivable will differ from the customer's estimate of its payable.
Resolution of these differences can result in a reduction in the amount of the
claim. This risk can be reduced by only purchasing scheduled claims (claims
already listed as liabilities by the debtor) and seeking representations from
the seller.

Defenses to Claims. The debtor has a variety of defenses that can be
asserted under the bankruptcy code against any claim. Trade claims are subject
to these defenses, the most common of which for trade claims relates to
preference payments. (Preference payments are all payments made by the debtor
during the 90 days prior to the filing. These payments are presumed to have
benefitted the receiving creditor at the expense of the other creditors. The
receiving creditor may be required to return the payment unless it can show the
payments were received in the ordinary course of business.) While none of these
defenses can result in any additional liability of the purchaser of the trade
claim, they can reduce or wipe out the entire purchased claim. This risk can be
reduced by seeking representations and indemnification from the seller.

Documentation/Indemnification. Each trade claim purchased requires
documentation that must be negotiated between the buyer and seller. This
documentation is extremely important since it can protect the purchaser from
losses such as those described above. Legal expenses in negotiating a purchase
agreement can be fairly high. Additionally, it is important to note that the
value of an indemnification depends on the seller's credit.

Volatile Pricing Due to Illiquid Market. There are only a handful of
brokers for trade claims and the quoted price of these claims can be volatile.
All trade claims would be considered illiquid investments.

No Current Yield/Ultimate Recovery. Trade claims are almost never entitled
to earn interest. As a result, the return on such an investment is very
sensitive to the length of the bankruptcy, which is uncertain. Although not
unique to trade claims, it is worth noting that the ultimate recovery on the
claim is uncertain and there is no way to calculate a conventional yield to
maturity on this investment. Additionally, the exit for this investment is a
plan of reorganization which may include the distribution of new securities.
These securities may be as illiquid as the original trade claim investment.

Tax Issue. Although the issue is not free from doubt, it is likely that
trade claims would be treated as non-securities investments. As a result, any
gains would be considered "non-qualifying" under the Internal Revenue Code. The
High Yield Bond Fund may have up to 10% of its gross income (including capital
gains) derived from non-qualifying sources.

<PAGE>

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INVESTMENT RESTRICTIONS

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Except as otherwise specified, the investment restrictions described below
have been adopted as fundamental policies of the fourteen respective Funds.
Fundamental policies may not be changed without the approval of the lesser of:
(1) 67% of a Fund's shares present at a meeting if the holders of more than 50%
of the outstanding shares are present in person or by proxy; or (2) more than
50% of the Fund's outstanding shares. Operating policies are subject to change
by Penn Series' Board of Directors without shareholder approval. Any investment
restriction which involves a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets of,
or borrows by, a Fund.

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Money Market Fund

Investment restrictions (1) through (4), (6), (8) through (12), and (16)
described below have been adopted by the Money Market Fund and are fundamental
policies, except as otherwise indicated. Restrictions (5), (7), and (13) through
(15) are operating policies subject to change by the Board of Directors without
shareholder approval.

The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (a) Percent Limit on Assets Invested in Any
One Issuer. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (b) Percent Limit on Share Ownership of Any One Issue.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (c) Industry Concentration. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided that
this limitation does not apply to obligations issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities, or to certificates of deposit,
or bankers' acceptances; (d) Unseasoned Issuers. More than 5% of the value of
the Fund's total assets would be invested in the securities of issuers which at
the time of purchase had been in operation for less than three years, including
predecessors and unconditional guarantors; (2) Equity Securities. Purchase any
common stocks or other equity securities, or securities convertible into equity
securities; (3) Restricted or Illiquid Securities. Purchase restricted
securities, illiquid securities, or securities without readily available market
quotations, or invest more than 10% of the value of its total assets in
repurchase agreements maturing in more than seven days and in the obligations of
small banks and savings and loan associations which do not have readily
available market quotations; (4) Real Estate. Purchase or sell real estate
(although it may purchase money market securities secured by real estate or
interests therein, or issued by companies which invest in real estate or
interests therein); (5) Investment Companies. Purchase securities of open-end
and closed-end investment companies, except to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder; (6)
Commodities. Purchase or sell commodities or commodity contracts; (7) Oil and
Gas Programs. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (8) Purchases on Margin.
Purchase securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities; (9) Loans. Make loans, although
the Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; (10) Borrowing. Borrow money, except that the Fund
may borrow from banks as a temporary measure for extraordinary or emergency
purposes, and then only from banks in amounts not exceeding the lesser of 10% of
its total assets valued at cost or 5% of its total assets valued at market. The
Fund will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities. Interest paid on any such borrows will
reduce net investment income; (11) Mortgaging. Mortgage, pledge, hypothecate or,
in any other manner, transfer as security for indebtedness any security owned by
the Fund, except as may be necessary in connection with permissible borrows, in
which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market; (12) Underwriting. Underwrite securities issued by
other persons, except to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933 in connection with
the purchase of government securities directly from the issuer in accordance
with the Fund's investment objectives, program, and restrictions; (13) Control
of Portfolio Companies. Invest in companies for the purpose of exercising
management or control; (14) Puts, Calls, Etc. Invest in puts, calls, straddles,

<PAGE>

spreads, or any combination thereof; or (15) Senior Securities. Issue any class
of securities senior to any other class of securities.

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Limited Maturity Bond Fund

Investment restrictions (1) through (9) have been adopted by the Limited
Maturity Bond Fund as fundamental policies.

The Fund may not: (1) Diversification. With respect to 75% of its assets,
invest more than 5% of the value of the Fund's total assets in the securities of
a single issuer or purchase more than 10% of the outstanding voting securities
of any one issuer, except securities issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities; (2) Industry Concentration.
Purchase the securities of any issuer if twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal activities in the same industry; provided, however, that
(i) there are no limitations on the amount that may be invested in the
securities of the U.S. Government and instrumentalities; (ii) the Fund may
invest in the securities of open-end management investment companies to the
extent permitted by applicable law; (iii) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (iv) financial services
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (v) asset backed securities will be
classified according to the underlying assets securing such securities; (3) Real
Estate. Purchase or sell real estate although it may purchase or sell securities
of companies whose business involves the purchase or sale of real estate and may
purchase and sell securities that are secured by interests in real estate; (4)
Investment Companies. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (5) Commodities. Purchase or sell commodities
or commodity contracts, unless acquired as a result of ownership of securities
or other instruments (except this shall not prevent the Fund from entering into
interest rate futures contracts or options thereon or from investing in
securities or other instruments backed by the physical commodities); (6)
Borrowing. Borrow money except to the extent permitted by the 1940 Act, the
rules or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended from time to time; (7) Underwriting. Act as
an underwriter of securities within the meaning of the Federal securities laws,
except insofar as it might be deemed to be an underwriter upon disposition of
certain portfolio securities acquired within the limitation on purchases of
restricted securities; (8) Senior Securities. Issue senior securities (as
defined in the 1940 Act) except in connection with permitted borrowing as
describe in (6) above or as permitted by rule, regulation or order of the SEC.
Restrictions on senior securities do not apply to certain techniques (such as
reverse repurchase agreements) entered into in compliance with applicable laws
and interpretations thereof; and (9) Lending. Make loans, except that the Fund
may purchase or hold debt instruments and may enter into repurchase agreements
and make loans of portfolio securities in accordance with its investment
objectives and policies.

- --------------------------------------------------------------------------------
Quality Bond Fund

Investment restrictions (1), (2), (4) through (9), (14) and (15) have been
adopted by the Quality Bond Fund as fundamental policies, except as otherwise
indicated. Restrictions (3) and (10) through (13) are operating policies subject
to change by the Board of Directors without shareholder approval.

The Fund may not: (1) purchase a security if, as a result: (a) Percent
Limit on Assets Invested in Any One Issuer. More than 5% of the value of the
Fund's total assets would be invested in the securities of a single issuer,
except securities issued or guaranteed by the U.S. Government, or any of its
agencies or instrumentalities; (b) Percent Limit on Share Ownership of Any One
Issue. More than 10% of the outstanding voting securities of any issuer would be
held by the Fund, except securities issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities; (c) Industry Concentration.
Twenty-five percent or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal activities in the
same industry; provided, however, that the Fund will invest 25% or more of its
assets, but not more than 50%, in any one of the gas utility, gas transmission
utility, electric utility, telephone utility, and petroleum industries under
certain circumstances (see The Quality Bond Fund's Policy Regarding Industry
Concentration above), but this limitation does not apply to bank certificates of

<PAGE>

deposit; (d) Unseasoned Issuers. More than 5% of the value of the Fund's total
assets would be invested in the securities (taken at cost) of issuers which at
the time of purchase had been in operation less than three years (for this
purpose, the period of operation of any issuer shall include the period of
operation of any predecessor or unconditional guarantor of the issuer) and in
equity securities which are not readily marketable for reasons other than
restrictions against sale to the public without registration under the
Securities Act of 1933; (e) Restricted Securities. More than 10% of the value of
the total assets of the Fund would be invested in securities which are subject
to legal or contractual restrictions on resale; or (f) Warrants. More than 2% of
the value of the total assets of the Fund would be invested in warrants which
are not listed on the New York Stock Exchange or the American Stock Exchange, or
more than 5% of the value of the total assets of the Fund would be invested in
warrants whether or not so listed, such warrants in each case to be valued at
the lesser of cost or market, but assigning no value to warrants acquired by the
Fund in units with or attached to debt securities; (2) Real Estate. Purchase or
sell real estate (although it may purchase securities of companies whose
business involves the purchase or sale of real estate); (3) Investment
Companies. Purchase securities of open-end and closed-end investment companies,
except to the extent permitted by the Investment Company Act of 1940 and any
rules adopted thereunder; (4) Commodities. Purchase or sell commodities or
commodity contracts, except that the Fund may enter into interest rate futures
contracts, subject to (15) below; (5) Short Sales and Purchases on Margin.
Purchase securities on margin or effect short sales of securities, but the Fund
may make margin deposits in connection with interest rate futures transactions
subject to (15) below; (6) Loans. Make loans (although it may acquire
publicly-distributed bonds, debentures, notes, and other debt securities, may
enter into repurchase agreements, may lend portfolio securities, and may
purchase debt securities at private placement within the limits imposed above on
the acquisition of restricted securities); (7) Borrowing. Borrow money, except
the Fund may (i) borrow money for temporary administrative purposes and then
only in amounts not exceeding the lesser of 10% of its total assets valued at
cost, or 5% of its total assets valued at market and, in any event, only if
immediately thereafter there is an asset coverage of at least 300%, and (ii)
enter into interest rate futures contracts; (8) Mortgaging. Mortgage, pledge, or
hypothecate securities, except (i) in connection with permissible borrows where
the market value of the securities mortgaged, pledged, or hypothecated does not
exceed 15% of the Fund's assets taken at cost; provided, however, that as a
matter of operating policy, the Fund will limit any such mortgaging, pledging,
or hypothecating to 10% of its net assets, taken at market, in order to comply
with certain state investment restrictions, and (ii) interest rate futures
contracts; (9) Underwriting. Act as an underwriter of securities, except insofar
as it might be deemed to be such for purposes of the Securities Act of 1933 upon
the disposition of certain portfolio securities acquired within the limitations
of restriction (e) above; (10) Ownership of Portfolio Securities by Officers and
Directors. Purchase or retain securities of any issuer if, to the knowledge of
the Fund's management or investment adviser, those officers or directors of Penn
Series, or of its investment adviser, who each owns beneficially more than .5%
of the outstanding securities of such issuer, together own beneficially more
than 5% of such securities; (11) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management or control; (12) Puts, Calls,
Etc. Invest in puts, calls, straddles, spreads, or any combination thereof,
except the Fund reserves the right to write covered call options and purchase
put and call options; (13) Oil and Gas Programs. Purchase participations or
other direct interests in oil, gas, or other mineral exploration or development
programs; (14) Senior Securities. Issue any class of securities senior to any
other class of securities; or (15) Futures Contracts. Enter into an interest
rate futures contract if, as a result thereof, (i) the then current aggregate
futures market prices of financial instruments required to be delivered under
open futures contract sales plus the then current aggregate purchase prices of
financial instruments required to be purchased under open futures contract
purchases would exceed 30% of the Fund's total assets (taken at market value at
the time of entering into the contract); or (ii) more than 5% of the Fund's
total assets (taken at market value at the time of entering into the contract)
would be committed to margin on such futures contracts or to premiums on options
thereon.

- --------------------------------------------------------------------------------
High Yield Bond Fund

Investment restrictions (1), (2), (4), (6), (8) through (12), and (15)
through (16) have been adopted by the High Yield Bond Fund as fundamental
policies, except as otherwise indicated. Restrictions (3), (5), (7), (13)
through (14), and (17) through (18) are operating policies subject to change by
the Board of Directors without shareholder approval.

<PAGE>

provided, however, that the Fund will normally concentrate 25% or more of its
assets in the securities of the banking industry when the Fund's position in
issues maturing in one year or less equals 35% or more of the Fund's total
assets; (2) Equity Securities. Invest more than 20% of the Fund's total assets
in common stocks (including up to 10% in warrants); (3) Restricted or Illiquid
Securities. Invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days and restricted securities, illiquid securities
and securities without readily available market quotations; (4) Real Estate.
Purchase or sell real estate, including limited partnership interests therein,
unless acquired as a result of ownership of securities or other instruments
(this restriction shall not prevent the Fund from investing in securities of
other instruments backed by real estate or in securities of companies engaged in
the real estate business); (5) Investment Companies. Purchase securities of
open-end or closed-end investment companies except (i) in compliance with the
Investment Company Act of 1940 or (ii) securities of the Reserve Investment
Fund, an internally-managed money market fund of T. Rowe Price; (6) Commodities.
Purchase or sell commodities or commodity contracts, except that it may enter
into interest rate futures contracts, subject to (17) below; (7) Oil and Gas
Programs. Purchase participations or other direct interests in or enter into
leases with respect to oil, gas, or other mineral exploration or development
programs if, as a result, more than 5% of the Fund's total assets would be
invested in such programs; (8) Purchases on Margin. Purchase securities on
margin, except for use of short-term credit necessary for clearance of purchases
of portfolio securities; except that it may make margin deposits in connection
with interest rate futures contracts, subject to (17) below; (9) Loans. Make
loans, although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no such
loan may be made if as a result the aggregate of such loans would exceed 30% of
the value of the Fund's total assets; provided, however, that the Fund may
acquire publicly distributed bonds, debentures, notes and other debt securities
and may purchase debt securities at private placement within the limits imposed
on the acquisition of restricted securities; (10) Borrowing. Borrow money,
except the Fund may borrow from banks as a temporary measure for extraordinary
or emergency purposes, and then only in amounts not exceeding 15% of its total
assets valued at market; the Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities. Interest paid on any such
borrows will reduce net investment income; the Fund may enter into interest rate
futures contracts as set forth in (17) below; (11) Mortgaging. Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness any
security owned by the Fund, except (i) as may be necessary in connection with
permissible borrows, in which event such mortgaging, pledging, or hypothecating
may not exceed 15% of the Fund's assets, valued at cost; provided, however, that
as a matter of operating policy, which may be changed without shareholder
approval, the Fund will limit any such mortgaging, pledging, or hypothecating to
10% of its net assets, valued at market, and (ii) it may enter into interest
rate futures contracts; (12) Underwriting. Underwrite securities issued by other
persons, except: (i) to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933 in connection with
the purchase of government securities directly from the issuer in accordance
with the Fund's investment objectives, program, and restrictions; and (ii) the
later disposition of restricted securities acquired within the limits imposed on
the acquisition of restricted securities; (13) Control of Portfolio Companies.
Invest in companies for the purpose of exercising management or control; (14)
Puts, Calls, Etc. Invest in puts, calls, straddles, spreads, or any combination
thereof, except to the extent permitted by the prospectus and Statement of
Additional Information; (15) Senior Securities. Issue any class of securities
senior to any other class of securities; (16) Futures Contracts. Enter into an
interest rate futures contract if, as a result thereof, (i) the then current
aggregate futures market prices of financial instruments required to be
delivered under open futures contract sales plus the then current aggregate
purchase prices of financial instruments required to be purchased under open
futures contract purchases would exceed 30% of the Fund's total assets (taken at
market value at the time of entering into the contract) or (ii) more than 5% of
the Fund's total assets (taken at market value at the time of entering into the
contract) would be committed to margin on such futures contracts or to premiums
on options thereon; (17) Purchases when Borrows Outstanding. Purchase additional
securities when money borrowed exceeds 5% of the Fund's total assets; (18) Short
Sales. Effect short sales of securities; or (19) Warrants. Invest in warrants
if, as a result, more than 10% of the value of the net assets of the Fund would
be invested in warrants.

- --------------------------------------------------------------------------------
Flexibly Managed Fund

Investment restrictions (1), (3), (5), (7) through (11), (13), and (14) are
fundamental policies of the Flexibly Managed Fund, except as otherwise
indicated. Restrictions (2), (4), (6) and (12) are operating policies and are
subject to change by the Board of Directors without shareholder approval.

The Flexibly Managed Fund may not: (1) purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (a) Percent Limit on Assets
Invested in Any One Issuer. With respect to 75% of the Fund's total assets, more
than 5% of the value of the Fund's total assets would be invested in the
securities of a single issuer (including repurchase agreements with any one

<PAGE>

issuer); (b) Percent Limit on Share Ownership of Any One Issue. With respect to
75% of the Fund's total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Fund; (c) Industry Concentration.
Twenty-five percent or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal business activities
in the same industry; provided, however, that the Fund will normally concentrate
25% or more of its assets in the banking industry when the Fund's position in
issues maturing in one year or less equals 35% or more of the Fund's total
assets; (2) Restricted or Illiquid Securities. Purchase a security if, as a
result, more than 15% of the value of the Fund's net assets would be invested in
repurchase agreements maturing in more than seven days and restricted
securities, illiquid securities, and securities without readily available market
quotations; (3) Real Estate. Purchase or sell real estate, including limited
partnership interests therein, unless acquired as a result of ownership of
securities or other instruments (this restriction shall not prevent the Fund
from investing in securities of other instruments backed by real estate or in
securities of companies engaged in the real estate business); (4) Investment
Companies. Purchase securities of open-end and closed-end investment companies,
except (i) to the extent permitted by the Investment Company Act of 1940 and any
rules adopted thereunder, or (ii) securities of the Reserve Investment Fund, an
internally-managed money market fund of T. Rowe Price; (5) Commodities. Purchase
or sell commodities or commodity contracts; except that it may enter into
futures contracts, subject to (14) below; (6) Oil and Gas Programs. Purchase
participations or other direct interests in oil, gas, or other mineral
exploration or development programs if, as a result thereof, more than 5% of its
total assets would be invested in such programs; (7) Short Sales and Purchases
on Margin. Effect short sales of securities or purchase securities on margin,
except for use of short-term credit necessary for clearance of purchases of
portfolio securities; except that it may make margin deposits in connection with
futures contracts, subject to (14) below; (8) Loans. Make loans, although the
Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; provided, however, that the Fund may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
purchase debt securities at private placement within the limits imposed on the
acquisition of restricted securities; (9) Borrowing. Borrow money, except the
Fund may borrow from banks as a temporary measure for extraordinary or emergency
purposes, and then only in amounts not exceeding 15% of its total assets valued
at market; the Fund will not borrow in order to increase income (leveraging),
but only to facilitate redemption requests which might otherwise require
untimely disposition of portfolio securities. Interest paid on any such borrows
will reduce net investment income. The Fund may enter into futures contracts as
set forth in (14) below; (10) Mortgaging. Mortgage, pledge, hypothecate or, in
any other manner, transfer as security for indebtedness any security owned by
the Fund, except (i) as may be necessary in connection with permissible borrows,
in which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market, and (ii) it may enter into futures contracts; (11)
Underwriting. Underwrite securities issued by other persons, except: (i) to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; and (ii) the later disposition of
restricted securities acquired within the limits imposed on the acquisition of
restricted securities; (12) Control of Portfolio Companies. Invest in companies
for the purpose of exercising management or control; (13) Senior Securities.
Issue any class of securities senior to any other class of securities; or (14)
Futures Contracts. Enter into a futures contract if, as a result thereof, (i)
the then current aggregate futures market prices of securities required to be
delivered under open futures contract sales plus the then current aggregate
purchase prices of securities required to be purchased under open futures
contract purchases would exceed 30% of the Fund's total assets (taken at market
value at the time of entering into the contract) or (ii) more than 5% of the
Fund's total assets (taken at market value at the time of entering into the
contract) would be committed to margin on such futures contracts or to premiums
on options thereon.

25
<PAGE>

Growth and Income Fund

Investment restrictions (1) through (9) have been adopted by the Growth and
Income Fund as fundamental policies.

<PAGE>

management investment companies to the extent permitted by applicable law; (iii)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (iv) financial services companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (v) asset
backed securities will be classified according to the underlying assets securing
such securities; (3) Real Estate. Purchase or sell real estate although it may
purchase or sell securities of companies whose business involves the purchase or
sale of real estate and may purchase and sell securities that are secured by
interests in real estate; (4) Investment Companies. Purchase securities of
open-end and closed-end investment companies, except to the extent permitted by
the Investment Company Act of 1940 and any rules adopted thereunder; (5)
Commodities. Purchase or sell commodities or commodity contracts, unless
acquired as a result of ownership of securities or other instruments (except
this shall not prevent the Fund from entering into interest rate futures
contracts or options thereon or from investing in securities or other
instruments backed by the physical commodities); (6) Borrowing. Borrow money
except to the extent permitted by the 1940 Act, the rules or regulations
thereunder or any exemption therefrom, as such statute, rules or regulations may
be amended from time to time; (7) Underwriting. Act as an underwriter of
securities within the meaning of the Federal securities laws, except insofar as
it might be deemed to be an underwriter upon disposition of certain portfolio
securities acquired within the limitation on purchases of restricted securities;
(8) Senior Securities. Issue senior securities (as defined in the 1940 Act)
except in connection with permitted borrowing as describe in (6) above or as
permitted by rule, regulation or order of the SEC. Restrictions on senior
securities do not apply to certain techniques (such as reverse repurchase
agreements) entered into in compliance with applicable laws and interpretations
thereof; and (9) Lending. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements and make loans of
portfolio securities in accordance with its investment objectives and policies.

- --------------------------------------------------------------------------------
Growth Equity Fund

Investment restrictions (1) through (14) and (20) through (22) described
below have been adopted by the Growth Equity Fund and are fundamental policies,
except as otherwise indicated. Restrictions (15) through (19) are operating
policies which are subject to change by the Board of Directors without
shareholder approval.

The Fund may not: (1) Percent Limit on Assets Invested in Any One Issuer.
Purchase any securities which would cause more than 5% of its total assets at
the time of such purchase to be invested in the securities of any issuer, except
for securities issued or guaranteed by the U.S. Government; (2) Percent Limit on
Share Ownership of Any One Issue. Purchase any securities which would cause the
Fund at the time of such purchase to own more than 10% of the outstanding
securities of any class of any issuer; (3) Unseasoned Issuers. Purchase the
securities of any issuer engaged in continuous operation for less than three
years; (4) Industry Concentration. Purchase any securities which would cause
more than 25% of its total assets at the time of such purchase to be
concentrated in the securities of issuers engaged in any one industry; (5) Real
Estate. Purchase or sell real estate, although it may invest in the securities
of companies whose business involves the purchase or sale of real estate; (6)
Commodities. Purchase or sell commodities or commodity contracts; except that it
may enter into futures contracts subject to (22) below; (7) Investment
Companies. Acquire the securities of any investment company, except securities
purchased in regular transactions in the open market or acquired pursuant to a
plan of merger or consolidation (to the extent permitted by the Investment
Company Act of 1940 and any rules adopted thereunder); (8) Short Sales and
Purchases on Margin. Effect short sales of securities or purchase securities on
margin, except for use of short-term credit necessary for clearance of purchases
of portfolio securities, and except for margin deposits made in connection with
futures contracts, subject to (22) below; (9) Loans. Make loans, except that it
may (i) acquire publicly distributed bonds, debentures, notes, and other debt
securities, and (ii) lend portfolio securities provided that no such loan may be
made if as a result the aggregate of such loans would exceed 30% of the value of
the Fund's total assets; (10) Borrowing. Borrow money, except the Fund may
borrow from banks as a temporary measure for extraordinary or emergency
purposes, and then only in amounts not exceeding 15% of its total assets valued
at market. The Fund will not borrow in order to increase income (leveraging),
but only to facilitate redemption requests which might otherwise require
untimely disposition of portfolio securities. Interest paid on such borrows will
reduce net investment income. The Fund may also enter into futures contracts as
set forth in (22) below; (11) Underwriting. Act as an underwriter of securities,
except insofar as it might technically be deemed to be an underwriter for
purposes of the Securities Act of 1933 upon disposition of certain securities;
(12) Securities of Adviser. Purchase or retain the securities of its investment
adviser, or of any corporation of which any officer, director, or member of the
investment committee of the investment adviser is a director; (13) Allocation of
Principal Business to Officers and Directors. Deal with any of its officers or
directors, or with any firm of which any of its officers or directors is a
member, as principal in the purchase or sale of portfolio securities; (14)
Allocation of Brokerage Business to Adviser. Pay commissions on portfolio
transactions to its investment adviser

<PAGE>

or to any officer or director of its investment adviser; (15) Control of
Portfolio Companies. Invest in companies for the purpose of exercising
management or control; (16) Restricted and Illiquid Securities. Purchase any
securities which would cause more than 5% of its total assets at the time of
such purchase to be invested in securities which may not be publicly sold
without registration under the Securities Act of 1933, or are otherwise illiquid
or not readily marketable; (17) Puts, Calls, Etc. Invest in puts, calls,
straddles, spreads, or any combination thereof, except that the Fund reserves
the right to write covered call options and purchase put and call options; (18)
Oil and Gas Programs. Purchase participations or other direct interests in oil,
gas, or other mineral exploration or development programs; (19) Ownership of
Portfolio Securities by Officers and Directors. Purchase or retain the
securities of any issuer if those officers or directors of Penn Series, or of
its investment adviser, who each owns beneficially more than .5% of the
outstanding securities of such issuer, together own beneficially more than 5% of
such securities; (20) Mortgaging. Mortgage, pledge, or hypothecate or, in any
other manner, transfer as security for indebtedness any security owned by the
Growth Equity Fund, except (i) as may be necessary in connection with
permissible borrows, in which event such mortgaging, pledging, or hypothecating
may not exceed 15% of the Fund's assets, valued at cost; provided, however, that
as a matter of operating policy, which may be changed without shareholder
approval, the Fund will limit any such mortgaging, pledging, or hypothecating to
10% of its net assets, valued at market, and (ii) it may enter into futures
contracts; (21) Senior Securities. Issue any class of securities senior to any
other class of securities; or (22) Futures Contracts. Enter into a futures
contract if, as a result thereof, (i) the then current aggregate futures market
prices of securities required to be delivered under open futures contract sales
plus the then current aggregate purchase prices of securities required to be
purchased under open futures contract purchases would exceed 30% of the Fund's
total assets (taken at market value at the time of entering into the contract)
or (ii) more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.

- --------------------------------------------------------------------------------

Large Cap Value Fund

Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and
(15) are fundamental policies of the Large Cap Value Fund, except as otherwise
indicated. Restrictions (4), (6), (12) and (13) are operating policies and are
subject to change by the Board of Directors without shareholder approval.

<PAGE>

into futures contracts as set forth in (15) below; (10) Mortgaging. Mortgage,
pledge, or hypothecate or, in any other manner, transfer as security for
indebtedness any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrows, in which event such mortgaging, pledging,
or hypothecating may not exceed 15% of the Fund's assets, valued at cost;
provided, however, that as a matter of operating policy, which may be changed
without shareholder approval, the Fund will limit any such mortgaging, pledging,
or hypothecating to 10% of its net assets, valued at market; and (ii) it may
enter into futures contracts; (11) Underwriting. Underwrite securities issued by
other persons except: (i) to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933 in connection with
the purchase of government securities directly from the issuer in accordance
with the Fund's investment objectives, program, and restrictions; and (ii) the
later disposition of restricted securities acquired within the limits imposed on
the acquisition of restricted securities; (12) Control of Portfolio Companies.
Invest in companies for the purpose of exercising management or control; (13)
Ownership of Portfolio Securities by Officers and Directors. Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's management or
investment adviser, those officers and directors of Penn Series, and of its
investment adviser, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities; (14) Senior Securities. Issue any class of securities senior to any
other class of securities; or (15) Futures Contracts. Enter into a futures
contract if, as a result thereof, (i) the then current aggregate futures market
prices of securities required to be delivered under open futures contract sales
plus the then current aggregate purchase prices of securities required to be
purchased under open futures contract purchases would exceed 30% of the Fund's
total assets (taken at market value at the time of entering into the contract)
or (ii) more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.

- --------------------------------------------------------------------------------

Index 500 Fund

Investment restrictions (1) through (9) have been adopted by the Index
500 Fund as fundamental policies.

The Fund may not: (1) Diversification. With respect to 75% of its
assets, invest more than 5% of the value of the Fund's total assets in the
securities of a single issuer or purchase more than 10% of the outstanding
voting securities of any one issuer, except securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities; (2) Industry
Concentration. Purchase the securities of any issuer if twenty-five percent or
more of the value of the Fund's total assets would be invested in the securities
of issuers having their principal activities in the same industry; provided,
however, that (i) there are no limitations on the amount that may be invested in
the securities of the U.S. Government and instrumentalities; (ii) the Fund may
invest in the securities of open-end management investment companies to the
extent permitted by applicable law; (iii) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (iv) financial services
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (v) asset backed securities will be
classified according to the underlying assets securing such securities; (3) Real
Estate. Purchase or sell real estate although it may purchase or sell securities
of companies whose business involves the purchase or sale of real estate and may
purchase and sell securities that are secured by interests in real estate; (4)
Investment Companies. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (5) Commodities. Purchase or sell commodities
or commodity contracts, unless acquired as a result of ownership of securities
or other instruments (except this shall not prevent the Fund from entering into
interest rate futures contracts or options thereon or from investing in
securities or other instruments backed by the physical commodities); (6)
Borrowing. Borrow money except to the extent permitted by the 1940 Act, the
rules or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended from time to time; (7) Underwriting. Act as
an underwriter of securities within the meaning of the Federal securities laws,
except insofar as it might be deemed to be an underwriter upon disposition of
certain portfolio securities acquired within the limitation on purchases of
restricted securities; (8) Senior Securities. Issue senior securities (as
defined in the 1940 Act) except in connection with permitted borrowing as
describe in (6) above or as permitted by rule, regulation or order of the SEC.
Restrictions on senior securities do not apply to certain techniques (such as
reverse repurchase agreements) entered into in compliance with applicable laws
and interpretations thereof; and (9) Lending. Make loans, except that the Fund
may purchase or hold debt instruments and may enter into repurchase agreements
and make loans of portfolio securities in accordance with its investment
objectives and policies.

<PAGE>

- --------------------------------------------------------------------------------

Mid Cap Growth Fund

Investment restrictions (1) through (9) have been adopted by the Mid
Cap Growth Fund as fundamental policies.

The Fund may not: (1) Diversification. With respect to 75% of its
assets, invest more than 5% of the value of the Fund's total assets in the
securities of a single issuer or purchase more than 10% of the outstanding
voting securities of any one issuer, except securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities; (2) Industry
Concentration. Purchase the securities of any issuer if twenty-five percent or
more of the value of the Fund's total assets would be invested in the securities
of issuers having their principal activities in the same industry; provided,
however, that (i) there are no limitations on the amount that may be invested in
the securities of the U.S. Government and instrumentalities; (ii) the Fund may
invest in the securities of open-end management investment companies to the
extent permitted by applicable law; (iii) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (iv) financial services
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (v) asset backed securities will be
classified according to the underlying assets securing such securities; (3) Real
Estate. Purchase or sell real estate although it may purchase or sell securities
of companies whose business involves the purchase or sale of real estate and may
purchase and sell securities that are secured by interests in real estate; (4)
Investment Companies. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (5) Commodities. Purchase or sell commodities
or commodity contracts, unless acquired as a result of ownership of securities
or other instruments (except this shall not prevent the Fund from entering into
interest rate futures contracts or options thereon or from investing in
securities or other instruments backed by the physical commodities); (6)
Borrowing. Borrow money except to the extent permitted by the 1940 Act, the
rules or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended from time to time; (7) Underwriting. Act as
an underwriter of securities within the meaning of the Federal securities laws,
except insofar as it might be deemed to be an underwriter upon disposition of
certain portfolio securities acquired within the limitation on purchases of
restricted securities; (8) Senior Securities. Issue senior securities (as
defined in the 1940 Act) except in connection with permitted borrowing as
describe in (6) above or as permitted by rule, regulation or order of the SEC.
Restrictions on senior securities do not apply to certain techniques (such as
reverse repurchase agreements) entered into in compliance with applicable laws
and interpretations thereof; and (9) Lending. Make loans, except that the Fund
may purchase or hold debt instruments and may enter into repurchase agreements
and make loans of portfolio securities in accordance with its investment
objectives and policies.

<PAGE>

- --------------------------------------------------------------------------------

Mid Cap Value Fund

Investment restrictions (1) through (9) have been adopted by the Mid
Cap Value Fund Bond Fund as fundamental policies.

The Fund may not: (1) Diversification. With respect to 75% of its
assets, invest more than 5% of the value of the Fund's total assets in the
securities of a single issuer or purchase more than 10% of the outstanding
voting securities of any one issuer, except securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities; (2) Industry
Concentration. Purchase the securities of any issuer if twenty-five percent or
more of the value of the Fund's total assets would be invested in the securities
of issuers having their principal activities in the same industry; provided,
however, that (i) there are no limitations on the amount that may be invested in
the securities of the U.S. Government and instrumentalities; (ii) the Fund may
invest in the securities of open-end management investment companies to the
extent permitted by applicable law; (iii) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (iv) financial services
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (v) asset backed securities will be
classified according to the underlying assets securing such securities; (3) Real
Estate. Purchase or sell real estate although it may purchase or sell securities
of companies whose business involves the purchase or sale of real estate and may
purchase and sell securities that are secured by interests in real estate; (4)
Investment Companies. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (5) Commodities. Purchase or sell commodities
or commodity contracts, unless acquired as a result of ownership of securities
or other instruments (except this shall not prevent the Fund from entering into
interest rate futures contracts or options thereon or from investing in
securities or other instruments backed by the physical commodities); (6)
Borrowing. Borrow money except to the extent permitted by the 1940 Act, the
rules or regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended from time to time; (7) Underwriting. Act as
an underwriter of securities within the meaning of the Federal securities laws,
except insofar as it might be deemed to be an underwriter upon disposition of
certain portfolio securities acquired within the limitation on purchases of
restricted securities; (8) Senior Securities. Issue senior securities (as

<PAGE>

defined in the 1940 Act) except in connection with permitted borrowing as
describe in (6) above or as permitted by rule, regulation or order of the SEC.
Restrictions on senior securities do not apply to certain techniques (such as
reverse repurchase agreements) entered into in compliance with applicable laws
and interpretations thereof; and (9) Lending. Make loans, except that the Fund
may purchase or hold debt instruments and may enter into repurchase agreements
and make loans of portfolio securities in accordance with its investment
objectives and policies.

- --------------------------------------------------------------------------------
Emerging Growth Fund

Investment restrictions (1) through (9) are fundamental policies of the
Emerging Growth Fund, except as otherwise indicated. Restrictions (10) through
(15) are non-fundamental operating policies and are subject to change by the
Board of Directors without shareholder approval.

The Fund may not: (1) Diversification. Make an investment unless, when
considering all its other investments, 75% of the value of the Fund's assets
would consist of cash, cash items, obligations of the U.S. Government, its
agencies or instrumentalities and other securities; for purposes of this
restriction, "other securities" are limited for each issuer to not more than 5%
of the value of the Fund's assets and to not more than 10% of the issuer's
outstanding voting securities held by Penn Series as a whole; (2) Industry
Concentration. Invest more than twenty-five percent or more of the value of the
Fund's total assets in the securities of issuers having their principal business
activities in the same industry; (3) Real Estate. Invest in real estate or
interests in real estate, but may purchase readily marketable securities of
companies holding real estate or interests therein, and securities which are
secured by real estate or interests therein; (4) Commodities. Invest in physical
commodities or physical commodity contracts, but it may purchase and sell
financial futures contracts and options thereon; (5) Purchases on Margin.
Purchase securities on margin, except that it may make margin deposits in
connection with financial futures contracts or options; (6) Loans. Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed 30%
of the value of the Fund's total assets; provided, however, that the Fund may
acquire publicly distributed bonds, debentures, notes and other debt securities
and may purchase debt securities at private placement within the limits imposed
on the acquisition of restricted securities; (7) Borrowing. Borrow money, except
the Fund may borrow from banks as a temporary measure for extraordinary or
emergency purposes, and then only in amounts not exceeding 15% of its total
assets valued at market; the Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities; (8) Underwriting.
Underwrite securities issued by other persons except: (i) to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in connection with the purchase of government securities directly from
the issuer in accordance with the Fund's investment objectives, program, and
restrictions; and (ii) the later disposition of restricted securities acquired
within the limits imposed on the acquisition of restricted securities; (9)
Senior Securities. Issue any class of securities senior to any other class of
securities. Entering into repurchase agreements, borrowing money in accordance
with restriction (7) above, or lending portfolio securities in accordance with
restriction (6) above, shall not be considered for purposes of the present
restriction a senior security; (10) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management or control; (11) Ownership of
Portfolio Securities by Officers and Directors. Invest in securities of any
issuer if, to the knowledge of the Fund, any officer or director of the Fund or
any officer or director of the adviser or sub-adviser, owns more than .5% of the
outstanding securities of such issuer, and such officers and directors who own
more than .5% own in the aggregate more than 5% of such securities; (12) Oil and
Gas Programs. Invest in oil, gas or mineral exploration or developmental
programs, except that it may invest in the securities of companies which
operate, invest in, or sponsor such programs; (13) Restricted or Not Readily
Marketable Securities. Purchase a security if, as a result, more than 10% of the
Fund's total assets would be invested in illiquid securities; (14) Short Sales.
Effect short sales of securities, except short sales "against the box;" (15)
Mortgaging. Mortgage, pledge, hypothecate or, in any other manner, transfer as
security for indebtedness any security owned by the Fund, except as may be
necessary in connection with permissible borrows (including reverse repurchase
agreements) financial options and other hedging activities.

<PAGE>

- --------------------------------------------------------------------------------

Small Cap Value Fund

Investment restrictions (1) through (9) are fundamental policies of the
Small Cap Value Fund, except as otherwise indicated. Restrictions (10) through
(15) are non-fundamental operating policies and are subject to change by the
Board of Directors without shareholder approval.

<PAGE>

- --------------------------------------------------------------------------------
International Equity Fund

Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and
(15) are fundamental policies of the International Equity Fund, except as
otherwise indicated. Restrictions (4), (6), (12) and (13) are operating policies
and are subject to change by the Board of Directors without shareholder
approval.

The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (a) Percent Limit on Assets Invested in Any
One Issuer. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (b) Percent Limit on Share Ownership of Any One Issue.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (c) Industry Concentration. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; (d) Unseasoned
Issuers. More than 5% of the value of the Fund's total assets would be invested
in the securities of issuers which at the time of purchase had been in operation
for less than three years, including predecessors and unconditional guarantors;
(2) Restricted or Not Readily Marketable Securities. Purchase a security if, as
a result, more than 10% of the Fund's total assets would be invested in: (a)
securities with legal or contractual restrictions on resale; (b) repurchase
agreements maturing in more than seven (7) days; and (c) other securities that
are not readily marketable; (3) Real Estate. Purchase or sell real estate
(although it may purchase money market securities secured by real estate or
interests therein, or issued by companies which invest in real estate or
interests therein); (4) Investment Companies. Purchase securities of open-end
and closed-end investment companies, except to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder; (5)
Commodities. Purchase or sell commodities or commodity contracts; except that it
may enter into futures contracts subject to (15) below; (6) Oil and Gas
Programs. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (7) Short Sales and Purchases
on Margin. Effect short sales of securities or purchase securities on margin,
except for use of short-term credit necessary for clearance of purchases of
portfolio securities, except that it may make margin deposits in connection with
futures contracts, subject to (15) below; (8) Loans. Make loans, although the
Fund may (i) purchase money market securities and enter into repurchase
agreements, and (ii) lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would exceed 30% of the value
of the Fund's total assets; provided, however, that the Fund may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
purchase debt securities at private placement within the limits imposed on the
acquisition of restricted securities; (9) Borrowing. Borrow money, except from
banks as a temporary measure for extraordinary or emergency purposes, and then
only in amounts not exceeding 15% of its total assets valued at market. The Fund
will not borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities. Interest paid on any such borrows will reduce net
investment income. The Fund may also enter into futures contracts as set forth
in (15) below; (10) Mortgaging. Mortgage, pledge, or hypothecate or, in any
other manner, transfer as security for indebtedness any security owned by the
Fund, except (i) as may be necessary in connection with permissible borrows, in
which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market; and (ii) it may enter into futures contracts; (11)
Underwriting. Underwrite securities issued by other persons except: (i) to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; and (ii) the later disposition of
restricted securities acquired within the limits imposed on the acquisition of
restricted securities; (12) Control of Portfolio Companies. Invest in companies
for the purpose of exercising management or control; (13) Ownership of Portfolio
Securities by Officers and Directors. Purchase or retain the securities of any
issuer if, to the knowledge of the Fund's management or investment adviser,
those officers and directors of Penn Series, and of its investment adviser, who
each owns beneficially more than .5% of the outstanding securities of such
issuer, together own beneficially more than 5% of such securities; (14) Senior
Securities. Issue any class of securities senior to any other class of
securities; or (15) Futures Contracts. Enter into a futures contract if, as a
result thereof, (i) the then current aggregate futures market prices of
securities required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of securities required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.

<PAGE>

In addition to the restrictions set forth above each Fund may be subject to
investment restrictions imposed under the insurance laws and regulations of
Pennsylvania and other states. These restrictions are non-fundamental and, in
the event of amendments to the applicable statutes or regulations, each Fund
will comply, without the approval of the shareholders, with the requirements as
so modified.

Section 817(h) of the Internal Revenue Code requires that the assets of
each Fund be adequately diversified so that Penn Mutual or its affiliated
insurance companies, and not the variable contract owners, are considered the
owners for federal income tax purposes of the assets held in the separate
accounts. Each Fund ordinarily must satisfy the diversification requirements
within one year after contract owner funds are first allocated to the particular
Fund. In order to meet the diversification requirements of regulations issued
under Section 817(h), each Fund will meet the following test: no more than 55%
of the assets will be invested in any one investment; no more than 70% of the
assets will be invested in any two investments; no more than 80% of the assets
will be invested in any three investments; and no more than 90% will be invested
in any four investments. Each Fund must meet the above diversification
requirements within 30 days of the end of each calendar quarter.

In addition to the foregoing, the Money Market Fund will restrict its
investments in accordance with the portfolio quality, diversification and
maturity standards contained in Rule 2a-7 under the Investment Company Act of
1940. See "Investment Policies -- Money Market Fund" above for certain of the
restrictions contained in the Rule.

- --------------------------------------------------------------------------------
GENERAL INFORMATION

- --------------------------------------------------------------------------------

Investment Advisory Services

Independence Capital Management, Inc. Independence Capital Management,
Inc. ("ICMI") serves as investment adviser to all of the Funds and performs
day-to-day investment management services for the Money Market, Limited Maturity
Bond, Quality Bond, Growth and Income and Growth Equity Funds. See "INVESTMENT
ADVISER" in the prospectus for information regarding ICMI and investment
advisory and management services provided to the Funds by ICMI.

The Money Market, Limited Maturity Bond, Quality Bond, Growth and
Income and Growth Equity Funds pay ICMI, on a monthly basis, an advisory fee
based on the average daily net assets of each Fund at the following annual
rates: Money Market Fund, 0.20%; Limited Maturity Bond Fund, 0.30%; Quality Bond
Fund, 0.35%; Growth and Income Fund 0.50%; and Growth Equity Fund, 0.65%. The
advisory fees for the Money Market, Quality Bond, and Growth Equity Funds will
be reduced by 0.05% with respect to average daily net assets in excess of
$100,000,000.

For providing investment advisory and management services to the High
Yield Bond, Flexibly Managed, Large Cap Value, Index 500, Mid Cap Growth, Mid
Cap Value, Small Cap Value, and International Equity Funds, the Funds pay ICMI,
on a monthly basis, an advisory fee based on average daily net assets of each
Fund, at the following annual rates: High Yield Bond, 0.50%; Flexibly Managed,
0.60%; Large Cap Value 0.60%; Index 500, 0.07%, Mid Cap Growth, 0.70%; Mid Cap
Value 0.55%; Small Cap Value 0.85%; and International Equity Fund, 0.85%.

For providing investment advisory and management services to the
Emerging Growth Fund, the Fund pays ICMI, on a monthly basis, an advisory fee
based on average daily net assets of the Fund, at the following annual rates:
0.80% of the first $25,000,000 of average daily net assets; 0.75% of the next
$25,000,000 of average daily net assets; and 0.70% of the average daily net
assets in excess of $50,000,000.

Wells Capital Management Incorporated. Wells Capital Management
Incorporated ("Wells") serves as sub-adviser to the Index 500 Fund and performs
day-to-day investment management services to the Fund. See "INVESTMENT
SUB-ADVISERS" in the Prospectus for more information regarding the investment
advisory services provided to the Fund. For providing sub-advisory services to
the Index 500 Fund, ICMI pays Wells, on a monthly basis, a sub-advisory fee
based on average daily net assets of the Fund, at an annual rate of 0.07% of the
first $100,000,000 of average daily net assets and 0.03% of average daily net
assets in excess of $100,000,000.

<PAGE>

Turner Investment Partners, Inc. Turner Investment Partners, Inc.
("Turner") serves as sub-adviser to the Mid Cap Growth Fund and performs
day-to-day investment management services to the Fund. See "INVESTMENT
SUB-ADVISERS" in the Prospectus for information regarding the investment
advisory services provided to the Fund. For providing sub-advisory services to
the Mid Cap Growth Fund, ICMI pays Turner, on a monthly basis, based on the
average daily net assets of the Fund, a sub-advisory fee at an annual rate of
0.50% with respect to the first $100,000,000 of average daily net assets.

Neuberger Berman Management, Inc. Neuberger Berman Management, Inc.
("Neuberger Berman") serves as sub-adviser to the Mid Cap Value Fund and
performs day-to-day investment management services to the Fund. See "INVESTMENT
SUB-ADVISERS" in the Prospectus for more information regarding the investment
advisory services provided to the Fund. For providing sub-advisory service to
the Mid Cap Value Fund, ICMI pays Neuberger Berman, on a monthly basis, a
sub-advisory fee based on average daily net assets of the Fund, at an annual
rate of 0.43%.

Putnam Investment Management, Inc. ("Putnam") serves as sub-adviser to
the Large Cap Value Fund and performs day-to-day investment management services
to the Fund. See "INVESTMENT SUB-ADVISERS" in the Prospectus for more
information regarding the investment advisory services provided to the Fund. For
providing sub-advisory services to the Large Cap Value Fund, ICMI pays Putnam,
on a monthly basis, based on the average daily net assets of the Fund, a
sub-advisory fee at an annual rate of 0.475% of the first $150,000,000 of
average daily net assets; 0.425% of the next $150,000,000 of average daily net
assets; and 0.35% of average daily net assets of the Fund in excess of
$300,000,000.

Royce Associates, Inc. Royce Associates Inc.("Royce") serves as
sub-adviser to the Small Cap Value Fund and performs day-to-day investment
management services for the Fund. See "INVESTMENT SUB-ADVISERS" in the
prospectus for more information regarding the sub-advisory services provided to
the Fund. For providing sub-advisory service to the Small Cap Value Fund, ICMI
pays Royce, on a monthly basis, a sub-advisory fee based on average daily net
assets of the Fund, at an annual rate of 0.70% of the first $25,000,000 of
average daily net assets; 0.65% with respect to the next $75,000,000 of average
daily net assets; and 0.60% of average daily net assets in excess of
$100,000,000.

T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. ("Price
Associates") serves as sub-adviser the Flexibly Managed and High Yield Bond
Funds and performs day-to-day investment management services for the Funds. See
"INVESTMENT SUB-ADVISERS" in the prospectus for more information regarding the
sub-advisory services provided to the Funds. For providing sub-advisory
services to the Flexibly Managed and High Yield Bond Funds, ICMI pays Price
Associates, on a monthly basis, fees based on the average daily net assets of
each Fund. The fees are paid at the following rates: 0.50% with respect to the
first $250,000,000 of the combined total average daily net assets of the two
Funds and 0.40% with respect to the next $500,000,000 of combined total average
daily net assets of the two Funds; provided, that the fees shall be paid at the
rate of 0.40% with respect to all average daily net assets of the two Funds at
such time as the combined total average daily net assets of the two Funds exceed
$750,000,000.

Vontobel USA Inc. Vontobel USA Inc. ("Vontobel") serves as sub-adviser
to the International Equity Fund and performs the day-to-day investment
management services for the Fund. See "INVESTMENT SUB-ADVISERS" in the
prospectus for information regarding the sub-advisory services provided to the
Fund. For providing sub-advisory services to the International Equity Fund, ICMI
pays Vontobel, on a monthly basis, an advisory fee based on average daily net
assets of the Fund, at the annual rate of 0.50%.

RS Investment Management, Inc. RS Investment Management, Inc. (formerly
"Robertson Stephens Investment Management, Inc.") ("RSIM") serves as sub-adviser
to the Emerging Growth Fund and performs day-to-day investment management
services for the Fund. See "INVESTMENT SUB-ADVISERS" in the prospectus for more
information regarding the sub-advisory services provided to the Fund. ICMI pays
RSIM, on a monthly basis, a sub-advisory fee based on average daily net assets
of the Fund. The sub-advisory fee is paid at the following rates: (i) 0.70% of
the first $25,000,000 of average daily net assets of the Fund; (ii) 0.65% of the
next $25,000,000 of average daily net assets of the Fund; and (iii) 0.60% of
average daily net assets of the Fund in excess of $50,000,000.

In the years 1999, 1998, and 1997, the Funds paid advisory fees to each
Fund's investment adviser as set forth in the following table.

<PAGE>

<TABLE>
<CAPTION>
Fund 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $----- 181,722 148,226
- -------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $----- 206,065 164,758
- -------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $----- 326,267(2) 254,474
- -------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $----- 2,719,881(3) 2,310,427
- -------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $----- $753,060 $ 600,772
- -------------------------------------------------------------------------------------------------------------------
Large Cap Value Fund $----- 1,651,501(4) 1,279,429
- -------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund(1) $----- 208,963(5) 50,608(8)
- -------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund $----- 210,456(6) 137,566
- -------------------------------------------------------------------------------------------------------------------
International Equity Fund $----- 1,071,377(7) 912,368
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Emerging Growth Fund commenced operations on May 1, 1997.
(2) For the period from January 1, 1998 to April 30, 1998, the High Yield Bond
Fund paid $102,744 to Price Associates. For the period from May 1, 1998 to
December 31, 1998, the High Yield Bond Fund paid $223,523 to ICMI. For the
period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory fees of
$197,064 to Price Associates..
(3) For the period January 1, 1998 to April 30, 1998, the Flexibly Managed Fund
paid $887,116 to Price Associates. For the period from May 1, 1998 to
December 31, 1998, the Flexibly Managed Fund paid $1,832,765 to ICMI. For
the period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory
fees of $1,615,755 to Price Associates.
(4) For the period from January 1, 1998 to April 30, 1998, the Large Cap Value
Fund paid $534,722 to OpCap Advisors. For the period from May 1, 1998 to
December 31, 1998, the Large Cap Value Fund paid $1,116,779 to ICMI. For
the period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory
fees of $759,501 to OpCap.
(5) For the period from January 1, 1998 to December 31, 1998, the Emerging
Growth Fund paid $208,963 to ICMI. For the period from May 1, 1998 to
December 31, 1998, the Emerging Growth Fund paid $208,963 to ICMI. For the
period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory fees of
$175,491 to R.S. Investment Management.
(6) For the period from January 1, 1998 to April 30, 1998, the Small Cap Value
Fund paid $69,824 to OpCap. For the period from May 1, 1998 to December 31,
1998, the Small Cap Value Fund paid $140,632 to ICMI. For the period from
May 1, 1998 to December 31, 1998, ICMI paid subadvisory fees of $95,631 to
OpCap.
(7) For the period from January 1, 1998 to April 30, 1998, the International
Equity Fund paid $342,141 to Vontobel. For the period from May 1, 1998 to
December 31, 1998, the International Equity Fund paid $729,236 to ICMI. For
the period from May 1, 1998 to December 31, 1998, ICMI paid subadvisory
fees of $486,157 to Vontobel.
(8) For the eight months ended December 31, 1997, ICMI paid sub-advisory fees
to RSIM in the amount of $45,346.

In 1998, the advisory fee paid by the Emerging Growth Fund is after a
voluntary fee waiver of $8,604. In 1997, the advisory fee paid by the Emerging
Growth Fund is after a voluntary fee waiver of $9,862.

In 1998, ICMI paid sub-advisory fees to OpCap, Price Associates, Vontobel
and RSIM in the amounts of $855,132, $1,812,839, $486,157, and $175,491
respectively. For the eight months ended December 31, 1997, ICMI paid
sub-advisory fees to RSIM in the amount of $45,346.

The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and
Mid Cap Value Funds were not in existence during the fiscal years ended December
31, 1999, 1998 or 1997.

<PAGE>

- --------------------------------------------------------------------------------
Administrative and Corporate Services

Penn Mutual provides administrative and corporate services to Penn Series
and receives a fee from Penn Series for those services equal to the annual rate
of 0.15% of each Fund's average daily net assets. The administrative and
corporate services include: (a) maintenance of records pertaining to Penn
Series' affairs, except those that are required to be maintained by Penn Series'
investment adviser, accounting services agent, custodian, or transfer agent; (b)
preparation of certain filings, reports and proxy statements required by the
federal securities laws; (c) preparation of Penn Series' federal and state tax
returns and any other filings required for tax purposes other than those
required to be made by Penn Series' custodian, transfer agent, accounting
services agent, or investment adviser; (d) such services as Penn Series' Board
of Directors may require in connection with its oversight of Penn Series'
investment adviser, accounting services agent, custodian, or transfer agent,
including the periodic collection and presentation of data concerning the
investment performance of Penn Series' various investment portfolios; (e) the
organization of all meetings of Penn Series' Board of Directors; (f) the
organization of all meetings of Penn Series' shareholders; (g) the collection
and presentation of any financial or other data required by Penn Series' Board
of Directors, accountants, or counsel; and (h) the preparation and negotiation
of any amendments to, or substitutes for, the present agreements with Penn
Series' investment adviser, accounting services agent, custodian, or transfer
agent. Penn Mutual also bears certain expenses in connection with the services
it renders as administrative and corporate services agent, including all rent
and other expense involved in the provision of office space for Penn

<PAGE>

Series and in connection with Penn Mutual's performance of its services as
administrative and corporate services agent.

For fiscal years 1999, 1998, and 1997 the administrative fees paid to Penn
Mutual by each of the Funds then in existence were as follows:

<TABLE>
<CAPTION>
Fund 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $--- 68,174 56,455
- -----------------------------------------------------------------------------------------------------------
Quality Bond Fund $--- 68,688 56,299
- -----------------------------------------------------------------------------------------------------------
High Yield Bond Fund $--- 97,880 76,344
- -----------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $--- 815,964 693,190
- -----------------------------------------------------------------------------------------------------------
Growth Equity Fund $--- $234,353 $186,580
- -----------------------------------------------------------------------------------------------------------
Large Cap Value Fund $--- 495,450 383,864
- -----------------------------------------------------------------------------------------------------------
Emerging Growth Fund* $--- 39,416 1,483
- -----------------------------------------------------------------------------------------------------------
Small Cap Value Fund $--- 63,137 41,270
- -----------------------------------------------------------------------------------------------------------
International Equity Fund $--- 214,275 182,487
- -----------------------------------------------------------------------------------------------------------
* The Emerging Growth Fund commenced operations on May 1, 1997.
</TABLE>
In 1998, the administration fees paid by the Emerging Growth Fund is after
a voluntary fee waiver of $8,603. In 1997, the administration fees paid by the
Emerging Growth Fund is after a voluntary fee waiver of $9,862.

The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and
Mid Cap Value Funds were not active in the fiscal years ended December 31, 1999,
1998 or 1997.

- --------------------------------------------------------------------------------
Accounting Services

PFPC Inc. ("PFPC") serves as the accounting services agent to Penn Series.
PFPC provides certain accounting and related services to Penn Series, including:
(a) the maintenance for each Fund of a daily trial balance, general ledger,
subsidiary records, capital stock accounts (other than those maintained by the
transfer agent for Penn Series), investment ledger and all other books, accounts
and other documents which Penn Series is required to maintain and keep current
pursuant to Rule 31a-1(a) and (b) under the 1940 Act (other than those documents
listed in subparagraph (4) of Rule 31a-1(b)); (b) the daily valuation of the
securities held by, and the net asset value per share of, each Fund; (c) the
preparation of such financial information as may reasonably be necessary for
reports to shareholders, the Board of Directors and officers, the Securities and
Exchange Commission and other federal and state regulatory agencies; and (d) the
maintenance for each Fund of all records that may reasonably be required in
connection with the audits of such Fund. The fee for the accounting services is
based on a predetermined percentage of daily average net assets of each Fund.

For fiscal years 1999, 1998, and 1997, the accounting fees paid by each of
the Funds then in existence were as follows:

36
<PAGE>

The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth and Mid
Cap Value Funds were not in existence during the fiscal years ended December 31,
1999, 1998 and 1997.

- --------------------------------------------------------------------------------
Limitation on Fund Expenses

See "EXPENSES AND LIMITATIONS" in the prospectus for information on
limitations on expenses of the Funds.

- --------------------------------------------------------------------------------
Portfolio Transactions

Decisions with respect to the purchase and sale of portfolio securities on
behalf of each Fund that makes up Penn Series are made by the respective
investment adviser or sub-adviser of that Fund. Each Fund's adviser or sub-
adviser is responsible for implementing these decisions, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage. Most purchases and sales of portfolio debt securities are
transacted with the issuer or with a primary market maker acting as principal
for the securities on a net basis, with no brokerage commission being paid by a
Fund. Transactions placed through dealers serving as primary market makers
reflect the spread between the bid and the asked prices. Occasionally, a Fund
may make purchases of underwritten debt issues at prices which include
underwriting fees.

In purchasing and selling portfolio securities, the policies of the
investment advisers and sub-adviser are to seek quality execution at the most
favorable prices through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates. In selecting broker-dealers to
execute a Fund's portfolio transactions, the investment advisers will consider
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services they provide to the adviser, sub-adviser or
the Fund.

Any of the investment advisers or sub-advisers may effect principal
transactions on behalf of a Fund with a broker-dealer who furnishes brokerage
and/or research services, designate any such broker-dealer to receive selling
concessions, discounts or other allowances, or otherwise deal with any such
broker-dealer in connection with the acquisition of securities in underwritings.
Additionally, purchases and sales of fixed income securities may be transacted
with the issuer, the issuer's underwriter, or with a primary market maker acting
as principal or agent. A Fund does not usually pay brokerage commissions for
these purchases and sales, although the price of the securities generally
includes compensation which is not disclosed separately. The prices the Fund
pays to underwriters of newly-issued securities usually include a commission
paid by the issuer to the underwriter. Transactions placed through dealers who
are serving as primary market makers reflect the spread between the bid and
asked prices.

The investment advisers and sub-advisers may receive a wide range of
research services from broker-dealers, including information on securities
markets, the economy, individual companies, statistical information, accounting
and tax law interpretations, technical market action, pricing and appraisal
services, and credit analyses. Research services are received primarily in the
form of written reports, telephone contacts, personal meetings with security
analysts, corporate and industry spokespersons, economists, academicians, and
government representatives, and access to various computer-generated data.
Research services received from broker-dealers are supplemental to each
investment adviser's and sub-adviser's own research efforts and, when utilized,
are subject to internal analysis before being incorporated into the investment
process.

With regard to payment of brokerage commissions, the investment advisers
and sub-advisers have adopted brokerage allocation policies embodying the
concepts of Section 28(e) of the Securities Exchange Act of 1934, as amended,
which permit investment advisers to cause a fund or portfolio to pay a
commission in excess of the rate another broker or dealer would have charged for
the same transaction, if the adviser determines in good faith that the
commission paid is reasonable in relation to the value of the brokerage and
research services provided. The determination to pay commissions may be made in
terms of either the particular transaction involved or the overall
responsibilities of the adviser or sub-adviser with respect to the accounts over
which it exercises investment discretion. In some cases, research services are
generated by third parties, but are provided to the advisers by or through
brokers and dealers. The advisers and sub-advisers may receive research service
in connection with selling concessions and designations in fixed price offerings
in which the Fund participates.

<PAGE>

In allocating to brokers purchase and sale orders for portfolio securities,
the investment advisers and sub-advisers may take into account the sale of Penn
Mutual variable annuity contracts and variable life insurance policies that
invest in those Funds. Before brokerage business may be allocated on the basis
of those sales, the investment adviser or sub-adviser must be satisfied that the
quality of the transaction and commission payable are comparable to what they
would have been had other qualified brokers been selected to execute the
transaction.

In allocating brokerage business the advisers and sub-advisers annually
assesses the contribution of the brokerage and research services provided by
broker-dealers, and allocate a portion of the brokerage business of their
clients on the basis of these assessments. The advisers and sub-advisers seek to
evaluate the brokerage and research services they receive from broker/dealers
and make judgements as to the level of business which would recognize such
services. In addition, broker-dealers sometimes suggest a level of business they
would like to receive in return for the various brokerage and research services
they provide. Actual brokerage received by any firm may be less than the
suggested allocations, but can (and often does) exceed the suggestions because
total brokerage is allocated on the basis of all the considerations described
above. In no instance is a broker-dealer excluded from receiving business
because it has not been identified as providing research services. The advisers
and sub-advisers cannot readily determine the extent to which net prices or
commission rates charged by broker-dealers reflect the value of their research
services. However, commission rates are periodically reviewed to determine
whether they are reasonable in relation to the services provided. In some
instances, the advisers and sub-advisers receive research services they might
otherwise have had to perform for themselves. The research services provided by
broker-dealers can be useful to the advisers and sub-advisers in serving the
Funds, as well as its other clients.

For fiscal years 1999, 1998, and 1997, the Quality Bond Fund engaged in
portfolio transactions involving broker-dealers totaling $____, $1,548,170,055
and $1,504,902,144, respectively. For fiscal years 1999, 1998, and 1997, the
High Yield Bond Fund engaged in portfolio transactions involving broker-dealers
totaling $____, $737,865, and $362,910,185, respectively, and the Money Market
Fund engaged in portfolio transactions involving broker-dealers totaling $____,
$479,932,894, and $337,784,744, respectively. The entire amounts for each of
these years represented principal transactions as to which the Funds have no
knowledge of the profits or losses realized by the respective broker-dealers. Of
all such portfolio transactions, none were placed with firms which provided
research, statistical, or other services to the Funds or its adviser.

For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Flexibly Managed Fund, including the discounts received by securities
dealers in connection with underwritings, were $____, $1,259,520 and $368,415,
respectively. During 1998, the adviser directed transactions of $____(with
related commissions of $____) to brokers who provided research services.

For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Growth Equity Fund, including the discounts received by securities
dealers in connection with underwritings, were $____, $731,672, and $595,881,
respectively. During 1999, the adviser directed transactions of $____ (with
related commissions of $____) to brokers who provided research services.

For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Large Cap Value Fund, including discounts received by securities dealers
in connection with underwritings, were $____, $195,772 and $111,699,
respectively. During 1999, the adviser directed transactions of $____(with
related commissions of $____) to brokers who provided research services.

For fiscal years 1999, 1998 and the period May 1, 1997 (commencement of
operations) through December 31, 1997, the total brokerage commissions paid by
the Emerging Growth Fund, including the discounts received by the Securities
division in connection with underwritings were $____, $112,916 and $32,800.
During 1999, the adviser directed transactions of $____(with related commissions
of $_____) to brokers who provide research services.

For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the Small Cap Value Fund, including the discounts received by the Securities
division in connection with underwritings, were $____, $107,030 and $82,820,
respectively. During 1999, the adviser directed transactions of $____(with
related commissions of $____) to brokers who provided research services.

For fiscal years 1999, 1998, and 1997, the total brokerage commissions paid
by the International Equity Fund, including the discounts received by the
securities dealers in connection with underwritings, were $____, $305,099, and
$248,517, respectively. During 1999, the adviser allocated transactions of
$____,(with related commissions of $____) to brokers who provided research
services.

<PAGE>

Some of the investment advisers' and sub-advisers' other clients have
investment objectives and programs similar to those of the Funds. An investment
adviser or sub-adviser may occasionally make recommendations to other clients
which result in their purchasing or selling securities simultaneously with a
Fund. As a result, the demand for securities being purchased or the supply of
securities being sold may increase, and this could have an adverse effect on the
price of those securities. It is each of the investment adviser's and
sub-adviser's policy not to favor one client over another in making
recommendations or in placing orders. If two or more of an investment adviser's
or sub-adviser's clients are purchasing a given security at the same time from
the same broker-dealer, the investment adviser or sub-adviser will average the
price of the transactions and allocate the average among the clients
participating in the transaction. In addition, the advisers and sub-advisers in
general follow the policy that they will ordinarily not make additional
purchases of a common stock for its clients (including the Penn Series) if, as a
result of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.

- --------------------------------------------------------------------------------
Directors and Officers

The affairs of Penn Series are managed under the direction of its Board of
Directors. The directors decide upon matters of general policy and review the
actions of Penn Series' investment advisers and sub-advisers and its
administrative and corporate services agent, as set forth below. The Penn
Series' officers conduct and supervise the daily business operations of Penn
Series.

The directors and principal officers of Penn Series, their business
addresses and principal occupations during the past five years are set forth in
the following table.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address Penn Series During Past Five Years
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eugene Bay Director Senior Pastor, Bryn Mawr Presbyterian Church, Bryn Mawr, PA.
121 Fishers Road
Bryn Mawr, PA 19010
- ------------------------------------------------------------------------------------------------------------------------------------
James S. Greene Director Retired; Vice President and Director, International Raw Materials, Inc.,
P.O. Box 3761 Philadelphia, PA (commodities trading), prior to September 1990.
Vero Beach, FL 32964-3761
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Chappell* Director Chairman of the Board and Chief Executive Officer (since December 1996), President
600 Dresher Road and Chief Executive Officer (April 1995 - December 1996), President and Chief
Horsham, PA 19044 Operating Officer, prior thereto The Penn Mutual Life Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Larry L. Mast* Director Executive Vice President, The Penn Mutual Life Insurance Company May 1997 to present.
The Penn Mutual Life Formerly Senior Vice President, Lafayette Life Insurance Company September 1994 to
Insurance Company May 1997; prior thereto Vice President, Security Benefit Insurance Company May 1993
600 Dresher Road to September 1994; Vice President, Home Life Insurance Company July 1990 to May 1993;
Horsham, PA 19044 Agency Manager, The Equitable Life Insurance Company August 1978 to July 1990.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. Toran* Director President and Chief Operating Officer, (January 1997 to present), Executive Vice
The Penn Mutual Life President, Sales and Marketing (May 1996 to January 1997), The Penn Mutual Life
Insurance Company Insurance Company; Executive Vice President, The New England Mutual Life Insurance
600 Dresher Road Company, (prior thereto).
Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Loesche, Jr. Director Retired; Adviser (since April 1988); Director (prior thereto), Keystone Insurance
100 Gray's Lane Company and Keystone Automobile Club, Philadelphia, PA.
Apt. 101
Haverford, PA 19041
- ------------------------------------------------------------------------------------------------------------------------------------
M. Donald Wright Director President, M. Donald Wright Professional Corporation, Bryn Mawr, PA (financial
100 Chetwynd Drive planning and consulting); Director, Graduate School of Financial Services, The
Rosemont, PA 19010 American College, since April 1991.
- ------------------------------------------------------------------------------------------------------------------------------------

Peter M. Sherman President Chairman and President of Independence Capital Management Inc.; Executive Vice
600 Dresher Road President and Chief Investment Officer of the Penn Mutual Life Insurance Company
Horsham, PA 19044 since 1998; Senior Vice President and Chief Investment Officer of Penn Mutual from
1996. Head of Fixed Income Investments from 1995 to 1996.

- ------------------------------------------------------------------------------------------------------------------------------------
Richard F. Plush Vice President Vice President and Senior Actuary, The Penn Mutual Life Insurance Company (1973 to
600 Dresher Road present).
Horsham, PA 19044
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39

<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
C. Ronald Rubley Secretary Attorney, Morgan, Lewis & Bockius LLP, Philadelphia, PA (since January 1996);
1701 Market Street Associate General Counsel, The Penn Mutual Life Insurance Company, (prior thereto).
Philadelphia, PA 19103
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Herzberg Treasurer Assistant Vice President and Treasurer, The Penn Mutual Life Insurance Company
600 Dresher Road (December 1997 to present); Director of Financial Planning and Treasurer (November
Horsham, PA 19044 1995 to December 1997): Director, Cost and Budget (November 1991 to November 1995);
Director, Benefits Administration, (prior thereto).
- ------------------------------------------------------------------------------------------------------------------------------------
Ann M. Strootman Controller Vice President and Controller (since January 1996), Assistant Vice President,
600 Dresher Road Financial and Management Accounting (since 1994), Director of Financial Accounting
Horsham, PA 19044 (prior thereto), The Penn Mutual Life Insurance Company.
- ------------------------------------------------------------------------------------------------------------------------------------
* Director is an "interested person" of Penn Series, as defined in the
Investment Company Act of 1940, as amended.
</TABLE>

Directors and officers of Penn Series who are employed by Penn Mutual will
not receive any special compensation for serving in such capacities. Penn Series
has made no provision for the payment of retirement or pension benefits to any
director or officer. In 1999, Penn Series paid directors' fees in the aggregate
amount of $____ to directors who are not "interested persons" of Penn Series.

The Board of Directors has an Executive Committee currently consisting of
Messrs. Chappell, Toran and Greene. Subject to limits under applicable law,
during intervals between meetings of the Board, the Committee may exercise the
powers of the Board.

- --------------------------------------------------------------------------------
Custodial Services

PNC Bank, Broad & Chestnut Streets, Philadelphia, PA 19107 is custodian of
the assets of the Funds of Penn Series. The custodial services performed by PNC
Bank are those customarily performed for registered investment companies by
qualified financial institutions. Penn Series has authorized the Bank to deposit
certain portfolio securities in a central depository system as allowed by
federal law.

- --------------------------------------------------------------------------------
Independent Auditors

Ernst & Young LLP serves as the independent auditors of Penn Series Funds,
Inc. Their offices are located at 2001 Market Street, Suite 4000, Philadelphia,
PA 19103. Ernst & Young LLP is also the independent auditors of The Penn Mutual
Life Insurance Company.

- --------------------------------------------------------------------------------

Legal Matters

Morgan, Lewis & Bockius LLP of Philadelphia, Pennsylvania, has provided
advice on certain matters relative to the federal securities laws and the
offering of shares of Penn Series Funds, Inc.

- --------------------------------------------------------------------------------
Net Asset Value of Shares

The following information supplements the information on net asset value of
shares set forth in "Account Policies" in the Prospectus.

The purchase and redemption price of each Fund's shares is equal to that
Fund's net asset value per share. Each Fund determines its net asset value per
share by subtracting the Fund's liabilities (including accrued expenses and
dividends payable) from its total assets (the market value of the securities the
Fund holds plus cash and other assets, including income accrued but not yet
received) and dividing the result by the total number of shares outstanding. The
net asset value per share of each Fund is calculated every day the New York
Stock Exchange ("Exchange") is open for trading. The Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Presidential Election Day, Thanksgiving Day, and Christmas Day.

Debt securities held in the Funds may be valued on the basis of valuations
provided by a pricing service when such prices are believed to reflect the fair
value of such securities. Use of the pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institution-size

<PAGE>

trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data.

The Money Market Fund uses the amortized cost method of valuation. Under
the amortized cost method of valuing portfolio securities, the security is
valued at cost on the date of purchase and thereafter a proportionate
amortization of any discount or premium until maturity of the security is
assumed. The value of the security for purposes of determining net asset value
normally does not change in response to fluctuating interest rates. While the
amortized cost method is believed to provide certainty in portfolio valuation,
it may result in periods during which values are higher or lower than the amount
the Money Market Fund would receive if the security was sold.

In accordance with Rule 2a-7 under the Investment Company Act of 1940, the
Penn Series Board of Directors has established procedures reasonably designed,
taking into account current conditions and the Money Market Fund's objectives,
to stabilize the net asset value per share of the Fund, as computed for purposes
of distribution and redemption, at $1.00. Penn Series will maintain a dollar
weighted average portfolio maturity in the Money Market Fund appropriate to the
objective of maintaining a stable net asset value per share, and to that end the
Fund will neither purchase any instrument with a remaining maturity of more than
397 days nor maintain a dollar weighted average portfolio maturity which exceeds
90 days. The Board of Directors will review, at such intervals as it determines
appropriate, the extent, if any, to which the net asset value per share
calculated by using available market quotations deviates from the $1.00 per
share. In the event such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, should be initiated. If the Board believes that
the extent of any deviation from the Money Market Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to
prospective or existing shareholders or contract holders, it has agreed to take
such steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include redeeming shares in kind; selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity of the Money Market Fund; reducing or withholding dividends; utilizing
a net asset value per share as determined by using available market quotations;
or reducing the number of shares outstanding by requesting shareholders to
contribute to capital shares of the Money Market Fund.

- --------------------------------------------------------------------------------

Ownership of Shares

The outstanding shares of each of the Funds of Penn Series are owned by The
Penn Mutual Life Insurance Company ("Penn Mutual") and its subsidiary, The Penn
Insurance and Annuity Company ("PIA") and are held in their Separate Accounts
pursuant to variable annuity contracts and variable life insurance policies.

On January 31, 2000, the outstanding shares of Penn Series were owned as
follows:*
<TABLE>
<CAPTION>
Money Quality Flexibly Growth Large Cap Emerging Small
Market Bond High Yield Managed Equity Value Growth Cap Value International
Fund Fund Bond Fund Fund Fund Fund Fund Fund Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of Outstanding
Shares Owned by Penn
Mutual and Held in Separate
Accounts Pursuant to
Variable Annuity Contracts 81.0% 73.10% 69.3% 71.1% 52.5% 67.9% 69.2% 54.4% 50.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Shares Owned by PIA and
Held in a Separate Account
Pursuant to Variable Annuity
Contracts 8.7% 13.5% 14.6% 16.7% 11.5% 17.1% 17.4% 22.0% 19.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Shares Owned by Penn
Mutual and Held in a Separate
Account Pursuant to Variable
Life Insurance Contracts 10.3% 13.4% 16.1% 12.2% 36.0% 15.0% 13.4% 23.1% 30.4%
- ------------------------------------------------------------------------------------------------------------------------------------
* Unaudited.

---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Tax Status

The following is only a summary of certain federal tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' prospectus. No attempt is made to present a detailed explanation of
the tax treatment of Funds or their shareholders and the discussion here and in
the Funds' prospectus is not intended as a substitute for careful tax planning.
Shareholders are urged to consult their tax advisers with specific reference to
their own tax situations, including their state and local tax liabilities.

The following general discussion of certain Federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, certain administrative changes, or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.

It is the policy of each of the Funds to continue to qualify for the
favorable tax treatment accorded regulated investment companies under Subchapter
M of the Code. By following such policy, each of the Funds expect to be relieved
of the Federal income taxes on net investment company taxable income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) distributed to shareholders.

In order to continue to qualify as a regulated investment company each Fund
must, among other things, (1) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in stock,
securities or currencies; and (2) diversify its holdings so that at the end of
each quarter of each taxable year (i) at least 50% of the market value of the
Fund's total assets is represented by cash or cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to a value not greater than 5%
of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities or securities of any other regulated investment company) or of two or
more issuers that the Fund controls and that are engaged in the same, similar,
or related trades or businesses. These requirements may restrict the degree to
which the Funds may engage in short-term trading and in certain hedging
transactions and may limit the range of the Fund's investments. If a Fund
qualifies as a regulated investment company, it will not be subject to Federal
income tax on the part of it's net investment income and net realized capital
gains, if any, which it distributes each year to the shareholders, provided the
Fund distributes at least (a) 90% of its "investment company taxable income"
(generally, net investment income plus the excess, if any, of net short-term
capital gain over net long-term capital losses) and (b) 90% of its net exempt
interest income (the excess of (i) its tax-exempt interest income over (ii)
certain deductions attributable to that income).

If for any taxable year, a Fund does not qualify as a regulated investment
company under Subchapter M of the Code, all of its taxable income will be
subject to tax at regular corporate tax rates without any deduction for
distributions to shareholders and all such distributions will be taxable to
shareholders as ordinary dividends to the extent of the fund's current or
accumulated earnings and profits. Such distributions will generally qualify for
the corporate dividends received deduction for corporate shareholders.

If a Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its net realized gains (the excess of
short and long term capital gain over short and long term capital losses) for
the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax.

Distributions declared in October, November, or December to shareholders of
record during those months and paid during the following January are treated as
if they were received by each shareholder on December 31 of the prior year for
tax purposes.

A Fund's transactions in certain futures contracts, options, forward
contracts, foreign currencies, foreign debt securities, and certain other
investment and hedging activities will be subject to special tax rules. In a
given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's assets, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing, and character of distributions to

<PAGE>

shareholders. Each Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interest of the
Fund.

- --------------------------------------------------------------------------------
Voting Rights

Penn Series is an open end management investment company. Each Fund is
"diversified" as defined in the 1940 Act. The shares of the Funds have equal
voting rights, except that certain issues will be voted on separately by the
shareholders of each Fund. Penn Mutual and PIA own all the outstanding shares of
Penn Series, either in their separate accounts registered under the 1940 Act or
in their unregistered separate accounts or general accounts. Pursuant to the
1940 Act, however, Penn Mutual and PIA will vote the shares held in registered
separate accounts in accordance with voting instructions received from variable
contract owners or payees having the right to give such instructions. Fund
shares for which contract owners or payees are entitled to give voting
instructions, but as to which no voting instructions are received, and shares
owned by Penn Mutual and PIA in their general and unregistered separate
accounts, will be voted in proportion to the shares for which voting
instructions have been received. Under state insurance law and federal
regulations, there are certain circumstances under which Penn Mutual and PIA may
disregard such voting instructions. If voting instructions are ever so ignored,
contract owners will be advised of that action in the next semiannual report.

Penn Series currently does not intend to hold annual meetings of
shareholders unless required to do so under applicable law. The law provides
shareholders with the right under certain circumstances to call a meeting of
shareholders to consider removal of one or more directors. As required by law,
Penn Series will assist in variable contract owner and payee communication on
such matters.

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION

- --------------------------------------------------------------------------------

The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.

Performance quotations by investment companies are subject to rules adopted
by the Commission, which require the use of standardized performance quotations.
In the case of total return, non-standardized performance quotations may be
furnished by the Fund but must be accompanied by certain standardized
performance information computed as required by the Commission. Current yield
and average annual compounded total return quotations used by the Fund are based
on the standardized methods of computing performance mandated by the Commission.
An explanation of those and other methods used by the Company to compute or
express performance follows.

- --------------------------------------------------------------------------------
Total Return

From time to time each Fund, except the Money Market Fund, may advertise
total return. Total return figures are based on historical earnings and are not
intended to indicate future performance. The average annual total return is
determined by finding the average annual compounded rates of return over 1-, 5-,
and 10-year periods (or over the life of the Fund) that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes that all dividends and distributions are reinvested when paid. The
quotation assumes the amount was completely redeemed at the end of each 1-, 5-,
and 10-year period (or over the life of the Fund) and the deduction of all
applicable Company expenses on an annual basis.

The average annual compounded rates of return (unless otherwise noted) for
the Funds for the periods ended December 31, 1999 are as follows:

<PAGE>

<TABLE>
<CAPTION>
Inception One Average Average
Name of Fund Date Year Annual Annual Since
- ------------ --------- ---- Five-Years Inception
---------- ------------
<S> <C> <C> <C> <C>
Quality Bond

High Yield Bond

Flexibly Managed

Growth Equity

Large Cap Value

Emerging Growth

Small Cap Value

International Equity
- --------------------------------------------------------------------------------
</TABLE>

These figures were calculated according to the following formula:

P(1 +T) n=ERV

where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical
$1,000 payment made at the beginning of the
l-, 5-, or 10-year periods at the end of the
l-, 5-, or 10-year periods (or fractional
portion thereof).

- --------------------------------------------------------------------------------

The Limited Maturity Bond, Growth and Income, Index 500, Mid Cap Growth
and Mid Cap Value Funds were not in existence during the fiscal years ending
December 31, 1999, 1998 and 1997.

- --------------------------------------------------------------------------------
RATINGS OF COMMERCIAL PAPER

- --------------------------------------------------------------------------------

Moody's Investor Services, Inc. Commercial paper ratings:

PRIME-1 Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:

- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Board margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

- --------------------------------------------------------------------------------
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

- --------------------------------------------------------------------------------
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt

<PAGE>

protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.

- --------------------------------------------------------------------------------
Standard & Poor's Rating Group commercial paper ratings:

A-1 This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.

- --------------------------------------------------------------------------------
A-2 Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.

- --------------------------------------------------------------------------------
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.

- --------------------------------------------------------------------------------
B Issues rated B are regarded as having significant speculative
characteristics for timely payment.

- --------------------------------------------------------------------------------
C This rating is assigned to short-term debt obligations that is
currently vulnerable to nonpayment.

- --------------------------------------------------------------------------------
D Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments
on an obligation are jeopardized.

- --------------------------------------------------------------------------------
Fitch Investors Service, Inc.:

Fitch 1--Highest grade. Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment. Fitch 2--Very good
grade. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.

- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT SECURITIES

- --------------------------------------------------------------------------------

The quality of a bond is measured by credit risk--the continuing ability of
the issuer to meet interest and principal payments. Issuers who are believed to
be good credit risks receive high quality ratings, and those believed to be poor
credit risks receive low quality ratings. As a result of the greater credit risk
involved, medium and low quality bonds typically offer a higher yield than bonds
of high quality.

- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.

AAA Bonds which are rated AAA are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.

- --------------------------------------------------------------------------------
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the AAA group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
AAA securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than AAA
securities.

<PAGE>

- --------------------------------------------------------------------------------
A Bonds which are rated A possess many favorable investment
attributes and are generally considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.

- --------------------------------------------------------------------------------
Baa Bonds which are rated Baa are considered medium-grade obligations
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

- --------------------------------------------------------------------------------
Ba Bonds which are rated Ba are judged to have the following
speculative elements: their future cannot be considered as
well-assured; the protection of interest and principal payments
may be very moderate, and thereby not well safeguarded during both
good and bad times over the future; and uncertainty of position
characterizes bonds in this class.

- --------------------------------------------------------------------------------
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or maintenance of other terms of the contract over any long period
of time may be small.

- --------------------------------------------------------------------------------
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.

- --------------------------------------------------------------------------------
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked short-comings.

- --------------------------------------------------------------------------------
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.

- --------------------------------------------------------------------------------
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a rating in the lower end of
the generic rating category.

- --------------------------------------------------------------------------------
Standard & Poor's Ratings Group

AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay
principal and interest.

- --------------------------------------------------------------------------------
AA Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only to a small
degree.

- --------------------------------------------------------------------------------
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.

- --------------------------------------------------------------------------------
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.

- --------------------------------------------------------------------------------
Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major risk exposures to adverse conditions.

<PAGE>

The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.

Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing of
a bankruptcy petition of the taking of a similar action if payments on a
obligation are jeopardized.

- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF PENN SERIES

- --------------------------------------------------------------------------------

The following pages include audited financial statements and financial
highlights as of December 31, 1999 for the Money Market Fund, Quality Bond Fund,
High Yield Bond Fund, Flexibility Managed Fund, Growth Equity Fund, Large Cap
Value Fund, Emerging Growth Fund, Small Cap Value Fund, and International Equity
Fund.

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS

- --------------------------------------------------------------------------------

<PAGE>

PART C: OTHER INFORMATION

Item 23. Exhibits

(a)(1) Articles of Incorporation -Previously filed on April 26, 1983
as Exhibit 1 to Post-Effective Amendment No. 24 to this
Registration Statement, and incorporated by reference to
Exhibit 1 of Post-Effective Amendment No. 44 on Form N-1A (File
Nos. 2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000950109-97-001341) on February 14, 1997.

(a)(2) Articles Supplementary to the Articles of Incorporation to be
filed by Amendment.

(b) By-Laws - Previously filed on August 27, 1992 as Exhibit 2 to
Post-Effective Amendment No. 37 to this Registration Statement,
and incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 44 on Form N-1A (File Nos. 2-77284 and
811-03459), as filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950109-97-001341) on
February 14, 1997.

(c) None (outstanding shares of common stock are recorded on the
books and records of the Registrant - Certificates of stock are
not issued).

(d)(1) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Growth Equity, Quality Bond and Money Market Funds - Previously
filed on August 27, 1992 as Exhibit 5(b) to Post-Effective
Amendment No. 37 to this Registration Statement, and
incorporated by reference to Exhibit 5(b) of Post-Effective
Amendment No. 44 on Form N-1A (File Nos. 2-77284 and
811-03459), as filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950109-97-001341) on
February 14, 1997.

(d)(2) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Emerging Growth Fund - Incorporated by reference to Exhibit
5(e) of Post-Effective Amendment No. 45 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001036050-97-001076) on November 21, 1997.

(d)(3) Form of proposed Investment Advisory Agreement between the
Registrant and Independence Capital Management, Inc.- Filed
herewith.

(d)(4) Sub-Advisory Agreement between Independence Capital Management,
Inc. and RS Investment Management, Inc. with respect to the
Emerging Growth Fund - Incorporated by reference to Exhibit
5(c) of Post-Effective Amendment No. 46 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001036050-98-000286) on February 27, 1998.

(d)(5) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the Value

C-1
<PAGE>

Equity, Small Capitalization, Flexibly Managed, International
Equity and High Yield Bond Funds - Incorporated by reference to
Exhibit (d)(4) of the Registrant's Post-Effective Amendment No.
47, as filed with the Securities and Exchange Commission via
EDGAR (Accession No. 0000950116-99-000315 ) on February 26,
1999.

(d)(6) Form of proposed Sub-Advisory Agreement between Independence
Capital Management, Inc. and Turner Investment Partners, Inc.
with respect to the Mid Cap Growth Fund - Filed herewith.

(d)(7) Form of proposed Sub-Advisory Agreement between Independence
Capital Management, Inc. and Putnam Management, Inc. with
respect to the Large Cap Value Fund - Filed herewith.

(d)(8) Form of proposed Sub-Advisory Agreement between Independence
Capital Management, Inc. and Wells Capital Management,
Incorporated with respect to the Index 500 Fund - Filed
herewith.

(d)(9) Form of proposed Sub-Advisory Agreement between Independence
Capital Management and Neuberger Berman Management, Inc. with
respect to the Mid Cap Value Fund - Filed herewith.

(d)(10) Form of proposed Sub-Advisory Agreement between Independence
Capital Management, Inc. and Royce & Associates, Inc. with
respect to the Small Cap Value Fund - Filed herewith.

(d)(11) Sub-Advisory Agreement between Independence Capital Management,
Inc. and T. Rowe Price Associates, Inc. with respect to the
Flexibly Managed and High Yield Bond Funds - Incorporated by
reference to the Registrant's Post-Effective Amendment No. 47
as filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-99-000315) on February 26, 1999.

(d)(12) Sub-Advisory Agreement between Independence Capital Management,
Inc. and Vontobel USA Inc. with respect to the International
Equity Fund - Incorporated by reference to the Registrant's
Post-Effective Amendment No. 47 as filed with the Securities
and Exchange Commission via EDGAR (Accession No.
000950116-99-000315) on February 26, 1999.

(e) None. Common stock of the Registrant is sold only to The Penn
Mutual Life Insurance Company and its affiliated insurance
companies for their general or separate accounts.

(f) None.

(g)(1) Amended and Restated Custodian Agreement between the Registrant
and Provident National Bank to be filed by Amendment

(g)(2) Form of Foreign Custody Manager Agreement between the
Registrant and PNC Bank - Incorporated by reference to Exhibit
8(b) of Post-Effective Amendment No. 46 on Form N-1A (File Nos.
2-77284 and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001036050-98-000286) on February 27, 1998.

C-2
<PAGE>

(h)(1) Administrative and Corporate Services Agreement between the
Registrant and The Penn Mutual Life Insurance Company - Filed
herewith

(h)(2) Accounting Services Agreement between the Registrant and
Provident Financial Processing Corporation - Previously filed
on March 10, 1990 as Exhibit 9(b) to Post-Effective Amendment
No. 33 to this Registration Statement, and incorporated by
reference to Exhibit 9(b) of Post-Effective Amendment No. 44 on
Form N-1A (File Nos. 2-77284 and 811-03459), as filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 0000950109-97-001341) on February 14, 1997.

(h)(3) Agreement between the Registrant and Provident Financial
Processing Corporation on fees for services under Accounting
Services Agreement - Previously filed on February 24, 1995 as
Exhibit 9(c) to Post-Effective Amendment No. 43 to this
Registration Statement, and incorporated by reference to
Exhibit 9(c) of Post-Effective Amendment No. 44 on Form N-1A
(File Nos. 2-77284 and 811-03459), as filed with the Securities
and Exchange Commission via EDGAR (Accession
No. 0000950109-97-001341) on February 14, 1997.

(i) Opinion and Consent of Morgan, Lewis & Bockius LLP - To be
filed by Amendment

(j) Consent of Ernst & Young LLP - To be filed by Amendment.

(k) None.

(l) None.

(m) None.

(n) Not applicable.

(o) None.

(p) Code of Ethics to be filed by Amendment

(q) Powers of Attorney of Directors - Incorporated by reference to
the Registrant's Post-Effective Amendment No. 47 as filed with
the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-99-000315) on February 26, 1999.

C-3
<PAGE>

Item 24. Persons Controlled by or under Common Control with Registrant

The Penn Mutual Life Insurance Company ("Penn Mutual") is the owner of
100% of the outstanding common stock of the Registrant. For further
information on the ownership of the outstanding common stock of the
Registrant, see "Voting Rights" in the Prospectus and "Ownership of
Shares" in the Statement of Additional Information, which are
incorporated hereunder by reference.

Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of The Penn Insurance and Annuity Company, a
Delaware corporation.

Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of Independence Capital Management., Inc., a
Pennsylvania corporation, and registered investment adviser.

Penn Mutual is the record and beneficiary owner of 100% of the
outstanding common stock of The Penn Janney Fund, Inc. Penn Janney
Fund, Inc. is a Pennsylvania corporation and invests in new business.

Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of The Pennsylvania Trust Company, a
Pennsylvania corporation.

Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of Independence Square Properties, Inc., a
holding corporation incorporated in Delaware.

Independence Square Properties, Inc. is the record and beneficial owner
of 100% of the outstanding common stock of the following corporations:
Indepro Corp. and WPI Investment Company, both Delaware corporations.

Indepro Corp. is the record and beneficial owner of 100% of the
outstanding common stock of Indepro Property Fund I Corp., Indepro
Property Fund II Corp., Commons One Corp. and West Hazleton, Inc., all
Delaware corporations.

Independence Square Properties, Inc. is the record and beneficial owner
of 100% of the outstanding common stock of Janney Montgomery Scott LLC,
a Delaware corporation, and Hornor, Townsend & Kent, Inc., a
Pennsylvania corporation.

Janney Montgomery Scott LLC is the record and beneficial owner of 100%
of the outstanding common stock of the following corporations: JMS
Resources, Inc., a Pennsylvania corporation; JMS Investor Services,
Inc., a Delaware corporation; and Janney Montgomery Scott Insurance
Agency Inc., a Massachusetts corporation..

Penn Mutual and Janney Montgomery Scott LLC each is the record and
beneficial owner of a subscription agreement for 50% of the common
stock of Penn Janney Advisory, Inc., a Pennsylvania corporation.

Item 25. Indemnification

Article VII, Section (3) of the Articles of Incorporation of the
Registrant provides generally that directors and officers of the
Registrant shall be indemnified by the Registrant to the full extent
permitted by Maryland law and by the Investment Company Act of 1940,
now or hereinafter in force.

C-4
<PAGE>

Article VI, Section (2) of the By-laws of the Registrant provides: Any
person who was or is a party or is threatened to be made a defendant or
respondent in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that such person is or was a director or officer
of the Corporation, or is or was serving while a director or officer of
the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan,
shall be indemnified by the Corporation against judgments, penalties,
fines, settlements and reasonable expenses (including attorney's fees)
actually incurred by such person in connection with such action, suit
or proceeding to the full extent permissible under the General Laws of
the State of Maryland now or hereafter in force, except that such
indemnity shall not protect any such person against any liability to
the Corporation or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.

C-5
<PAGE>

Item 26. Business and Other Connections of Investment Advisers

T. Rowe Price Associates, Inc.

Listed below are the directors, executive officers and managing
directors of T. Rowe Price Associates, Inc. (the "Manager") who have
other substantial businesses, professions, vocations, or employment
aside from that of Director of the Manager.

<TABLE>
<CAPTION>
Name and
Current Position
with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years Address
--------------- ------------------------- -------
<S> <C> <C>
James E. Halbkat, Jr., President of U.S. Monitor P. O. Box 23109
Director of the Manager Corporation, a provider of Hilton Head Island, SC
public response systems. 29925

Richard L. Menschel, Limited partner of The Goldman 2nd Floor
Director of the Manager Sachs Group, L.P., an investment 85 Broad Street
banking firm. New York, NY 10004

Robert L. Strickland, Retired Chairman of Lowe's Suite 604
Director of the Manager Companies, Inc., a retailer of 2000 W. First Street
speciality home supplies, as of Winston-Salem, NC 27104
January 31, 1998 and continues
to serve as a Director. He is
also a Director of Hannaford
Bros., Co., a food retailer.

Philip C. Walsh Retired mining industry Pleasant Valley
Director of the Manager executive. Peapack, NJ 07977

Anne Marie Whittemore Partner of the law firm of One James Center
Director of the Manager McGuire, Woods, Battle & Boothe Richmond, VA 23219
L.L.P. and a Director of Owens &
Minor, Inc., Fort James
Corporation and Albemarle
Corporation.
</TABLE>

With the exception of Messrs. Halbkat, Menschel, Strickland and Walsh and Mrs.
Whittemore, all of the following directors of the Manager are employees of the
Manager.

Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
Henry H. Hopkins, Director of T. Rowe Price Insurance Agency, Inc.; Vice
Director and Managing President and Director of T. Rowe Price (Canada), Inc., T.
Director of the Manager Rowe Price Investment Services, Inc., T. Rowe Price Services,
Inc., T. Rowe Price Threshold Fund Associates, Inc., T. Rowe
Price Trust Company, TRP Distribution, Inc., and TRPH
Corporation; Director of T. Rowe Price Insurance Agency,
Inc.; Vice President of Price-Fleming, T. Rowe Price Real
Estate Group, Inc., T. Rowe Price Retirement Plan Services,
Inc., T. Rowe Price Stable Asset Management, Inc., and T.
Rowe Price Strategic Partners Associates, Inc.
</TABLE>

C-6
<PAGE>

Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
James A.C. Kennedy, III President and Director of T. Rowe Price Strategic Partners
Director and Managing Associates, Inc.; Director and Vice President of T. Rowe
Director of the Manager Price Threshold Fund Associates, Inc.

John H. Laporte, Jr.,
Director and Managing
Director of the Manager

William T. Reynolds, Chairman of the Board of T. Rowe Price Stable Asset
Director and Managing Management, Inc.; Director of TRP Finance, Inc.
Director of the Manager

James S. Riepe, Chairman of the Board and President of T. Rowe Price Trust
Vice Chairman of the Board, Company; Chairman of the Board of T. Rowe Price (Canada),
Director, and Managing Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price
Director of the Manager Investment Technologies, Inc., T. Rowe Price Retirement Plan
Services, Inc., and T. Rowe Price Services, Inc.; Director of
Price-Fleming, T. Rowe Price Insurance Agency, Inc. and TRPH
Corporation; Director and President of TRP Distribution,
Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc.; and
Director and Vice President of T. Rowe Price Stable Asset
Management, Inc.

George A. Roche, Chairman of the Board of TRP Finance, Inc.; Director of
Chairman of the Board, Price-Fleming, T. Rowe Price Retirement Plan Services, Inc.,
President, and Managing and T. Rowe Price Strategic Partners, Inc.; and Director and
Director of the Manager Vice President of T. Rowe Price Threshold Fund Associates,
Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc.

Brian C. Rogers, Vice President of T. Rowe Price Trust Company
Director and Managing
Director of the Manager

M. David Testa, Chairman of the Board of Price-Fleming; President and
Vice Chairman of the Board, Director of T. Rowe Price (Canada), Inc.; Director and Vice
Chief Investment Officer, President of T. Rowe Price Trust Company; and Director of
and Managing Director of the TRPH Corporation
Manager

</TABLE>

Executive Officers:

<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
Edward C. Bernard, Director and President of T. Rowe Price Insurance Agency,
Managing Director of the Inc. and T. Rowe Price Investment Services, Inc.; Director of
Manager T. Rowe Price Services, Inc.; Vice President of TRP
Distribution, Inc.
</TABLE>

C-7
<PAGE>

Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
Michael A. Goff, Director and the President of T. Rowe Price Investment
Managing Director of the Technologies, Inc.
Manager

Charles E. Vieth, Director and President of T. Rowe Price Retirement Plan
Managing Director of the Services, Inc.; Director and Vice President of T. Rowe Price
Manager Investment Services, Inc. and T. Rowe Price Services, Inc.;
Vice President of T. Rowe Price (Canada), Inc., T. Rowe Price
Trust Company, and TRP Distribution, Inc.

Alvin M. Younger, Jr., Director, Vice President, Treasurer, and Secretary of TRP
Chief Financial Officer, Suburban Second, Inc. and TRP Suburban, Inc.; Director of TRP
Managing Director, Finance, Inc.; Secretary and Treasurer for Price-Fleming, T.
Secretary, and Treasurer of Rowe Price (Canada), Inc., T. Rowe Price Insurance Agency,
the Manager Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price
Real Estate Group, Inc., T. Rowe Price Retirement Plan
Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price
Stable Asset Management, Inc., T. Rowe Price Strategic
Partners Associates, Inc., T. Rowe Price Threshold Fund
Associates, Inc., T. Rowe Price Trust Company, TRP
Distribution, Inc., and TRPH Corporation; Treasurer and Clerk
of T. Rowe Price Insurance Agency of Massachusetts, Inc.
</TABLE>

Managing Directors:

Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
Preston G. Athey,
Managing Director of the
Manager

Brian W.H. Berghuis,
Managing Director of the
Manager

Stephen W. Boesel, Vice President of T. Rowe Price Trust Company
Managing Director of the
Manager

Gregory A. McCrickard, Vice President of T. Rowe Price Trust Company
Managing Director of the
Manager

Mary J. Miller,
Managing Director of the
Manager

Charles A. Morris,
Managing Director of the
Manager

</TABLE>

C-8
<PAGE>

Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
George A. Murnaghan, Executive Vice President of Price-Fleming; Vice President of
Managing Director of the T. Rowe Price Investment Services, Inc. and T. Rowe Price
Manager Trust Company

Edmund M. Notzon, III, Vice President of T. Rowe Price Trust Company
Managing Director of the
Manager

Wayne D. O'Melia, Director and President of T. Rowe Price Services, Inc.; Vice
Managing Director of the President of T. Rowe Price Trust Company
Manager

Larry J. Puglia, Vice President of T. Rowe Price (Canada), Inc.
Managing Director of the
Manager

John R. Rockwell, Director and Senior Vice President of T. Rowe Price
Managing Director of the Retirement Plan Services, Inc.; Director and Vice President
Manager of T. Rowe Price Stable Asset Management, Inc. and T. Rowe
Price Trust Company; Vice President of T. Rowe Price
Investment Services, Inc.

R. Todd Ruppert, President and Director of TRPH Corporation; Vice President of
Managing Director of the T. Rowe Price Retirement Plan Services, Inc. and T. Rowe
Manager Price Trust Company

Robert W. Smith, Vice President of Price-Fleming
Managing Director of the
Manager

William J. Stromberg,
Managing Director of the
Manager

Richard T. Whitney, Vice President of Price-Fleming and T. Rowe Price Trust
Managing Director of the Company
Manager

</TABLE>

C-9
<PAGE>

Independence Capital Management, Inc.

<TABLE>
<CAPTION>
Name and Current
Position with
T. Rowe Price Other Business and Connections
Associates Inc. During the Past Two Years
--------------- -------------------------
<S> <C>
Peter M. Sherman, Chairman, President and Chief Executive Officer of
President, Chief Executive Independence Capital Management, Inc., Horsham, PA;
Officer and Director Executive Vice President and Chief Investment Officer of The
Penn Mutual Life Insurance Company, Horsham, PA.

Robert E. Chappell, Director of Independence Capital Management, Inc., Horsham,
Director PA; Chairman and Chief Executive Officer of The Penn Mutual
Life Insurance Company, Horsham, PA

Richardson T. Merriman, Senior Vice President of Independence Capital Management,
Senior Vice President and Inc., Radnor, PA; President, Chief Executive Officer and
Director Chief Investment Officer of The Pennsylvania Trust Company,
Radnor, PA

Nils L. Berglund, Vice President of Independence Capital Management, Inc.,
Vice President Radnor, PA; Senior Vice President and Portfolio Manager of
The Pennsylvania Trust Company, Radnor, PA; Registered
Representative of Hornor, Townsend & Kent, Inc., Horsham, PA

Willard N. Woolbert, Vice President of Independence Capital Management, Inc.,
Vice President Radnor, PA; Senior Vice President and Portfolio Manager of
The Pennsylvania Trust Company, Radnor, PA; Vice President
and Senior Portfolio Manager, PNC Bank, Philadelphia, PA
(from 1990 to 1998).

Barbara S. Wood, Vice President, Controller, Treasurer and Secretary of
Vice President, Controller, Independence Capital Management, Inc., Radnor, PA; Vice
Treasurer and Secretary President and Treasurer of The Pennsylvania Trust Company,
Radnor, PA; Senior Vice President and Treasurer of Hornor,
Townsend & Kent, Inc., Horsham, PA. (July 1995 to December
1999).
</TABLE>

C-10
<PAGE>

pCap Advisors

<TABLE>
<CAPTION>
Name and Current Position with Other Business and Connections
OpCap Advisors* During the Past Two Years
--------------- -------------------------
<S> <C>
Mark Degenhart, Vice President of Oppenheimer Capital.
Vice President

Linda S. Ferrante, Managing Director of Oppenheimer Capital.
Portfolio Manager

John Giusio, Vice President of Oppenheimer Capital.
Vice President and Portfolio Manager

Richard J. Glasebrook, II, Managing Director of Oppenheimer Capital.
Vice President and Portfolio Manager

Colin Glinsman, Chief Investment Officer/Managing Director
Vice President and Portfolio Manager of Oppenheimer Capital.

Louis Goldstein, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.

Matthew Greenwald, Senior Vice President of Oppenheimer
Portfolio Manager Capital.

Alan Gutmann, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.

Benjamin Gutstein, Assistant Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.

Vikki Y. Hanges, Senior Vice President of Oppenheimer
Vice President and Portfolio Manager Capital.

Francis A. LeCates, Jr., Managing Director of Oppenheimer Capital.
Director of Research

Elisa A. Mazen, Senior Vice President of Oppenheimer Capital.
Vice President and Portfolio Manager

Timothy McCormack, Senior Vice President of Oppenheimer Capital.
Vice President and Portfolio Manager

</TABLE>

C-11
<PAGE>

Name and Current Position with Other Business and Connections
OpCap Advisors* During the Past Two Years
--------------- -------------------------
<S> <C>

Kenneth M. Poorey, Chief Operating Officer of PIMCO Advisors.
Chief Executive Officer

Frank Poli, Senior Vice President of PIMCO Advisors.
Vice President and Secretary

Eric Retzlaff, Senior Vice President of Oppenheimer
Senior Vice President Capital.

Eileen Rominger, Managing Director of Oppenheimer Capital.
Vice President and Portfolio Manager

Elliot Weiss, Vice President of Oppenheimer Capital.
Vice President

Jeffrey Whittington, Senior Vice President of Oppenheimer
Portfolio Manager Capital.

</TABLE>

* The address of OpCap Advisors is 1345 Avenue of the Americas, 50th Floor,
New York, New York, 10105-4800

Vontobel USA Inc.

Since February 1997, Mr. Heinrich Schlegel has served as a director of:

Vontobel Funds, Inc.
Suite 223
1500 Forest Avenue
Richmond, VA 23229

Vontobel Funds, Inc. is a registered investment company, incorporated under the
laws of Maryland, comprising five fund series for which Vontobel USA Inc. serves
as investment adviser.

RS Investment Management, Inc.

<TABLE>
<CAPTION>
Name and Current Position with RS Other Business Connections During the
Investment Management, Inc. Past Two Years
--------------------------- --------------
<S> <C>
David James Evans, III,
Portfolio Manager,
Secretary and Securities Analyst

George Randall Hecht, Executive V.P., COO and Limited Partner of
Director and President Robertson, Stephens & Company, L.P.; President and
CEO of Robertson Stephens Investment Trust; Trustee
of Robertson Stephens Investment Trust.

James Lawrence Callinan, Portfolio Manager, Putnam Investments.
Portfolio Manager
</TABLE>

C-12
<PAGE>

Neuberger Berman, LLC

<TABLE>
<CAPTION>
Name and Current Position with Other Business Connections During the
Neuberger Berman, LLC Past Two Years
--------------------- --------------
<S> <C>
Philip Ambrosio Senior Vice President and Chief Financial Officer,
Senior Vice President and Chief Neuberger Berman Inc.
Financial Officer, NB Management

Brooke A. Cobb Chief Investment Officer, Bainco International
Vice President, Investors. Senior Vice President and Senior Portfolio
NB Management Manager, Putnam Investments until 1997.

Theodore P. Giuliano President and Trustee, Neuberger Berman Income
Vice President, NB Management; Funds; President and Trustee, Neuberger Berman
Managing Director, Income Trust; President and Trustee, Income
Neuberger Berman Managers Trust.

Michael M. Kassen Executive Vice President, Chief Investment Officer
Executive Vice President and Chief and Director, Neuberger Berman, Inc.
Executive Officer, NB Management

Jeffrey B. Lane President, Chief Executive Officer and Director of
President and Chief Executive Neuberger Berman, Inc.
Officer, Neuberger Berman

Michael F. Malouf Portfolio Manager, Dresdner RCM Global Investors
Vice President, NB Management until 1998.

Robert Matza Executive Vice President, Chief Administrative
Executive Vice President and Chief Officer and Director, Neuberger Berman, Inc.
Administrative
Officer, Neuberger Berman

S. Basu Mullick Portfolio Manager, Ark Asset Management until 1998.
Vice President, NB Management

C. Carl Randolph Secretary and General Counsel, Neuberger Berman, Inc.
Senior Vice President, General Assistant Secretary, Neuberger Berman Advisers
Counsel and Secretary, Management Trust; Assistant Secretary Advisers
Neuberger Berman Managers Trust; Assistant Secretary, Neuberger Berman
Income Funds; Assistant Secretary, Neuberger Berman
Income Trust; Assistant Secretary, Neuberger Berman
Equity Funds; Assistant Secretary, Neuberger Berman
Equity Trust; Assistant Secretary, Income Managers
Trust; Assistant Secretary, Equity Managers Trust;
Assistant Secretary, Global Managers Trust; Assistant
Secretary, Neuberger Berman Equity Assets; Assistant
Secretary, Neuberger Berman Equity Series.

Ingrid Saukaitis Project Director, Council on Economic Priorities until
Vice President, NB Management 1997.

Heidi L. Schneider Executive Vice President and Director, Neuberger
Executive Vice President, Neuberger Berman Berman, Inc.
</TABLE>

C-13
<PAGE>

<TABLE>
<CAPTION>
Name and Current Position with Other Business Connections During the
Neuberger Berman, LLC Past Two Years
--------------------- --------------
<S> <C>
Benjamin E. Segal Assistant Portfolio Manager, GT Global Investment
Vice President, NB Management, Management until 1997; Consultant, Bain &
Managing Director, Neuberger Company, Inc. until 1997.
Berman

Jennifer K. Silver Portfolio Manager and Director, Putnum Investments,
Vice President, NB Management, until 1997.
Managing Director,
Neuberger Berman

Daniel J. Sullivan Vice President, Neuberger Berman Advisers Management
Senior Vice President, NB Trust; Vice President, Advisers Managers Trust; Vice
Management President, Neuberger Berman Income Funds; Vice
President, Neuberger Berman Income Trust; Vice
President, Neuberger Berman Equity Funds; Vice
President, Neuberger Berman Equity Trust; Vice
President, Income Managers Trust; Vice President,
Equity Managers Trust; Vice President, Global
Managers Trust; Vice President, Neuberger Berman
Equity Assets; Vice President, Neuberger Berman
Equity Series.

Peter E. Sundman Executive Vice President and Director, Neuberger
President, NB Management; Berman Inc.
Executive Vice President,
Neuberger Berman

Michael J. Weiner Vice President, Neuberger Berman Advisers Management
Senior Vice President, NB Trust; Vice President, Advisers Managers Trust; Vice
Management; Senior Vice President, President, Neuberger Berman Income Funds; Vice
Neuberger Berman President, Neuberger Berman Income Trust; Vice
President, Neuberger Berman Equity Funds; Vice
President, Neuberger Berman Equity Trust; Vice
President, Income Managers Trust; Vice President,
Equity Managers Trust; Vice President, Global
Managers Trust; Vice President, Neuberger Berman
Equity Assets; Vice President, Neuberger Berman
Equity Series.

Allan R. White, III Portfolio Manager, Salomon Asset Management until 1998.
Vice President, NB Management;
Managing Director,
Neuberger Berman

</TABLE>

The principal address of NB Management, Neuberger Berman, and of each
of the investment companies named above, is 605 Third Avenue, New York, New
York, 10158.

C-14
<PAGE>

Turner Investment Partners

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Turner Investment Partners Past Two Years
- -------------------------- --------------
<S> <C>
Stephen J. Kneeley Registered Representative, SEI Investments
Chief Operating Officer, Secretary, Distribution Co.
President

Janet Rader Rote Registered Representative, SEI Investments
Director of Compliance Distribution Co.

Thomas R. Trala None
CFO, Treasurer

Mark D. Turner None
Vice Chairman, Director of Fixed Income

Robert E. Turner, Jr. None
Chairman, CIO
</TABLE>
The principal address of Turner Investment Partners is 1235 Westlakes
Drive, Suite 350, Berwyn, PA, 19312.

Putnam Investments

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Pankaj Aggrawal Quantitative Analyst, Vestek Systems, San Francisco,
Vice President CA.

Blake Anderson Trustee, Salem Female Charitable Society, Salem, MA.
Managing Director

Barry R. Allen None
Vice President

Michael J. Atkin None
Senior Vice President

Jeffrey B. Augustine None
Senior Vice President

Rowland T. Bankes None
Vice President

Robert R. Beck Director, Charles Bridge Publishing, Watertown, MA;
Senior Vice President Board of Overseers, Beth Israel Deaconess Medical
Center, Boston MA.

Carl D. Bell None
Vice President

Richard L. Block None
Senior Vice President

Jeffrey M. Bray None
Vice President
</TABLE>

C-15
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
David J. Buckle None
Vice President

Ronald J. Bukovac None
Vice President

Robert W. Burke Member-Executive Committee, The Ridge Club, Sandwich,
Senior Managing Director MA; Member-Advisory Board, Cathedral High School,
Boston, MA.

Richard P. Cervone None
Vice President

Jack P. Chang None
Senior Vice President

Bihua Chen None
Assistant Vice President

C. Beth Cotner Director, The Lyric Stage Theater, Boston MA.
Senior Vice President

Stephen P. Cotto None
Assistant Vice President

Joseph F. Cushing None
Assistant Vice President

John R.S. Cutler Member, Burst Media, L.L.C., Burlington, MA
Vice President

Kenneth Daly President, Andover River Rd. TMA, River Road
Managing Director Transportation Management Association, Andover MA.

Michael W. Davis None
Vice President

Donna M. Daylor None
Vice President

John C. Delano None
Assistant Vice President

Edwin M. Denson None
Vice President

Ralph C. Derbyshire None
Senior Vice President

Michael G. Dolan Chairman-Finance Council. St. Mary's Parish, Melrose,
Assistant Vice President MA; Member, School Advisory Board, St. Mary's School,
Melrose, MA.

Mark E. Dow None
Vice President
</TABLE>

C-16
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Emily Durbin Board of Directors, Family Service, Inc., Lawrence, MA.
Vice President

Karnig H. Durgarian Board Member, EBRI, Suite 600, Washington, DC;
Managing Director Trustee, American Assembly, Washington DC.

Nathan Eigerman Trustee, Flower Hill Trust, Boston MA.
Senior Vice President

Lisa V. Emerick None
Vice President

Irene M. Esteves Board of Director Member, American Management
Managing Director Association Finance Council, New York, NY; Board of
Director Member, First Night Boston, Boston, MA; Board of
Director Member, SC Johnson Commercial Markets, Stutevant, WI;
Board of Director Member, Massachusetts Taxpayers Foundation,
Boston, MA; Board of Director Member, Mrs. Bairds Bakeries,
Fort Worth, TX.

Ian Ferguson Trustee, Park School, Brookline, MA.
Senior Managing Director

John Ferry None
Vice President

Edward R. Finch None
Vice President

Kate Fleisher None
Vice President

Henrietta Fraser Manager, Fleming Investment Management, London, U.K.
Vice President

Karen T. Frost None
Senior Vice President

Stephen C. Gibbs None
Vice President

Ken S. Gordon None
Vice President

J. Peter Grant Trustee, The Dover Church, Dover, MA.
Senior Vice President

Patrice Graviere None
Senior Vice President

Paul E. Haagensen Director, Haagensen Research Foundation, New York, NY.
Senior Vice President

Nigel P. Hart None
Senior Vice President
</TABLE>

C-17
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Deborah R. Healey Corporator, New England Baptist Hospital, Boston MA;
Senior Vice President Director, NEB Enterprises, Boston MA.

Yoshiro Iino None
Vice President

Marianne P. Isgur None
Assistant Vice President

Jeffrey Kaufman None
Senior Vice President

Ira C. Kalus-Bystricky None
Vice President

Hiroshi Kato None
Vice President

Kevin Keleher None
Assistant Vice President

Catherine Kennedy None
Vice President

Jeffrey K. Kerrigan None
Assistant Vice President

David R. King None
Vice President

William P. King None
Vice President

Deborah F. Kuenstner Director, Board of Pensions, Presbyterian Church,
Managing Director Philadephia, PA.

Thomas J. Kurey None
Senior Vice President

Linda Lane Member, American Society for Training & Development,
Assistant Vice President Stoughton, MA

Coleman N. Lannum, III None
Senior Vice President

Leonard LaPorta, Jr. None
Vice President
</TABLE>

C-18
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Lawrence J. Lasser Director, Marsh & McLennan Companies, Inc., New York,
President, Director and Chief Executive NY; Board of Governors and Executive Committee,
Investment Company Institute, Washington, DC; Board of
Overseers, Museum of Fine Arts, Boston, MA; Trustee, Beth
Israel Deaconess Medical Center, Boston MA; Member of the
Council on Foreign Relations, New York, NY; member of the
Board of Directors of the United Way of Massachusetts Bay,
Boston, MA; Trustee of the Vineyard Open Land Foundation,
Vineyard Haven, MA.

Maura W. Leddy None
Vice President

Richard Leibovitch Managing Director, J.P. Morgan, New York, NY.
Managing Director

Craig S. Lewis None
Vice President

Geirulv Lode None
Senior Vice President

Wan Yun Lui Quantitative Analyst, T. Rowe Price Associates, Inc.,
Assistant Vice President Baltimore, MD.

Elizabeth M. MacElwee Jones None
Senior Vice President

Saba S. Malak None
Vice President

Kevin Maloney Institutional Director, Financial Management
Managing Director Association, University of South Florida, College of
Business Administration, Tampa, FL.

Jabaz Mathai None
Assistant Vice President

Bridget McCavoy None
Vice President

Paul McHugh None
Vice President

Krishna Memani Principal, Morgan Stanley & Co., New York, NY.
Managing Director

Paul K. Michaud None
Vice President

Christopher G. Miller None
Vice President

William H. Miller None
Senior Vice President
</TABLE>

C-19
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Jeanne L. Mockard Trustee, The Bryn Mawr School, Baltimore, MD.
Senior Vice President

Gerard I. Moore None
Vice President

Donald E. Mullin Corporate Representative and Board Member, Delta
Senior Vice President Dental Plan of Massachusetts, Medford, MA.

Kenneth W. Murphy, Jr. None
Assistant Vice President

Kimberly A.M. Page Nauen None
Vice President

Stephen S. Oler None
Senior Vice President

Stephen M. Oristaglio None
Senior Managing Director

Kerry M. Owens None
Assistant Vice President

Margery C. Parker None
Senior Vice President

William Perry None
Vice President

Randolph Petralia None
Senior Vice President

Keith Plapinger Chairman and Trustee, Adent School, Boston MA.
Vice President

Charles E. Porter Trustee, Anatolia College, Boston MA; Governor, Handel
Executive Vice President & Hayden Society, Boston, MA.

Quintin R.S. Price Corporate Development Director, The Boots Company PLC,
Managing Director Nottingham, England.

George Putnam Chairman and Director, Putnam Mutual Funds Corp;
Chairman and Director Director, The Boston Company, Inc., Boston MA;
Director, Boston Safe Deposit & Trust Company, Boston, MA;
Director, Freeport-McMoran, Inc., New York, NY; Director,
General Mills, Inc., Minneapolis, MN; Director, Houghton
Mifflin Company, Boston, MA; Director, Marsh & McLennan
Companies, Inc., New York, NY; Director, Rockefeller Group,
Inc., New York, NY; Trustee, Massachusetts General Hospital
Boston, MA; McLean Hospital, Belmont, MA; The Colonial
Williamsburg Foundation, Williamsburg VA; The Museum of Fine
Arts, Boston, MA; WGBH Foundation, Boston, MA; The Nature
Conservancy, Boston, MA; Trustee, The Jackson Laboratory, Bar
Harbor, ME.
</TABLE>

C-20
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Robert A. Piepenburg None
Vice President

James A. Polk None
Vice President

Elizabeth Price None
Assistant Vice President

Edward Qian None
Vice President

Keith Quinton Director, Eleazar, Inc., Hanover, NH.
Senior Vice President

Nadine McQueen-Reed Key Account Executive, Fidelity Investments, Kent,
Assistant Vice President England.

Thomas V. Reilly Trustee, Knox College, Galesburg, IL.
Managing Director

Marc J. Ritenhouse None
Vice President

Kevin J. Rogers None
Senior Vice President

Oliver Rudigoz None
Vice President

Michael V. Salm None
Vice President

Preeti Sayana None
Assistant Vice President

Saied Simozar None
Senior Vice President

Robert J. Schoen None
Assistant Vice President

Justin M. Scott Director, DSI Proprieties (Neja) Ltd., Reydon, Essex,
Managing Director England.

Max S. Senter General Partner, M.S. Senter & Sons Partnership,
Senior Vice President Raleigh, NC.

Raj Ken Sharma None
Vice President

Jean I. Sievert Vice President, Saloman Smith Barney, New York, NY.
Senior Vice President

Gordon H. Silver Trustee, Wang Center for the Performing Arts, Boston,
Managing Director MA.
</TABLE>

C-21
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>

David M. Silk Member of the Board of Directors, Jobs for Bay State
Senior Vice President Graduates, North Andover, MA.

Steven Spiegel Director, Ultra Diamond and Gold Outlet, Chicago, IL;
Senior Managing Director Director, FACES New York University Medical Center,
New York, NY; Trustee, Babson College, Wellesley, MA.

James St. John None
Assistant Vice President

Loren Michael Starr None
Managing Director

Michael P. Stack None
Senior Vice President

Toshifumi Sugimoto None
Senior Vice President

Robert E. Sweeney None
Vice President

Judith H. Swirbalus None
Vice President

John C. Talanian Member of the Board of Directors, the Japan Society of
Managing Director Boston, Boston, MA.

Nicole J. Thorpe None
Assistant Vice President

Robert J. Toner None
Assistant Vice President

John R. Tonkin None
Assistant Vice President

Robert J. Ullman None
Assistant Vice President

Scott G. Vierra None
Vice President

Vincent Vliebergh None
Vice President

David L. Waldman None
Managing Director

Dierdre West-Smith Trustee, St. James Condo Association, Roxbury, MA.
Assistant Vice President

</TABLE>

C-22
<PAGE>

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During the
Putnam Investments Past Two Years
------------------ --------------
<S> <C>
Eric Wetlaufer President and Member of the Board of Directors, The
Managing Director Boston Security Analysts Society, Inc., Boston MA.

Edward F. Whalen Member of the Board of Directors, Hockomock Area YMCA,
Senior Vice President North Attleboro, MA

Richard P. Wyke Director, Salem YMCA, Salem, MA.
Senior Vice President
</TABLE>
The principal address of Putnam Investments is 1 Post Office Square,
Boston, MA, 02109.

Wells Capital Management

<TABLE>
<CAPTION>
Name and Position with Other Business Connections During
Wells Capital Management the Past Two Years
------------------------ ------------------
<S> <C>
Allen J. Ayvazian None
Chief Equity Officer

Robert Willis None
President and Chief Investment Officer

Brigid Breen None
Chief Compliance Officer

Jose Casas None
Chief Operating Officer

Larry Fernandes None
Principal

Jacqueline Anne Flippin Vice Principal and Investment Portfolio Manager,
Principal McMorgan & Company.

Stephen Galiani None
Senior Principal Director

Madeleine Gish None
Senior Principal

Kelli Ann Lee Group Human Resources Manager, Wells Fargo Bank, N.A.
Managing Director

Melvin Lindsey None
Managing Director

Clark Messman None
Chief Legal Officer

Brian Mulligan None
Managing Director

Thomas O'Malley None
Managing Director

Clyde Ostler None
Director
</TABLE>

C-23
<PAGE>

Katherine Schapiro None
Senior Principal

Gary Schlossberg None
Economist
</TABLE>

Royce and Associates

Reference is made to the filings on Schedule D to the Application on Form
ADV, as amended, of Royce & Associates, Inc. for Registration as Investment
Adviser under the Investment Advisers Act of 1940.

Item 27. Principal Underwriters

Not Applicable.

Item 28. Location of Accounts and Records

Penn Series Funds, Inc.
600 Dresher Road
Horsham, PA 19044

PFPC Inc.
Bellevue Corporate Center
103 Bellevue Parkway
Wilmington, DE 19809

T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202

Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921

Independence Capital Management, Inc.
600 Dresher Road
Horsham, PA 19044

OpCap Advisors
Oppenheimer Capital
One World Financial Center
New York, NY 10281

Vontobel USA Inc.
450 Park Avenue
New York, NY 10022

C-24
<PAGE>

RS Investment Management, Inc.
555 California Street
San Francisco, CA 94104

Item 29. Management Services

Not applicable.

Item 30. Undertakings

The Registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

C-25
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it has
duly caused this Post-Effective Amendment No. 48 to the Registrant's
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Horsham, Commonwealth of Pennsylvania on the
9th day of February, 2000.

PENN SERIES FUNDS, INC.

By: /s/ James B. McElwain
-----------------------------
James B. McElwain, President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to this Registration Statement of the Registrant has been signed below
by the following persons in the capacities indicated on the 9th day of
February, 2000.

Signature Title

/s/James B. McElwain President (Principal Executive
- ----------------------------- Officer)
James B. McElwain

/s/Steven M. Herzberg Treasurer (Principal
- ----------------------------- Financial Officer)
Steven M. Herzberg

/s/Ann M. Strootman Controller (Principal
- ----------------------------- Accounting Officer)
Ann M. Strootman

* EUGENE BAY Director

* JAMES S. GREENE Director

* ROBERT E. CHAPPELL Director

* WILLIAM H. LOESCHE, JR. Director

* M. DONALD WRIGHT Director

* LARRY L. MAST Director

* DANIEL J. TORAN Director

* By: /s/Robert E. Chappell
--------------------------------------
Robert E. Chappell, Attorney-In-Fact

C-26
<PAGE>

EXHIBIT INDEX

EDGAR
Exhibit
Number Description
- ------ -----------

(a)(1) Articles of Incorporation -Previously filed on April
26, 1983 as Exhibit 1 to Post-Effective Amendment No.
24 to this Registration Statement, and incorporated
by reference to Exhibit 1 of Post-Effective Amendment
No. 44 on Form N-1A (File Nos. 2-77284 and
811-03459), as filed with the Securities and Exchange
Commission via EDGAR (Accession
No. 0000950109-97-001341) on February 14, 1997.

(a)(2) Articles Supplementary to be filed by Amendment.

(b) By-Laws - Previously filed on August 27, 1992 as
Exhibit 2 to Post-Effective Amendment No. 37 to this
Registration Statement, and incorporated by reference
to Exhibit 2 of Post-Effective Amendment No. 44 on
Form N-1A (File Nos. 2-77284 and 811-03459), as filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950109-97-001341) on February 14,
1997.

(c) None (outstanding shares of common stock are recorded
on the books and records of the Registrant -
Certificates of stock are not issued).

(d) (1) Investment Advisory Agreement between the
Registrant and Independence Capital Management,
Inc. with respect to the Growth Equity, Quality
Bond and Money Market Funds - Previously filed
on August 27, 1992 as Exhibit 5(b) to
Post-Effective Amendment No. 37 to this
Registration Statement, and incorporated by
reference to Exhibit 5(b) of Post-Effective
Amendment No. 44 on Form N-1A (File Nos. 2-77284
and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
No. 0000950109-97-001341) on February 14, 1997.

(2) Investment Advisory Agreement between the
Registrant and Independence Capital Management,
Inc. with respect to the Emerging Growth Fund -
Incorporated by reference to Exhibit 5(e) of
Post-Effective Amendment No. 45 on Form N-1A
(File Nos. 2-77284 and 811-03459), as filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-97-001076) on November
21, 1997.

Ex.99 (3) Form of proposed Investment Advisory
Agreement between the Registrant and
Independence Capital Management, Inc. - Filed
herewith.

(4) Sub-Advisory Agreement between Independence
Capital Management, Inc. and RS Investment
Management, Inc. with respect to the Emerging
Growth Fund - Incorporated by reference to
Exhibit 5(c) of Post-Effective Amendment No. 46
on Form N-1A (File Nos. 2-77284 and 811-03459),
as filed with the Securities and Exchange
Commission via EDGAR (Accession
No. 0001036050-98-000286) on February 27, 1998.

(5) Investment Advisory Agreement between the
Registrant and Independence Capital Management,
Inc. with respect to the Value Equity, Small
Capitalization, Flexibly Managed, International
Equity and High Yield Bond Funds - Incorporated
by reference to the Registrant's Post Effective
Amendment No. 47 as filed with the Securities
and Exchange Commission via EDGAR (Accession
No. 0000950116-99-000315) on February 26, 1999.

C-27
<PAGE>

Ex.99 (6) Form of proposed Sub-Advisory Agreement
between Independence Capital Management, Inc.
and Turner Investment Partners, Inc. with
respect to the Mid Cap Growth Fund - Filed
herewith.

Ex.99 (7) Form of proposed Sub-Advisory Agreement between
Independence Capital Management Inc. and Putnam
Management, Inc. with respect to the Large Cap
Value Fund - Filed herewith.

Ex.99 (8) Form of proposed Sub-Advisory Agreement
between Independence Capital Management, Inc.
and Wells Capital Management, Incorporated with
respect to the Index 500 Fund - Filed herewith.

Ex.99 (9) Form of proposed Sub-Advisory Agreement
between Independence Capital Management and
Neuberger Berman Management, Inc. with respect
to the Mid Cap Value Fund - Filed herewith.

Ex.99 (10) Form of proposed Sub-Advisory Agreement
between Independence Capital Management, Inc.
and Royce & Associates, Inc. with respect to the
Small Cap Value Fund - Filed herewith.

(11) Sub-Advisory Agreement between Independence
Capital Management, Inc. and T. Rowe Price
Associates, Inc. with respect to the Flexibly
Managed and High Yield Bond Funds - Incoporated
by reference to the Registrant's Post-Effective
Amendment No. 46 as filed with the Securities
and Exchange Commission via EDGAR (Accession
No. 0000950116-99-000315) on February 26, 1999.

(12) Sub-Advisory Agreement between Independence
Capital Management, Inc. and Vontobel USA Inc.
with respect to the International Equity Fund -
Incorporated by reference to the Registrant's
Post Effective Amendment No. 47 as filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-99-000315) on February
26, 1999.

(e) None. Common stock of the Registrant is sold only to
The Penn Mutual Life Insurance Company and its
affiliated insurance companies for their general or
separate accounts.

(f) None.

(g) (1) Amended and Restated Custodian Agreement between
the Registrant and Provident National Bank - to
be filed by Amendment.

(2) Form of Foreign Custody Manager Agreement
between the Registrant and PNC Bank -
Incorporated by reference to Exhibit 8(b) of
Post-Effective Amendment No. 46 on Form N-1A
(File Nos. 2-77284 and 811-03459), as filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 0001036050-98-000286) on February
27, 1998.

C-28
<PAGE>

(h) (1) Administrative and Corporate Services Agreement
between the Registrant and The Penn Mutual Life
Insurance Company - filed herewith

(2) Accounting Services Agreement between the
Registrant and Provident Financial Processing
Corporation - Previously filed on March 10, 1990
as Exhibit 9(b) to Post-Effective Amendment No.
33 to this Registration Statement, and
incorporated by reference to Exhibit 9(b) of
Post-Effective Amendment No. 44 on Form N-1A
(File Nos. 2-77284 and 811-03459), as filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 0000950109-97-001341) on February
14, 1997.

(3) Agreement between the Registrant and Provident
Financial Processing Corporation on fees for
services under Accounting Services Agreement -
Previously filed on February 24, 1995 as Exhibit
9(c) to Post-Effective Amendment No. 43 to this
Registration Statement, and incorporated by
reference to Exhibit 9(c) of Post-Effective
Amendment No. 44 on Form N-1A (File Nos. 2-77284
and 811-03459), as filed with the Securities and
Exchange Commission via EDGAR (Accession
No. 0000950109-97-001341) on February 14, 1997.

(i) Opinion and Consent of Morgan, Lewis & Bockius LLP -
To be filed by Amendment.

(j) Consent of Ernst & Young LLP - To be filed by
Amendment

(k) None.

(l) None.

(m) None.

(n) None.

(o) None.

(p) Code of Ethics to be filed by Amendment.

(q) Powers of Attorney of Directors - Incorporated by
reference to the Registrant's Post-Effective
Amendment No. 47 as filed with the Securities and
Exchange Commission via EDGAR (Accession
No. 0000950116-99-000315) on February 26, 1999.

C-29

<PAGE>

EXHIBIT d(3)

FORM OF

INVESTMENT ADVISORY AGREEMENT

Between

PENN SERIES FUNDS, INC.

and

INDEPENDENCE CAPITAL MANAGEMENT, INC.

INVESTMENT ADVISORY AGREEMENT, made as of May 1, 2000 by and between
PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized and existing
under the laws of the State of Maryland, and INDEPENDENCE CAPITAL MANAGEMENT,
INC. ("Adviser"), a corporation organized and existing under the laws of the
State of Pennsylvania.

WITNESSETH:

WHEREAS, Penn Series is an open-end management investment company
registered as such under the Investment Company Act of 1940, as amended (the
"Act") and is authorized to issue shares in separate series with each series
representing interests in a separate fund of securities and other assets; and

WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and

WHEREAS, Penn Series desires Adviser to render investment advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth, and Adviser desires to render such services under such
terms and conditions:

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the investment funds
of Penn Series set forth in Schedule A to this Agreement (individually a "Fund"
and collectively the "Funds"), in accordance

<PAGE>

with the investment objectives, program and restrictions applicable to the Fund
as provided in Penn Series' Prospectus and Statement of Additional Information,
as amended from time to time, and such other limitations as may be imposed by
law or as Penn Series may impose with notice in writing to Adviser. No
investment will be made by Adviser for a Fund if that investment would be in
violation of the objectives, program, restrictions or limitations of the Fund.
Adviser shall not take custody of any assets of Penn Series, but shall issue
settlement instructions to the custodian designated by Penn Series (the
"Custodian"). Adviser shall obtain and evaluate such information relating to the
economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of each Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Adviser, as agent and attorney-in-fact
with respect to Penn Series, is authorized, in its discretion and without prior
consultation with Penn Series, to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and

(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may select,
in conformance with the provisions of Paragraph 4 herein;

provided, however, that Adviser shall make no investment for a Fund that is in
violation of the objectives, program, restrictions or limitations of the Fund.

2. Accounting and Related Services. Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to each Fund.

3. Investment Advisory Fees. For the services rendered to Penn Series
under this Agreement, Penn Series will pay Adviser fees based on average daily
net assets of each Fund at the rates set forth in Schedule B to this Agreement.
Each fee shall be accrued for each calendar day and the sum of the daily fee
accruals shall be paid monthly to Adviser as of the first business day of the
next succeeding calendar month. The daily fee will be computed by multiplying
the fraction of one over the number of calendar days in the year by the annual
rate applicable to the Fund as set forth above, and multiplying this product by
the net assets of the Fund. The Fund's net assets, for purposes of the
calculations described above, will be determined in accordance with Penn Series'
Prospectus and Statement of Additional Information as of the close of business
on the most recent previous business day on which Penn Series was open for
business.

-2-

<PAGE>

4. Expense Limitations. In the event expenses of certain Funds exceed
the expense limitation set forth in Schedule C to this Agreement, Adviser agrees
to waive its investment advisory fee or remit payments to such Funds in the
manner and to the extent set forth in Schedule C.

5. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for a Fund, Adviser will use its best efforts to seek the best price
and the most favorable execution of its orders. In assessing the best price and
the most favorable execution for any transaction, Adviser shall consider the
breadth of the market in the security, the price of the security, the skill,
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any. Where best price and most favorable
execution will not be compromised, Adviser may take into account the research
and related services that the broker has provided to Penn Series or the Adviser.
It is understood that the Adviser will not be deemed to have acted unlawfully or
to have breached a fiduciary duty to the Fund or be in breach of any obligation
owing to the Fund under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Fund to a broker-dealer in
compliance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934 or as described from time to time in the Penn Series' Prospectus and
Statement of Additional Information. In addition, Adviser is authorized to take
into account the sale of variable contracts which are invested in Penn Series
shares in allocating to brokers or dealers purchase and sale orders for
portfolio securities, provided that Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Adviser shall regularly advise Penn Series' Board of Directors
as to all payments of commissions and as to its brokerage policies and practices
and shall follow such instructions with respect thereto as may be, given by Penn
Series' board.

6. Use of the Services of Others. Adviser may (at its cost except as
contemplated in Section 5 of this Agreement) employ, retain or otherwise avail
itself of a sub-adviser or sub-advisers to assist it in performing its duties
and meeting its responsibilities under this Agreement, and may delegate to such
sub-adviser or sub-advisers duties assumed by the Adviser under this Agreement.
In addition, Adviser may (at its cost, except as contemplated in Section 5 of
this Agreement) employ, retain or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing itself
or Penn Series, as appropriate, with such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities or such other information,
advice or assistance as Adviser may deem necessary, appropriate or convenient
for the discharge of its obligations hereunder or otherwise helpful to Penn
Series, or in the discharge of Adviser's overall responsibilities with respect
to the other accounts which it serves as investment adviser.

7. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.

-3-

<PAGE>

8. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.

9. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.

10. Reports to Penn Series and Cooperation with Accountants. Adviser,
and any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of Penn
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Adviser and its affiliates shall cooperate
with Penn Series' independent public accountants and take all reasonable action
in the performance of services and obligations under this Agreement to assure
that the information needed by such accountants is made available to them for
the expression of their opinion without any qualification as to the scope of
their examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.

11. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.

12. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Adviser or any affiliated corporation of
Adviser, or by any sub-adviser or affiliated corporation of a sub-adviser, on
behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser or an affiliated corporation, or by any sub-adviser or
affiliated corporation, for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted from
time to time under the Act. Such records may be inspected by representatives of
Penn Series at reasonable times, and, in the event of termination of this
Agreement, will be promptly delivered to Penn Series.

13. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities. It is understood that

-4-

<PAGE>

Adviser may give advice and take action for its other clients which may differ
from advice given, or the timing or nature of action taken, for a Fund. Adviser
is not obligated to initiate transactions for a Fund in any security which
Adviser, its principals, affiliates or employees may purchase or sell for its or
their own accounts or for other clients.

14. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn Series, except
after prior notification to and approval in writing by Penn Series, which
approval shall not be unreasonably withheld, and may not be withheld where
Adviser or any affiliate may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by Penn Series.

15. Proxies. Subject to such direction and oversight by Penn Series as
the Board of Directors of Penn Series shall deem appropriate, Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in the
Funds.

16. Instructions, Opinion of Counsel and Signatures. At any time
Adviser may apply to an officer of Penn Series for instructions, and may consult
legal counsel for Penn Series, in respect of any matter arising in connection
with this Agreement, and Adviser shall not be liable for any action taken or
omitted by it or an affiliate in good faith in accordance with such instructions
or with the advice or opinion of Penn Series' legal counsel. Adviser and its
affiliates shall be protected in acting upon any instruction, advice, or opinion
provided by Penn Series or its legal counsel and upon any other paper or
document delivered by Penn Series or its legal counsel believed by Adviser to be
genuine and to have been signed by the proper person or persons and shall not be
held to have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series.

17. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.

18. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at the
direction or request of Adviser), or Adviser or its affiliates in connection
with the discharge of obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of law
or for any loss suffered by Penn Series in connection with the matters to which
this Agreement relates, except for such

-5-

<PAGE>

error, mistake or loss resulting from willful misfeasance, bad faith, negligence
or misconduct in the performance of its, his or her duties on behalf of Penn
Series or constituting or resulting from a failure to comply with any term of
this Agreement. Adviser shall not be responsible for any loss incurred by reason
of any act or omission of the Custodian Transfer Agent, Accounting Services
Agent, or other third party with which Company has a contractual arrangement, or
of any broker, dealer, underwriter or issuer selected by Adviser with reasonable
care.

19. Obligations of Penn Series and Adviser. It is expressly agreed that
the obligations of Penn Series and Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized by
the Board of Directors of Penn Series and signed by an authorized officer of
Penn Series, acting as such, and shall bind Penn Series.

20. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
service described in this Agreement, upon instructions reasonably believed by
Adviser or any affiliated corporation to have been executed by an individual who
has been identified in writing by Penn Series as a duly authorized officer of
Penn Series; or (ii) any action by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon information provided by
Penn Series in form and under policies agreed to by Adviser and Penn Series.
Adviser shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Adviser or its
affiliates, agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any term of this Agreement. Prior to the confession of
any claim against Adviser which may be subject to this indemnification, Adviser
shall give Penn Series reasonable opportunity to defend against said claim in
its own name or in the name of Adviser.

21. Indemnification by Adviser. Adviser will indemnify and hold
harmless Penn Series from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Penn Series resulting from
any claim, demand, action or suit arising out of Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Adviser, its
affiliates, their agents or contractors. Penn Series shall not be entitled to
such indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or its agents or contractors or
constituting a failure by Penn Series to comply with any term of this Agreement;
provided, that such negligence or misconduct is not attributable to Adviser or
any person that is an affiliate of Adviser or an affiliate of an affiliate of
Adviser. Prior to confessing any claim against it which may be subject to this
indemnification, Penn Series shall give Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Penn Series. For purposes
of this Section 21 and of Section 20 hereof, no broker or dealer shall be deemed
to be acting as agent or contractor of Adviser or any affiliate of Adviser, in
effecting or executing any portfolio transaction for a Fund.

-6-

<PAGE>

22. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.

23. Dual Interests. It is understood that some person or persons may
be, or from time to time become, directors, officers, or shareholders of both
Penn Series and Adviser (including its affiliates), and that the existence of
any such dual interest shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided by a specific provision of
applicable law.

24. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to the Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as such continuation shall be specifically
approved at least annually (a) by either the board of directors of Penn Series,
or by a vote of a majority of the outstanding voting securities of the series of
shares of Penn Series representing interests in the Fund and (b) in either event
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Adviser shall furnish
to Penn Series, promptly upon its request, such information as may reasonably be
necessary to evaluate the terms of this Agreement with respect to the Fund or
any extension, renewal or amendment hereof.

25. Amendment of Agreement. This Agreement may be amended only by
written agreement of Penn Series and the Adviser and only in accordance with the
provisions of the Act, the rules and regulations promulgated under the Act and
the provisions of any other applicable law or regulation.

26. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.

27. Termination of Agreement. This Agreement may be terminated by Penn
Series or by Adviser with respect to any Fund, without the payment of any
penalty, upon 60 days' prior notice in writing from Penn Series to Adviser, or
upon 90 days' prior notice in writing from Adviser to Penn Series; provided,
that in the case of termination by Penn Series, such action shall have been
authorized by resolution of a majority of its directors who are not interested
persons of any party to this Agreement, or by vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund.

28. Miscellaneous.

A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.

-7-

<PAGE>

B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of
Penn Series.

C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as used
herein, shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or
order.

D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Penn
Series is Penn Series Funds, Inc., 600 Dresher Road, Horsham, PA
19044, Attention: President, and that of Adviser is Independence
Capital Management, Inc., 600 Dresher Road, Horsham, PA 19044,
Attention: President.

E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.

-8-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.

PENN SERIES FUNDS, INC.

By:__________________________________
Peter M. Sherman
President

INDEPENDENCE CAPITAL MANAGEMENT, INC.

By:__________________________________
Richardson T. Merriman
Senior Vice President

-9-

<PAGE>

Schedule A
to
INVESTMENT ADVISORY AGREEMENT
between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.

Penn Series Funds

Money Market Fund
Limited Maturity Bond Fund
Quality Bond Fund
High Yield Bond Fund
Flexibly Managed Fund
Growth and Income Fund
Growth Equity Fund
Large Cap Value Fund
Index 500 Fund
Mid Cap Growth Fund
Mid Cap Value Fund
Emerging Growth Fund
Small Cap Value Fund
International Equity Fund

A-1

<PAGE>

Schedule B
to
INVESTMENT ADVISORY AGREEMENT
between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF FUND INVESTMENT ADVISORY FEES
(As a Percentage of the Average Daily
Net Assets of the Fund)
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund 0.20% with respect to the first $100,000,000 of average daily net assets of the Fund;
0.15% with respect to average daily net assets of the Fund in excess of $100,000,000.
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond Fund 0.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 0.35% with respect to the first $100,000,000 of average daily net assets of the Fund;
0.30% with respect to average daily net assets of the Fund in excess of $100,000,000.
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 0.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 0.65% with respect to the first $100,000,000 of average daily net assets of the Fund;
0.60% with respect to average daily net assets of the Fund in excess of $100,000,000.
- ------------------------------------------------------------------------------------------------------------------------------------
Large Cap Value Fund 0.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Index 500 Fund 0.07%
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund 0.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Fund 0.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 0.80% of the first $25,000,000 of average daily net assets of the Fund; 0.75% of the
next $25,000,000 of average daily net assets of the Fund; and 0.70% of average daily
net assets of the Fund in excess of $50,000,000.
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

B-1

<PAGE>

Schedule C
to
INVESTMENT ADVISORY AGREEMENT
between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.

- --------------------------------------------------------------------------------
NAME OF FUND EXPENSE LIMITATIONS
(As a Percentage of the Average Daily
Net Assets of the Fund)
- --------------------------------------------------------------------------------
Money Market Fund(1) 0.80%
- --------------------------------------------------------------------------------
Quality Bond Fund(1) 0.90%
- --------------------------------------------------------------------------------
High Yield Bond Fund(2) 0.90%
- --------------------------------------------------------------------------------
Flexibly Managed Fund(2) 1.00%
- --------------------------------------------------------------------------------
Growth Equity Fund(1) 1.00%
- --------------------------------------------------------------------------------
Large Cap Value Fund(1) 1.00%
- --------------------------------------------------------------------------------
Emerging Growth Fund(2) 1.15%
- --------------------------------------------------------------------------------
Small Cap Value Fund(1) 1.15%
- --------------------------------------------------------------------------------
International Equity Fund(1) 1.50%
- --------------------------------------------------------------------------------

(1) With respect to each of the Money Market, Quality Bond, Growth
Equity, Large Cap Value, Small Cap Value and International Equity Funds, to the
extent that a Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance with
generally accepted accounting principles, and extraordinary expenses, but
including investment advisory and administrative and corporate services fees
before any adjustment pursuant to this provision) exceed the expense limitation
for that Fund in an amount up to and including 0.10% of the average daily net
assets of the Fund, such excess amount shall be a liability of Adviser to Penn
Series. The liability (if any) of Adviser to pay Penn Series such excess amount
shall be determined on a daily basis. If, at the end of each month, there is any
liability of Adviser to pay Penn Series such excess amount, the advisory fee
shall be reduced by such liability. If, at the end of each month, there is no
liability of Adviser to pay Penn Series such excess amount and if payments of
the advisory fee at the end of prior months during the fiscal year have been
reduced in excess of that required to maintain expenses within the expense
limitation, such excess reduction shall be recaptured by Adviser and shall be
payable by Penn Series to Adviser along with the advisory fee payable to Advisor
for that month.

C-1

<PAGE>

(2) With respect to each of the Emerging Growth, Flexibly Managed and
High Yield Bond Funds, to the extent that a Fund's total expenses for a fiscal
year (excluding interest, taxes, brokerage, other expenses which are capitalized
in accordance with generally accepted accounting principles, and extraordinary
expenses, but including investment advisory and accounting administrative and
corporate service fees before any adjustment pursuant to this provision) exceed
the expense limitation for the Fund, one-half of such excess amount shall be a
liability of Adviser to Penn Series. The liability (if any) of Adviser to pay
Penn Series one-half of such excess amount shall be determined on a daily basis.
If, at the end of each month, there is any liability of Adviser to pay Penn
Series such excess amount, the advisory fee shall be reduced by such liability.
If, at the end of each month, there is no liability of Adviser to pay Penn
Series such excess amount and if payments of the advisory fee at the end of
prior months during the fiscal year have been reduced in excess of that required
to maintain expenses within the expense limitation, such excess reduction shall
be recaptured by Adviser and shall be payable by Penn Series to Adviser along
with the advisory fee payable to Adviser for that month. If, at the end of the
fiscal year, there is any remaining liability of Adviser to pay Penn Series such
excess amount (which has not been paid through reduction of the advisory fee),
Adviser shall remit to Penn Series an amount sufficient to pay such remaining
liability.

C-2

<PAGE>

EXHIBIT d(6)

FORM OF

INVESTMENT SUB-ADVISORY AGREEMENT

between

INDEPENDENCE CAPITAL MANAGEMENT, INC.

and

TURNER INVESTMENT PARTNERS, INC.

relating to

MID CAP GROWTH FUND

INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and TURNER
INVESTMENT PARTNERS, INC. ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Delaware.

WITNESSETH:

WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and is authorized to issue shares in
separate series with each series representing interests in a separate fund of
securities and other assets; and

WHEREAS, Adviser and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as
investment advisers under the Investment Advisers Act of 1940, as amended; and

WHEREAS, Adviser is authorized to render investment advisory services
to Penn Series and to enter into a sub-advisory agreement with a sub-adviser for
the rendering of investment advisory services by the Sub-Adviser to Adviser;

WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in such
manner and under such terms;

<PAGE>

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Mid Cap Growth Fund (the "Fund"), and to exercise all rights incidental to
ownership in accordance with the investment objectives, program and restrictions
applicable to the Fund as provided in Penn Series' Prospectus and Statement of
Additional Information ("SAI"), as amended from time to time, and such other
limitations as may be imposed by law or as Penn Series or Adviser may impose
with notice in writing to Sub-Adviser. To enable Sub-Adviser to fully exercise
its discretion, Adviser hereby appoints Sub-Adviser as agent and
attorney-in-fact for the Fund with full power and authority to buy, sell and
otherwise deal in securities and contracts for the Fund. No investment will be
made by Sub-Adviser for the Fund if the investment would violate the investment
objectives, investment restrictions or limitations of the Fund set out in the
Prospectus and the SAI delivered to the Sub-Adviser and as may be amended and
delivered to Sub-Adviser in the future. Sub-Adviser shall not take custody of
any assets of Penn Series, but shall issue settlement instructions to the
custodian designated by Penn Series (the "Custodian"). Sub-Adviser shall, in its
discretion, obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and Penn Series, is authorized, in its
discretion and without prior consultation with Adviser or Penn Series, to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and

(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4
herein; and

(iii) take such other actions Sub-Adviser deems to be appropriate;

provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the objectives, investment program, or restrictions or limitations
of the Fund.

2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-Adviser shall provide Penn
Series and its Accounting Services Agent with such

-2-

<PAGE>

information as may be reasonably necessary to properly account for financial
transactions with respect to the Fund.

3. Sub-Advisory Fee.

A. Payment of Fee. For the services Sub-Adviser renders to
Penn Series under this Agreement, Adviser will pay Sub-Adviser
fees based on the average daily net assets of the Fund.

B. Fee Rate. The fee rate is fifty basis points (0.50%) of the
first $100,000,000 of average daily net assets of the Fund.

C. Method of Computation. The fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be
paid monthly to Sub-Adviser as of the first business day of
the next succeeding calendar month. The daily fee will be
computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rate applicable to the
Fund as set forth above, and multiplying this product by the
net assets of the Fund. A Fund's net assets, for purposes of
the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of
Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.

4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Sub-Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Sub-Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Sub-Adviser may take into account
the research and related services that the broker has provided to Penn Series or
the Sub-Adviser. It is understood that the Sub-Adviser will not be deemed to
have acted unlawfully or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of variable
contracts which are invested in Penn Series shares in allocating to brokers or
dealers purchase and sale orders for portfolio securities, provided that
Sub-Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Sub-Adviser shall
advise Penn Series' Board of Directors, when requested, as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.

-3-

<PAGE>

5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.

6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.

7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.

8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.

9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series, as
Sub-Adviser may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.

-4-

<PAGE>

Penn Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted from
time to time under the Act. Such records may be inspected by representatives ofs
Penn Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.

11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which Sub-
Adviser, its principals, affiliates or employees may purchase or sell for its
or their own accounts or other clients.

12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when so requested by Adviser and
Penn Series.

13. Proxies. Subject to such oversight by Penn Series as the Board of
Directors of Penn Series shall deem appropriate, Sub-Adviser shall vote proxies
solicited by or with respect to the issuers of securities held in a Fund.

14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Sub-Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Sub-Adviser to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any officer or agent of Penn Series, until receipt of written
notice thereof from Penn Series. Sub-Adviser shall

-5-

<PAGE>

inform Adviser of all applications to Penn Series for instructions and all
consultations with legal counsel for Penn Series at the time of such application
or consultation.

15. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms of
this Agreement, and except for the accuracy of information furnished to Penn
Series by Sub-Adviser or any affiliate, Sub-Adviser does not assume
responsibility for the preparation, contents and distribution of the
prospectuses for Penn Series, for complying with any applicable requirements of
the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, or any
other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.

16. Limitation of Liability. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or any
person performing executive, administrative, trading, or other functions for
Penn Series (at the direction or request of Sub-Adviser), or Sub-Adviser or its
affiliates in connection with the discharge of obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by Penn Series in
connection with the matters to which this Agreement relates, except for such
error, mistake or loss resulting from willful misfeasance, bad faith, negligence
or willful misconduct in the performance of its, his or her duties on behalf of
Penn Series or constituting or resulting from a failure to comply with any term
of this Agreement. Sub-Adviser shall not be responsible for any loss incurred by
reason of any act or omission of the Custodian or of any broker, dealer,
underwriter or issuer selected by Sub-Adviser with reasonable care.

17. Obligations of Adviser and Sub-Adviser. It is expressly agreed that
the obligations of Adviser and Sub-Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized in
accordance with the governing documents of each party and in accordance with
applicable law, and shall be signed by an authorized officer of each party,
acting as such, and shall be binding on each party.

18. Indemnification by Adviser. Adviser will indemnify and hold
Sub-Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting from:
(i) any action or omission of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Sub-Adviser or any affiliated corporation to have been executed by
an individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series or Adviser; (ii) any action of Sub-Adviser or
any affiliated corporation, with respect to any service described in this
Agreement upon information provided by Penn Series or Adviser in form and under
policies agreed to by Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall
not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Sub-Adviser or its affiliates,
agents or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of

-6-

<PAGE>

this Agreement. Prior to the confession of any claim against Adviser which may
be subject to this indemnification, Sub-Adviser shall give Adviser reasonable
opportunity to defend against said claim in its own name or in the name of
Sub-Adviser.

19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, bad faith, negligence
or misconduct of Sub-Adviser, its affiliates, their agents or contractors.
Neither Penn Series nor Adviser shall be entitled to such indemnification in
respect of actions or omissions constituting negligence or willful misconduct of
Penn Series or Adviser, or their agents or contractors or constituting a failure
by Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.

20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.

21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to the Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as such continuation shall be specifically
approved at least annually (a) by either the Board of Directors of Penn Series,
or by a vote of a majority of the outstanding voting securities of the series of
shares of Penn Series representing interests in the Fund and (b) in either event
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Sub-Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
the Fund or any extension, renewal or amendment hereof.

22. Amendment of Agreement. This Agreement may be amended only by
written agreement of the Adviser and the Sub-Adviser and only in accordance with
the provisions of the Act, the rules and regulations promulgated under the Act
and the provisions of any other applicable law or regulation.

-7-

<PAGE>

23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.

24. Termination of Agreement. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, with respect to a Fund, without payment
of any penalty, upon 60 days' prior notice in writing from Adviser to
Sub-Adviser, or upon 90 days' prior notice in writing from Sub-Adviser to
Adviser; provided, that in the case of termination by Adviser or Penn Series,
such action shall have been authorized by resolution of a majority of its
directors who are not interested persons of any party to this Agreement, or by
vote of a majority of the outstanding voting securities of the series of shares
of Penn Series representing interests in the affected Fund.

25. Miscellaneous.

A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.

B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its
Articles of Incorporation or By-Laws, or any applicable
statutory or regulatory requirement to which it is subject or
by which it is bound, or to relieve or deprive the board of
directors of Penn Series of its responsibility for and control
of the conduct of the affairs of Penn Series.

C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the Act shall be
resolved by reference to such term or provision of the Act and
to interpretations thereof, if any, by the United States
courts or, in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities
and Exchange Commission validly issued pursuant to the Act.
Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested person," "assignment," and
"affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition,
where the effect of a requirement of the Act reflected in any
provision of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or
order.

-8-

<PAGE>

Until further notice, it is agreed that for this purpose the
address of Adviser is Independence Capital Management, Inc.,
600 Dresher Road, Horsham, PA, 19044, Attention: President,
and that of Sub-Adviser is Turner Investment Partners, Inc.,
1235 Westlakes Drive, Suite 350, Berwyn, PA, 19312.

E. State Law. The Agreement shall be construed and enforced
in accordance with and governed by the laws of Maryland
except where such state laws have been preempted by Federal
law.

F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered
shall be deemed to be an original, and together shall
constitute one document.

G. Entire Agreement; Severability. This Agreement is the
entire agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations,
correspondence, agreements and understandings regarding the
subject matter hereof. The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or
enforceability of any and all other provisions hereof.

H. No Third Party Beneficiaries. Neither party intends for
this Agreement to benefit any third-party not expressly
named in this Agreement.

I. Changes in Sub-Adviser Organization. The Sub-Adviser
agrees to notify the Adviser within a reasonable period of
time regarding a material change in the members of
Sub-Adviser.

-9-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.

Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.

______________________ By:__________________________________
Secretary Peter M. Sherman
President

Attest: TURNER INVESTMENT PARTNERS, INC.

______________________ By:__________________________________
Secretary

-10-

<PAGE>

EXHIBIT d(7)

FORM OF

INVESTMENT SUB-ADVISORY AGREEMENT

between

INDEPENDENCE CAPITAL MANAGEMENT, INC.

and

PUTNAM INVESTMENT MANAGEMENT, INC.

relating to

LARGE CAP VALUE FUND

INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and PUTNAM
INVESTMENT MANAGEMENT, INC. ("Sub-Adviser"), a corporation organized and
existing under the laws of Massachusetts.

WITNESSETH:

<PAGE>

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Large Cap Value Fund (the "Fund"), and to exercise all rights incidental to
ownership in accordance with the investment objectives, program and restrictions
applicable to the Fund as provided in Penn Series' Prospectus and Statement of
Additional Information ("SAI"), as amended from time to time, and such other
limitations as may be imposed by law or as Penn Series or Adviser may impose
with notice in writing to Sub-Adviser. To enable Sub-Adviser to fully exercise
its discretion, Adviser hereby appoints Sub-Adviser as agent and
attorney-in-fact for the Fund with full power and authority to buy, sell and
otherwise deal in securities and contracts for the Fund. No investment will be
made by Sub-Adviser for the Fund if the investment would violate the investment
objectives, investment restrictions or limitations of the Fund set out in the
Prospectus and the SAI delivered to the Sub-Adviser and as may be amended and
delivered to Sub-Adviser in the future. Sub-Adviser shall not take custody of
any assets of Penn Series, but shall issue settlement instructions to the
custodian designated by Penn Series (the "Custodian"). Sub-Adviser shall, in its
discretion, obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and Penn Series, is authorized, in its
discretion and without prior consultation with Adviser or Penn Series, to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and

(iii) take such other actions Sub-Adviser deems to be appropriate;

provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the objectives, investment program, or restrictions or limitations
of the Fund.

2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent to provide Penn Series and its Accounting Services Agent with
such portfolio information as may be reasonably necessary to properly account
for financial transactions with respect to the Fund. The Sub-adviser shall not
be responsible for the administrative affairs of the Fund including but not
limited to, accounting for and pricing the Fund.

-2-
<PAGE>

3. Sub-Advisory Fee.

A. Payment of Fee. For the services Sub-Adviser renders to
Penn Series under this Agreement, Adviser will pay Sub-Adviser
fees based on the average daily net assets of the Fund.

B. Fee Rate.

(i) Forty-seven and one-half basis points
(0.475%) of the first $150,000,000 of
average daily net assets of the Fund;

(ii) Forty-two and one-half basis points (0.425%)
of the next $150,000,000 of average daily
net assets of the Fund; and

(iii) Thirty-five basis points (0.35%) of average
daily net assets of the Fund in excess of
$300,000,000.

-3-

<PAGE>

amended, or as described from time to time in the Penn Series' Prospectus and
Statement of Additional Information. In addition, Penn Series or the Adviser may
direct the Sub-Adviser to allocate to brokers or dealers selling variable
contracts invested in Penn Series shares purchase and sale orders for portfolio
securities, provided that Sub-Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Sub-Adviser shall advise Penn Series' Board of Directors, when
requested, as to all payments of commissions and as to its brokerage policies
and practices and shall follow such lawful instructions with respect thereto as
may be given by Penn Series' board.

8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request and as are related to Sub-Adviser's
duties under this Agreement or as Sub-Adviser may deem helpful, to reasonably
ensure compliance with applicable laws and regulations or for any other purpose.
Sub-Adviser shall cooperate with Penn Series' independent public accountants and
take all reasonable action in the performance of services and obligations under
this Agreement to assure that the information relative to the Fund's portfolio
needed by such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.

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<PAGE>

10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series pursuant to the Act are the
property of Penn Series. Such records will be preserved by Sub-Adviser itself or
through an affiliated corporation for the periods prescribed in Rule 3la-2 under
the Act, where applicable, or in such other applicable rules that may be adopted
from time to time under the Act. Such records may be inspected by
representatives of Penn Series and Adviser at reasonable times and, in the event
of termination of this Agreement, will be promptly delivered to Adviser and Penn
Series upon request.

11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which
Sub-Adviser, its principals, affiliates or employees may purchase or sell for
its or their own accounts or other clients.

14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn

-5-

<PAGE>

Series, in respect of any matter arising in connection with this Agreement, and
Sub-Adviser shall not be liable for any action taken or omitted by it or by any
affiliate in good faith in accordance with such instructions or with the advice
or opinion of Penn Series' legal counsel. Sub-Adviser and its affiliates shall
be protected in acting upon any instruction, advice, or opinion provided by Penn
Series or its legal counsel and upon any other paper or document delivered by
Penn Series or its legal counsel believed by Sub-Adviser to be genuine and to
have been signed by the proper person or persons and shall not be held to have
notice of any change of authority of any officer or agent of Penn Series, until
receipt of written notice thereof from Penn Series. Sub-Adviser shall inform
Adviser of all applications to Penn Series for instructions and all
consultations with legal counsel for Penn Series at the time of such application
or consultation.

-6-

<PAGE>

instructions reasonably believed by Sub-Adviser or any affiliated corporation to
have been executed by an individual who has been identified in writing by Penn
Series as a duly authorized officer of Penn Series or Adviser; (ii) any action
of Sub-Adviser or any affiliated corporation, with respect to any service
described in this Agreement upon information provided by Penn Series or Adviser
in form and under policies agreed to by Sub-Adviser and Penn Series or Adviser.
Sub-Adviser shall not be entitled to such indemnification in respect of actions
or omissions constituting negligence or willful misconduct of Sub-Adviser or its
affiliates, agents or contractors, or constituting a failure by Sub-Adviser or
any affiliate to comply with any term of this Agreement. Prior to the confession
of any claim against Adviser which may be subject to this indemnification,
Sub-Adviser shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Sub-Adviser.

20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.

-7-

<PAGE>

terms of this Agreement with respect to the Fund or any extension, renewal or
amendment hereof.

23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.

The Adviser may use (and shall cause all of its affiliates, including
Penn Series, to use the name "Putnam Investment Management, Inc.", "Putnam
Investment Management", "Putnam Investments" or "Putnam" or any derivation
thereof only for so long as this Agreement or any extension, renewal or
amendment remains in effect. At such times as this Agreement shall no longer be
in effect, the Adviser shall cease to use (and shall cause its affiliates to
cease using) any name using any of the foregoing terms or any other name
indicating that the Fund is advised by or otherwise connected with the
Sub-Adviser. The Adviser acknowledges that Fund has included the name "Putnam"
in the Portfolio through permission of the Sub-Adviser and the Sub-Adviser
retains all rights to such name.

The Adviser will not, and will cause its affiliates to not, refer to or
describe the Sub-Adviser in any prospectus, proxy statement, sales literature
or other material except with the written permission of the Sub-Adviser.

25. Miscellaneous.

A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.

-8-

<PAGE>

or by which it is bound, or to relieve or deprive the board
of directors of Penn Series of its responsibility for and
control of the conduct of the affairs of Penn Series.

D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified
mail, postage prepaid, to the addressed party at such address
as such party may designate for the receipt of such notices.
Until further notice, it is agreed that for this purpose the
address of Adviser is Independence Capital Management, Inc.,
600 Dresher Road, Horsham, PA 19044, Attention: President, and
that of Sub-Adviser is Putnam Investment Management, Inc., One
Post Office Square, Boston, MA, 02109 Attention: General
Counsel.

E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except
where such state laws have been preempted by Federal law.

F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered
shall be deemed to be an original, and together shall
constitute one document.

G. Entire Agreement; Severability. This Agreement is the
entire agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter
hereof. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability
of any and all other provisions hereof.

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<PAGE>

H. No Third Party Beneficiaries. Neither party intends for
this Agreement to benefit any third-party not expressly named
in this Agreement.

I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees
to notify the Adviser within a reasonable period of time
regarding a material change in the ownership of Sub-Adviser.

-10-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.

Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.

______________________ By: ________________________________
Secretary Peter M. Sherman
President

Attest: PUTNAM INVESTMENT MANAGEMENT, INC.

______________________ By: ________________________________
Secretary

-11-

<PAGE>

EXHIBIT d(8)

FORM OF

INVESTMENT SUB-ADVISORY AGREEMENT

between

INDEPENDENCE CAPITAL MANAGEMENT, INC.

and

WELLS CAPITAL MANAGEMENT INCORPORATED

relating to

INDEX 500 FUND

INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and WELLS
CAPITAL MANAGEMENT INCORPORATED. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of California.

WITNESSETH:

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<PAGE>

WHEREAS, Sub-Advisor has provided Adviser with a copy of its Part II of
its Current Form ADV Application for registration on file with the U.S.
Securities and Exchange Commission;

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Index 500 Fund (the "Fund"), and exercise all rights incidental to ownership in
accordance with the investment objectives, program and restrictions applicable
to the Fund as provided in Penn Series' Prospectus and Statement of Additional
Information ("SAI"), as amended from time to time, and such other limitations as
may be imposed by law or as Penn Series or Adviser may impose with notice in
writing to Sub-Adviser. To enable Sub-Adviser to fully exercise its discretion,
Adviser hereby appoints Sub-Adviser as agent and attorney-in-fact for the Fund
with full power and authority to buy, sell and otherwise deal in securities and
contracts for the Fund. No investment will be made by Sub-Adviser for the Fund
if the investment would violate the investment objectives, investment
restrictions or limitations of the Fund set out in the Prospectus and the SAI
delivered to the Sub-Adviser and as may be amended and delivered to Sub-Adviser
in the future. Sub-Adviser shall not take custody of any assets of Penn Series,
but shall issue settlement instructions to the custodian designated by Penn
Series (the "Custodian"). Sub-Adviser shall, in its discretion, obtain and
evaluate such information relating to the economy, industries, businesses,
securities markets and securities as it may deem necessary or useful in the
discharge of its obligations hereunder and shall formulate and implement a
continuing program for the management of the assets and resources of the Fund in
a manner consistent with the investment objectives of the Fund. In furtherance
of this duty, Sub-Adviser, as agent and attorney-in-fact with respect to Adviser
and Penn Series, is authorized, in its discretion and without prior consultation
with Adviser or Penn Series, to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and

(iii) take such other actions Sub-Adviser deems to be appropriate;

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<PAGE>

provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the objectives, investment program, or restrictions or limitations
of the Fund.

3. Sub-Advisory Fee.

A. Payment of Fee. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of the Fund.

B. Fee Rate.

(i) Seven basis points (0.07%) of the first $100,000,000 of
average daily net assets of the Fund; and

(ii) Three basis points (0.03%) of average daily net assets of
the Fund in excess of $100,000,000.

C. Method of Computation. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.

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<PAGE>

will not be deemed to have acted unlawfully or to have breached a fiduciary duty
to the Fund or be in breach of any obligation owing to the Fund under this
Agreement, or otherwise, by reason of its having directed a securities
transaction on behalf of the Fund to a broker-dealer in compliance with the
provisions of Section 28(e) of the Securities Exchange Act of 1934, as amended,
or as described from time to time in the Penn Series' Prospectus and Statement
of Additional Information. In addition, Sub-Adviser is authorized to take into
account the sale of variable contracts which are invested in Penn Series shares
in allocating to brokers or dealers purchase and sale orders for portfolio
securities, provided that Sub-Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Sub-Adviser shall advise Penn Series' Board of Directors, when
requested, as to all payments of commissions and as to its brokerage policies
and practices and shall follow such instructions with respect thereto as may be
given by Penn Series' board.

-4-

<PAGE>

including, but not limited to, their opinion included in Penn Series' annual
report under the Act and annual amendment to Penn Series' registration statement
under the Act.

10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted from
time to time under the Act. Such records may be inspected by representatives of
Penn Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.

11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which Sub-
Adviser , its principals, affiliates or employees may purchase or sell for its
or their own accounts or other clients.

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<PAGE>

16. Limitation of Liability. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or any
person performing executive, administrative, trading, or other functions for
Penn Series (at the direction or request of Sub- Adviser), or Sub-Adviser or its
affiliates in connection with the discharge of obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by Penn Series in
connection with the matters to which this Agreement relates, except for such
error, mistake or loss resulting from willful misfeasance, negligence or willful
misconduct in the performance of its, his or her duties on behalf of Penn Series
or constituting or resulting from a failure to comply with any term of this
Agreement. Sub-Adviser shall not be responsible for any loss incurred by reason
of any act or omission of the Custodian or of any broker, dealer, underwriter or
issuer selected by Sub- Adviser with reasonable care.

-6-

<PAGE>

each party and in accordance with applicable law, and shall be signed by an
authorized officer of each party, acting as such, and shall be binding on each
party.

19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser and resulting from any claim, demand, action or suit arising out of
Sub-Adviser's or any affiliate's failure to comply with any term of this
Agreement or which arise out of the willful misfeasance, negligence or
misconduct of Sub-Adviser, its affiliates, their agents or contractors. Neither
Penn Series nor Adviser shall be entitled to such indemnification in respect of
actions or omissions constituting negligence or willful misconduct of Penn
Series or Adviser, or their agents or contractors or constituting a failure by
Adviser to comply with any term of this Agreement; provided, that such
negligence or misconduct is not attributable to Sub-Adviser or any person that
is an affiliate of Sub-Adviser or an affiliate of an affiliate of Sub-Adviser.
Prior to confessing any claim against it which may be subject to this
indemnification, Adviser shall give Sub-Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Adviser. For purposes of
this Section 19 and of Section 18 hereof, no broker or dealer shall be deemed to
be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser,
in effecting or executing any portfolio transaction for the Fund.

20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.

-7-

<PAGE>

other terms and conditions hereof, so long as such continuation shall be
specifically approved at least annually (a) by either the Board of Directors of
Penn Series, or by a vote of a majority of the outstanding voting securities of
the series of shares of Penn Series representing interests in the Fund and (b)
in either event by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the directors of Penn Series who
are not parties to this Agreement or interested persons of any such party.
Sub-Adviser shall furnish to Penn Series, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this
Agreement with respect to the Fund or any extension, renewal or amendment
hereof.

23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.

25. Miscellaneous.

B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By- Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of the
affairs of Penn Series.

-8-

<PAGE>

the Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any
such court, by rules, regulations or orders of the Securities and
Exchange Commission validly issued pursuant to the Act.
Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested person," "assignment," and
"affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of
this Agreement is relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.

D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Adviser
is Independence Capital Management, Inc., 600 Dresher Road,
Horsham, PA, 19044, Attention: President, and that of Sub-Adviser
is Wells Capital Management Incorporated, 6th Street and Marquette
Avenue, MAC N9305, Minneapolis, MN, 55479.

E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.

F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered shall be
deemed to be an original, and together shall constitute one
document.

G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter hereof.
The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any and all other
provisions hereof.

H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.

I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees to
notify the Adviser within a reasonable period of time regarding a
material change in the investment professionals of Sub-Adviser that
manage the Fund and similar investment accounts.

-9-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.

Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.

______________________ By: _________________________________
Secretary Peter M. Sherman
President

Attest: WELLS CAPITAL MANAGEMENT INCORPORATED

______________________ By: _________________________________
Secretary

-10-

<PAGE>

EXHIBIT d(9)

FORM OF

INVESTMENT SUB-ADVISORY AGREEMENT

between

INDEPENDENCE CAPITAL MANAGEMENT, INC.

and

NEUBERGER BERMAN MANAGEMENT INC.

relating to

MID CAP VALUE FUND

INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and
NEUBERGER BERMAN MANAGEMENT INC. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of Delaware.

WITNESSETH:

<PAGE>

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Mid Cap Value Fund (the "Fund"), and to exercise all rights incidental to
ownership in accordance with the investment objectives, program and restrictions
applicable to the Fund as provided in Penn Series' Prospectus and Statement of
Additional Information ("SAI"), as amended from time to time, and such other
limitations as may be imposed by law or as Penn Series or Adviser may impose
with notice in writing to Sub-Adviser. To enable Sub-Adviser to fully exercise
its discretion, Adviser hereby appoints Sub-Adviser as agent and
attorney-in-fact for the Fund with full power and authority to buy, sell and
otherwise deal in securities and contracts for the Fund. No investment will be
made by Sub-Adviser for the Fund if the investment would violate the investment
objectives, investment restrictions or limitations of the Fund set out in the
Prospectus and the SAI delivered to the Sub-Adviser and as may be amended and
delivered to Sub-Adviser in the future. Sub-Adviser shall not take custody of
any assets of Penn Series, but shall issue settlement instructions to the
custodian designated by Penn Series (the "Custodian"). Sub-Adviser shall, in its
discretion, obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and Penn Series, is authorized, in its
discretion and without prior consultation with Adviser or Penn Series, to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and

(iii) take such other actions Sub-Adviser deems to be appropriate;

provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the objectives, investment program, or restrictions or limitations
of the Fund.

2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-Adviser shall provide Penn
Series and its Accounting Services Agent with such

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<PAGE>

information as may be reasonably necessary to properly account for financial
transactions with respect to the Fund.

3. Sub-Advisory Fee.

A. Payment of Fee. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser a fee at
the rate of 0.43% of the average daily net assets of the Fund.

B. Method of Computation. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.

5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the

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<PAGE>

services or facilities of other persons or organizations for the purpose of
providing Penn Series, Adviser or itself, as appropriate, with such statistical
and other factual information, such advice regarding economic factors and
trends, such advice as to occasional transactions in specific securities or such
other information, advice or assistance as Sub-Adviser may deem necessary,
appropriate or convenient for the discharge of its obligations hereunder or
otherwise helpful to Penn Series and Adviser, or in the discharge of
Sub-Adviser's overall responsibilities with respect to the other accounts which
it serves as investment adviser.

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<PAGE>

other applicable rules that may be adopted from time to time under the Act. Such
records may be inspected by representatives of Penn Series and Adviser at
reasonable times and, in the event of termination of this Agreement, will be
promptly delivered to Adviser and Penn Series upon request.

11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which
Sub-Adviser , its principals, affiliates or employees may purchase or sell for
its or their own accounts or other clients.

-5-

<PAGE>

-6-

<PAGE>

20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.

23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.

-7-

<PAGE>

25. Miscellaneous.

B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By- Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of the
affairs of Penn Series.

C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as used
herein, shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or
order.

D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Adviser
is Independence Capital Management, Inc., 600 Dresher Road,
Horsham, PA 19044,

-8-

<PAGE>

Attention: President, and that of Sub-Adviser is Neuberger Berman
Management Inc., 605 Third Avenue, 2nd Floor, New York, NY,
10158-0180.

E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.

F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered shall be
deemed to be an original, and together shall constitute one
document.

G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter hereof.
The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any and all other
provisions hereof.

H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.

I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees to
notify the Adviser within a reasonable period of time regarding a
material change in the members of Sub-Adviser.

-9-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.

Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.

______________________ By:_____________________________
Secretary Peter M. Sherman
President

Attest: NEUBERGER BERMAN MANAGEMENT INC.

______________________ By:_____________________________
Secretary

-10-

<PAGE>

EXHIBIT d(10)
FORM OF

INVESTMENT SUB-ADVISORY AGREEMENT

between

INDEPENDENCE CAPITAL MANAGEMENT, INC.

and

ROYCE & ASSOCIATES, INC.

relating to

SMALL CAP VALUE FUND

INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 2000 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and ROYCE &
ASSOCIATES, INC. ("Sub-Adviser"), a corporation organized and existing under the
laws of the State of Delaware.

WITNESSETH:

<PAGE>

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Small Cap Value Fund (the "Fund"), and to exercise all rights incidental to
ownership in accordance with the investment objectives, program and restrictions
applicable to the Fund as provided in Penn Series' Prospectus and Statement of
Additional Information ("SAI"), as amended from time to time, and such other
limitations as may be imposed by law or as Penn Series or Adviser may impose
with notice in writing to Sub-Adviser. To enable Sub-Adviser to fully exercise
its discretion, Adviser hereby appoints Sub-Adviser as agent and
attorney-in-fact for the Fund with full power and authority to buy, sell and
otherwise deal in securities and contracts for the Fund. No investment will be
made by Sub-Adviser for the Fund if the investment would violate the investment
objectives, investment restrictions or limitations of the Fund set out in the
Prospectus and the SAI delivered to the Sub-Adviser and as may be amended and
delivered to Sub-Adviser in the future. Sub-Adviser shall not take custody of
any assets of Penn Series, but shall issue settlement instructions to the
custodian designated by Penn Series (the "Custodian"). Sub-Adviser shall, in its
discretion, obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and Penn Series, is authorized, in its
discretion and without prior consultation with Adviser or Penn Series, to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and

(iii) take such other actions Sub-Adviser deems to be appropriate;

provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the objectives, investment program, or restrictions or limitations
of the Fund.

-2-

<PAGE>

3. Sub-Advisory Fee.

A. Payment of Fee. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of the Fund.

B. Fee Rate.

(i) Seventy basis points (0.70%) of the first $25,000,000 of
average daily net assets of the Fund;

(ii) Sixty-five basis points (0.65%) of the next $75,000,000 of
average daily net assets of the Fund; and

(iii) Sixty basis points (0.60%) of average daily net assets of
the Fund in excess of $100,000,000.

C. Method of Computation. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.

-3-

<PAGE>

Securities Exchange Act of 1934, as amended, or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of variable
contracts which are invested in Penn Series shares in allocating to brokers or
dealers purchase and sale orders for portfolio securities, provided that
Sub-Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Sub-Adviser shall
advise Penn Series' Board of Directors, when requested, as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.

-4-

<PAGE>

10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted from
time to time under the Act. Such records may be inspected by representatives of
Penn Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.

11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. It is understood that Sub-Adviser
may give advice and take action for its other clients which may differ from
advice given, or the timing or nature of action taken, for a Fund. Sub-Adviser
is not obligated to initiate transactions for a Fund in any security which
Sub-Adviser , its principals, affiliates or employees may purchase or sell for
its or their own accounts or other clients.

-5-

<PAGE>

18. Indemnification by Adviser. Adviser will indemnify and hold
Sub-Adviser harmless from all loss, cost, damage and expense, including

-6-

<PAGE>

reasonable expenses for legal counsel, incurred by Sub-Adviser resulting from:
(i) any action or omission of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Sub-Adviser or any affiliated corporation to have been executed by
an individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series or Adviser; (ii) any action of Sub-Adviser or
any affiliated corporation, with respect to any service described in this
Agreement upon information provided by Penn Series or Adviser in form and under
policies agreed to by Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall
not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Sub-Adviser or its affiliates,
agents or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.

20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.

-7-

<PAGE>

to this Agreement or interested persons of any such party. Sub-Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
the Fund or any extension, renewal or amendment hereof.

23. Assignment of Agreement. This Agreement shall terminate
automatically in the event of its assignment, as required by the Act and rules
and regulations promulgated thereunder.

25. Miscellaneous.

B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of the
affairs of Penn Series.

-8-

<PAGE>

herein, shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or
order.

D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices. Until further
notice, it is agreed that for this purpose the address of Adviser
is Independence Capital Management, Inc., 600 Dresher Road,
Horsham, PA 19044, Attention: President, and that of Sub-Adviser is
Royce & Associates, Inc., 1414 Avenue of the Americas, New York,
NY, 10019.

E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.

F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered shall be
deemed to be an original, and together shall constitute one
document.

G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter hereof.
The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any and all other
provisions hereof.

H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.

I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees to
notify the Adviser within a reasonable period of time regarding a
material change in the members of Sub-Adviser.

-9-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.

Attest: INDEPENDENCE CAPITAL MANAGEMENT, INC.

______________________ By:__________________________________
Secretary Peter M. Sherman
President

Attest: ROYCE & ASSOCIATES, INC.

______________________ By:__________________________________
Secretary

-10-

<PAGE>

EXHIBIT h(1)
FORM OF

ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT

AGREEMENT, made and entered into as of May 1, 2000, by and between PENN
SERIES FUNDS, INC., a Maryland corporation ("Penn Series"), and THE PENN MUTUAL
LIFE INSURANCE COMPANY, a Pennsylvania mutual life insurance company ("Penn
Mutual").

WITNESSETH:

WHEREAS, Penn Series is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), offering multiple series (or classes) of capital stock
and each series (or class) representing interests in a separate fund or
portfolios of investments ("Fund or Funds"); and

WHEREAS, Penn Mutual currently serves as Administrative and Corporate
Services Agent for Penn Series, and in such capacity provides administrative and
corporate services to Penn Series with respect to certain Penn Series Funds; and

WHEREAS Penn Series and Penn Mutual desire Penn Mutual to provide
administrative and corporate services with respect to additional Penn Series
Funds set forth in Schedule A ("Additional Funds").

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Penn Series hereby appoints Penn Mutual its Administrative and
Corporate Services Agent to administer its corporate affairs, subject to the
overall supervision of the Board of Directors of Penn Series, with respect to
the Additional Funds, for the period and on the terms set forth in this
Agreement. Penn Mutual accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in
Paragraph 7 of this Agreement.

2. With respect to the Additional Funds, Penn Mutual will administer
all aspects of Penn Series' operations other than administrative services
provided by Penn Series' Investment Advisers pursuant to the Investment Advisory
Agreements, Penn Series' Accounting Services Agent pursuant to the Accounting
Services Agreement, Penn Series' Custodian under the Custodian Agreement and
Penn Series' Transfer Agent under the Transfer Agency Agreement. In performing
its duties as Administrative and Corporate Services Agent, Penn Mutual will act
in

<PAGE>

conformity with the Articles of Incorporation, By-Laws, and 1940 Act
registration statement of Penn Series and with the instructions and directions
of the Board of Directors of Penn Series and will conform to and comply with the
requirements of the 1940 Act and all other applicable Federal or state laws and
regulations.

3. The services which Penn Mutual shall provide as Administrative and
Corporate Services Agent include but are not limited to:

(a) the maintenance of all books and records pertaining to
Penn Series' affairs, except those that are required to be maintained
by Penn Series' Investment Advisers, Accounting Services Agent,
Custodian, or Transfer Agent;

(b) the preparation of such annual, semi-annual or other
reports or proxy statements as Penn Series may be required to file with
the Securities and Exchange Commission or to distribute to its
shareholders;

(c) the preparation of any registration statements or
amendments to registration statements which Penn Series may be required
or may desire to file with the Securities and Exchange Commission;

(d) the preparation of such filings as may be required for
compliance with the securities laws of any state or other jurisdiction;

(e) the preparation of such applications or requests as Penn
Series may desire to make to the Securities and Exchange Commission or
its staff for exemption from, or interpretation of any provision of the
1940 Act or any other applicable Federal securities statute;

(f) the preparation of Penn Series' Federal and state tax
returns and any other filings required for tax purposes other than
those required to be made by Penn Series' Custodian, Transfer Agent,
Accounting Services Agent, or Investment Advisers;

(g) such services as Penn Series' Board of Directors may
require in connection with its oversight of Penn Series' Investment
Advisers, Accounting Services Agent, Custodian, or Transfer Agent,
including the periodic collection and presentation of data concerning
the investment performance of Penn Series' various investment
portfolios;

(h) the organization of all meetings of Penn Series' Board of
Directors;

(i) the organization of all meetings of Penn Series'
shareholders;

-2-

<PAGE>

(j) the collection and presentation of any financial or other
data required by Penn Series' Board of Directors, accountants, or
counsel;

(k) the preparation and negotiation of any amendments to, or
substitutes for, the present agreements with Penn Series' Investment
Advisers, Accounting Services Agent, Custodian, or Transfer Agent; and

(l) such other services as the Penn Series' Board of Directors
may reasonably request.

4. Penn Mutual shall permit any of its directors, officers, or
employees who may be elected as directors or officers of Penn Series to serve in
the capacities in which they are elected. Any of the services to be furnished by
Penn Series under this Agreement may be furnished through the medium of such
directors, officers, or employees of Penn Mutual.

5. Penn Mutual shall bear all of the following expenses in connection
with the services to be rendered under this Agreement.

(a) all rent and other expense involved in the provision of
office space for Penn Series and for Penn Mutual in connection with its
performance of services under this Agreement;

(b) the salaries and expenses of all personnel of Penn Series
and Penn Mutual incurred in connection with the provision of
administrative services to Penn Series, except the fees and expenses of
directors of Penn Series who are not interested persons (as defined in
the 1940 Act) of Penn Series or affiliated persons (as defined in the
1940 Act) of Penn Mutual or of Penn Series' Investment Advisers; and

(c) all expenses incurred by Penn Mutual or Penn Series in
connection with administering the ordinary course of Penn Series'
business, other than those excluded pursuant to Paragraph 6 below.

6. Nothing in this Agreement shall require Penn Mutual to bear, or to
reimburse Penn Series for,

(a) the costs of printing and mailing the items referred to in
Paragraph 3(b) above, or any prospectuses included in registration
statements referred to in Paragraph 3(c) or required by law, regulation
or regulatory authorities;

(b) compensation of member of Penn Series' Board of Directors
who are not interested persons (as defined in the 1940 Act) of Penn
Series or affiliated persons (as defined in the 1940 Act) of Penn
Mutual or of Penn Series' Investment Advisers;

-3-

<PAGE>

(c) registration, filing, or other fees imposed by the
Securities and Exchange Commission or other regulatory authorities;

(d) the charges and expenses of Penn Series' Investment
Advisers, Accounting Services Agent, Custodian, and Transfer Agent;

(e) the fees and expenses of legal counsel and independent
accountants for Penn Series;

(f) brokers' commissions and any issue or transfer taxes
chargeable to Penn Series in connection with its securities
transactions;

(g) taxes and corporate fees payable by Penn Series to
Federal, state or other governmental entities;

(h) the fees of any trade association of which Penn Series may
be a member; and

(i) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of Penn
Series' business.

7. Penn Series shall pay Penn Mutual as full compensation for services
rendered and facilities furnished hereunder a fee computed at the annual rate of
0.15% of the average daily net assets of the Additional Funds. Such fee shall be
payable at such intervals not more frequently than monthly and not less
frequently than quarterly as the officers of Penn Series may from time to time
determine and specify in writing to Penn Mutual. Such fee shall be calculated on
the basis of the average of all valuations of the net assets of the Additional
Funds made as of the close of business on each valuation day during the period
for which such fee is paid and be prorated among the Additional Funds in
proportion to the average total net assets of each such Fund during the period.

8. With respect to each of the Additional Funds of Penn Series, to the
extent that the Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance with
generally accepted accounting principles, and extraordinary expenses, but
including investment advisory and administrative and corporate services fees
before any adjustment pursuant to this provision) exceed the expense limitation
for the Fund, such excess amount shall be a liability of Penn Mutual to Penn
Series. The liability (if any) of Penn Mutual to pay Penn Series such excess
amounts shall be determined on a daily basis. With respect to each such Fund of
Penn Series, if, at the end of each fee payment period, there is any liability
of Penn Mutual to pay Penn Series any such excess amount, the administrative
services fee shall be reduced by such liability. If, at the end of each fee
payment period, there is no liability of Penn Mutual to pay Penn Series any such
excess amount, and if payments of the administrative services fee at the end of
prior fee payment periods during the fiscal year have

-4-

<PAGE>

been reduced in excess of that required to maintain expenses within the expense
limitation, such excess reduction shall be recaptured by Penn Mutual and shall
be payable by Penn Series to Penn Mutual along with the administrative services
fee payable to Penn Mutual for that period. If, at the end of the fiscal year,
there is any remaining liability of Penn Mutual to pay Penn Series any such
excess amounts (which have not been paid through reduction of the administrative
services fee), Penn Mutual shall remit to Penn Series an amount sufficient to
pay such remaining liability. The expense limitation of each Additional Fund, as
a percentage of the Fund's average daily net assets, is set forth in Schedule B.

9. Penn Mutual assumes no responsibility under this Agreement other
than to render the services called for hereunder, and specifically assumes no
responsibilities for investment advice or the investment or reinvestment of Penn
Series' assets.

10. Neither Penn Mutual nor any of its trustees, officers or employees,
nor any persons performing executive, administrative or other functions shall be
liable for any error of judgment or mistake of law or for any loss suffered by
Penn Series in connection with the matters to which this Agreement relates,
except for loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its or his or her duties on behalf of Penn
Mutual or from reckless disregard by Penn Mutual or any such person of Penn
Mutual's duties under this Agreement.

11. This Agreement shall continue in effect with respect to a given
Fund for a period more than two years from the date of its execution only so
long as such continuation is specifically approved at least annually by either
the Board of Directors of Penn Series or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) representing
interests in that Fund, provided that in either event such continuation shall
also be approved by the vote of a majority of the directors who are not
interested persons of Penn Series, as defined in the 1940 Act, cast by them in
person at a meeting called for the purpose of voting on such approval; provided,
however, that:

(a) this Agreement may at any time be terminated by Penn
Series with respect to any Fund, without the payment of any penalty, on
60 days' notice to Penn Mutual either by vote of the Board of Directors
of Penn Series or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) representing interests in that
Fund;

(b) this Agreement may be terminated by Penn Mutual at any
time, without the payment of any penalty, on 90 days' written notice to
Penn Series; and

-5-

<PAGE>

12. The services of Penn Mutual to Penn Series provided under this
Agreement are not to be deemed to be exclusive and Penn Mutual shall be free to
provide similar services to others. Nothing in this Agreement shall limit or
restrict the right of any trustee, officer or employee of Penn Mutual who may
also be a director, officer or employee of Penn Series to engage in any other
business or to devote his or her other time and attention in part to the
management or other aspects of any business, whether of a similar or a
dissimilar nature.

13. It is understood that directors, officers, agents and stockholders
of Penn Series are or may be interested in Penn Mutual as trustees, officers, or
otherwise; that trustees, officers, agents and policyholders of Penn Mutual are
or may be interested in Penn Series as directors, officers, stockholders or
otherwise; and that Penn Mutual may be interested in Penn Series as a
shareholder or otherwise. The existence of any such dual interest shall not
affect the validity hereof or of and transactions hereunder.

14. This Agreement may be amended by mutual written consent.

15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid: (a) to Penn Mutual at 600 Dresher Road, Horsham PA 19044,
Attention: President; or (b) to Penn Series at 600 Dresher Road, Horsham, PA
19044, Attention: President.

16. This Agreement contains the entire agreement between the parties
hereto and supersedes all prior agreements, understandings and arrangements with
respect to the subject matter hereof.

17. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.

-6-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

PENN SERIES FUNDS, INC.

By: __________________________________
Peter M. Sherman
President

THE PENN MUTUAL LIFE INSURANCE COMPANY

By: __________________________________
Ann M. Strootman
Vice President and Controller

-7-

<PAGE>

SCHEDULE A
to
ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
THE PENN MUTUAL LIFE INSURANCE COMPANY

Additional Funds
----------------

Limited Maturity Bond Fund

Growth and Income Fund

Index 500 Fund

Mid Cap Growth Fund

Mid Cap Value Fund

A-1

<PAGE>

SCHEDULE B
to
ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
THE PENN MUTUAL LIFE INSURANCE COMPANY

Expense Limitations

Fund Expense Limitation
---- ------------------
Limited Maturity Bond Fund 0.90%
Growth and Income Fund 1.00%
Index 500 Fund 0.40%
Mid Cap Growth Fund 1.00%
Mid Cap Value Fund 1.00%

B-1