Semi-Annual Reports June 30, 2019 - Penn Mutual

Semi-Annual Reports June 30, 2019

Penn Mutual Variable Products

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the annual and semi-annual shareholder reports for the Funds available under your variable annuity or variable The   by mail each time a report is posted and provided with a website link to access the report.

You may elect to receive all future reports in paper and free of charge. You can contact us at (800) 523-0650 or contact your receive reports in paper will apply to all Funds available under your insurance contract.

The Securities and Exchange Commission ("SEC") has not approved or disapproved these securities or passed upon the adequacy of this Prospectus.

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 of 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 investment professional regularly to make sure that your asset allocation remains on target.

Stocks, despite a sharp pullback in May, recorded strong gains during the first half of 2019 while reaching record highs and ending with their best start to a year in over two decades. Inflation measures in the U.S. remained below the Federal Reserve's (Fed) 2% target despite the record-long economic expansion and near record-low unemployment. Consumer spending increased after a slow start to the year with balance sheets strengthening. First quarter Gross Domestic Product (GDP) showed a better than expected 3.1 percent rate of growth as consumer sentiment remained elevated, supported by a strong employment environment. Amid the growing uncertainties surrounding the escalation in trade and tariff tensions, second quarter GDP growth slowed along with consumer confidence levels. From a sector perspective, Technology and Consumer Discretionary had the strongest returns whereas Health Care, Energy and Utilities experienced relatively weaker returns during the first half of the year. In this environment, the U.S. stock market, as measured by the Wilshire 5000 Equity Index, returned 18.66 percent during the six-month period ending June 30.

On a relative basis, mid capitalization stocks provided higher returns than small and large capitalization stocks during the six-month period. Mid capitalization stocks, as measured by the Russell Midcap Index, returned 21.35 percent, while small capitalization stocks, as measured by the Russell 2000 Index, returned 16.98 percent and large capitalization stocks, as measured by the Russell 1000 Index, returned 18.84 percent. From a style perspective, growth stocks outperformed value stocks in all market capitalizations, with the widest disparity being in the mid capitalization space. For instance, mid capitalization growth stocks, as measured by the Russell Midcap Growth Index, returned 26.08 percent while mid capitalization value stocks, as measured by the Russell Midcap Value Index, returned 18.02 percent. Much of the outperformance within growth stocks can be attributed to the strong performance of the Technology, Consumer Discretionary and Industrials sectors.

International markets, while registering strong positive returns, underperformed domestic equity markets during the first six months of the year with emerging market stocks posting a 10.58 percent return, as measured by the MSCI Emerging Markets Index, and developed international stocks returning 14.03 percent, as measured by the MSCI EAFE Index. Despite the fact that the Fed and European Central Bank (ECB) have signaled they would take measures to combat slowing economic growth and address the risks associated with ongoing trade tensions, political and geopolitical risks have increased.

Investment-grade fixed income securities and high yield bonds posted strong results during the six-month period with the Fed's dovish stance supporting prices. Treasury yields moved lower in response to persistent low inflation and disappointing global economic conditions. The 10-Year Treasury yield closed the second quarter at 2.00 percent, the lowest level since the fall of 2016. Investment-grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Index, returned 6.11 percent and the Credit Suisse High Yield Bond Index returned a solid 9.95 percent. The Federal Open Market Committee (FOMC) met several times during the first half of the year and dropped the word "patient" from their statement describing its policy. The Fed also confirmed market expectations for an interest rate cut during the July FOMC meeting by noting in their June post-meeting statement that they "will act as appropriate to sustain the expansion."

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 of 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. Semi-Annual Report

Management's Discussion of Fund Performance 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Large Core Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Large Cap Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Large Core Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Index 500 Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Mid Cap Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Mid Cap Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Mid Core Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SMID Cap Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SMID Cap Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Small Cap Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Small Cap Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Small Cap Index Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Developed International Index Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 International Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Emerging Markets Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Real Estate Securities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Aggressive Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Moderately Aggressive Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Moderate Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Moderately Conservative Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Conservative Allocation Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Important Information about Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Schedules of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Statements of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Statements of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Disclosure of Portfolio Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Voting Proxies on Fund Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Board Approval of Investment Advisory and Sub-Advisory Agreements . . . . . . . . . . . . . . . . 215

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Penn Series Funds, Inc.

Management's Discussion of Fund Performance (Unaudited)

Limited Maturity Bond Fund

The Penn Series Limited Maturity Bond Fund returned 3.34% for the six-month period ending June 30, 2019, compared to 2.71% for its benchmark, the Bloomberg Barclays Capital U.S. Government/Credit 1-3 Year Index, for the same period.

The Fund finished in the top 40% among actively managed short duration fixed income funds as measured by Morningstar during the first six months of 2019.

Financial markets responded favorably to the Federal Reserve's shift towards easier monetary policy. Fixed income spread sectors registered strong results despite a temporary setback in May when escalating U.S./China trade tensions weighed on valuations.

Short-term Treasury yields moved in response to persistent low inflation and weakening global growth prospects. Fixed income markets are pricing in multiple rate cuts by year-end with the first cut expected at the July Federal Open Market Committee (FOMC) meeting.

We are remaining opportunistic with duration and yield curve management in light of the Fed's recent U-turn in monetary policy and signs of weaker economic conditions outside of the United States. Strategy holdings remain diversified across corporate and structured securities with overweight positioning to securitized airline debt, highly rated collateralized loan obligations (CLOs) and floatingrate bank hybrid securities.

Penn Mutual Asset Management, LLC Investment Adviser

Portfolio Composition as of 6/30/19

Corporate Bonds Asset Backed Securities Commercial Mortgage Backed

Securities U.S. Treasury Obligation Municipal Bonds Agency Obligations Residential Mortgage Backed

Securities

Percent of Total Investments1

59.2% 18.0%

14.9% 4.0% 3.3% 0.6%

--%2 100.0%

1 Portfolio holdings are presented as a percentage of total investments before short-term investments.

2 Less than 0.05%.

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