Penn Series Funds, Inc. Annual Report As of December 31, 2020
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Penn Series Funds, Inc. Annual Report As of December 31, 2020 Available through Penn Mutual Variable Products [THIS PAGE INTENTIONALLY LEFT BLANK] Dear Investor: Thank you for your continued affiliation with The Penn Mutual Life Insurance Company. The confidence and trust you place in us reaffirms our commitment to helping policyholders take advantage of all life’s possibilities. We also take pride in being a financially strong mutual insurance company that delivers on our promises, and I’m very pleased to bring you the following capital markets summary. Please remember that regardless of what the markets may bring, short-term performance changes should not distract you from your long-term financial plan, and it’s a good idea to meet with your financial professional regularly to make sure that your asset allocation remains on target. 2020 will be remembered as a year where our nation and the entire world faced unprecedented challenges but also displayed incredible resilience. The longest U.S. economic expansion on record came to an abrupt halt in March as the coronavirus pandemic forced a national shutdown. The employment picture in the U.S. quickly transitioned from the best in nearly 50 years to more than 20 million jobs lost by the April employment report. Non-financial service sectors such as airlines, cruise lines, restaurants and lodging bore the brunt of the shutdowns and related job losses. Stocks despite hitting new highs in February, suffered over a 30 percent decline in just over a month. The contraction in U.S. economic activity was the sharpest on record, declining 31 percent during the second quarter. Despite continued stress across many businesses still challenged by the pandemic, fast action in March by the Federal Reserve (Fed) provided much needed liquidity to markets and the economy. Passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act quickly followed the Fed action and helped to limit permanent damage to the U.S. economy. While the depth of the recession was extreme, the duration was short as the third quarter gross domestic product rebounded with the largest increase on record, up approximately 33 percent. In a year marked by a string of unprecedented events, one market trend that held steady was the outperformance of growth over value stocks. Technology companies have been insulated from the economic fallout during the pandemic and, in certain cases, benefited from the increased reliance on technology and acceleration of changing consumer habits. In this very volatile environment, the U.S. stock market, as measured by the Wilshire 5000 Total Market Index, returned 20.82 percent for the full twelve-month period ending December 31. On a relative basis, large-capitalization stocks provided higher returns than mid- and small-capitalization stocks during the year. Large-capitalization stocks, as measured by the Russell 1000 Index, returned 20.96 percent, while mid-capitalization stocks, as measured by the Russell Midcap Index returned 17.10 percent and small-capitalization stocks, as measured by the Russell 2000 Index, returned 19.96 percent. From a style perspective, despite value stocks modestly outperforming growth stocks in the fourth quarter, growth outperformed value for the full year in all market capitalizations. The widest disparity being in the large- capitalization space. For instance, large-capitalization growth stocks, as measured by the Russell 1000 Growth Index returned 38.49 percent while large-capitalization value stocks, as measured by the Russell 1000 Value Index, returned 2.80 percent. International markets also suffered from the pandemic-driven economic shutdown and experienced extreme volatility throughout the year. Global equity markets generally failed to keep pace with the size of the rebound for U.S. equities, with emerging markets being the exception. Investors remained focused on divergences in the path of the pandemic among different countries. In this environment, emerging markets stocks, thanks to their almost 20 percent fourth quarter return, ended the year with a strong 18.31 percent return, as measured by the MSCI Emerging Markets Index and developed international stocks returned 7.82 percent, as measured by the MSCI EAFE Index. Fixed-income markets closed the year on a strong note after positive vaccine news helped bring a light at the end of the tunnel for the pandemic. During the twelve-month period, investment-grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, returned a solid 7.51 percent and high-yield bonds, as measured by the Bloomberg Barclays U.S. Corporate High Yield Bond Index, returned 7.11 percent. Treasury yields tumbled to historic lows in early March as investors sought safety during the extreme market volatility and credit stress. They have remained in a tight trading range since then despite some upward pressure at the long end of the yield curve during the fourth quarter. The Fed remains committed to use its full range of tools to support the economic recovery and expects to keep short-term rates at zero through the end of 2023. Once again, we thank you for the privilege of serving your financial needs and encourage you to work closely with your financial professional to continue to explore your options throughout all life’s stages. Sincerely, David M. O’Malley President and Chief Operating Officer The Penn Mutual Life Insurance Company President Penn Series Funds, Inc. Source: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change as subsequent conditions vary. All economic and performance information is historical and not indicative of future results. Table of Contents Penn Series Funds, Inc. Annual Report Management’s Discussion of Fund Performance (Unaudited) Limited Maturity Bond Fund............................................................ 2 Quality Bond Fund...................................................................... 3 High Yield Bond Fund . ................................................................ 4 Flexibly Managed Fund................................................................. 5 Balanced Fund .......................................................................... 7 Large Growth Stock Fund .............................................................. 8 Large Cap Growth Fund . .............................................................. 10 Large Core Growth Fund ............................................................... 12 Large Cap Value Fund .................................................................. 14 Large Core Value Fund . ................................................................ 16 Index 500 Fund......................................................................... 18 MidCapGrowthFund.................................................................. 20 Mid Cap Value Fund . .................................................................. 22 Mid Core Value Fund ................................................................... 24 SMIDCapGrowthFund................................................................ 26 SMID Cap Value Fund .................................................................. 28 SmallCapGrowthFund ................................................................ 30 Small Cap Value Fund .................................................................. 32 Small Cap Index Fund .................................................................. 34 Developed International Index Fund.................................................... 36 International Equity Fund . ........................................................... 38 Emerging Markets Equity Fund......................................................... 41 Real Estate Securities Fund............................................................. 45 Aggressive Allocation Fund............................................................. 47 Moderately Aggressive Allocation Fund ................................................ 49 Moderate Allocation Fund .............................................................. 51 Moderately Conservative Allocation Fund .............................................. 53 Conservative Allocation Fund........................................................... 55 Important Information about Fund Expenses (Unaudited) ............................. 57 Schedules of Investments ................................................................. 60 Statements of Assets and Liabilities ..................................................... 174 Statements of Operations ................................................................. 182 Statements of Changes in Net Assets .................................................... 189 Financial Highlights ....................................................................... 197 Notes to Financial Statements ............................................................ 212 Report of Independent Registered Public Accounting Firm ............................ 235 Tax Information ............................................................................ 236 Disclosure of Portfolio Holdings .......................................................... 237 Voting Proxies on Fund Portfolio Securities ............................................. 237 Fund Management ........................................................................