ROYCE FUND, N-30D, 1996-09-06

ROYCE FUND
N-30D, 1996-09-06

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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT

PENNSYLVANIA
MUTUAL
FUND

JUNE 30, 1996

THE ROYCE FUNDS
- --------------------------------------------------------------------------------

<PAGE>
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

After a left foot start in January, small company stocks, as measured by the
Russell 2000 Index, outperformed their large company brethren (S&P 500) in
February, March, April and May (15.2% versus 6.2%), but were unable to continue
their winning ways in June (-4.1% versus 0.4%). June's downturn in performance
was the first sign of potentially higher volatility for small-cap issues. In
fact, the Nasdaq Composite closed the second quarter off over 5% from the high
it established on June 5th, its largest decline since a 13.8% drop in the second
quarter of 1994. In spite of June's downturn, and because of the February-May
surge, the Russell 2000 Index of small-cap stocks won the first half performance
derby with a 10.4% total return versus a 10.2% total return for the large-cap
oriented S&P 500.

Within small-cap, 'growth' finished ahead of 'value' with the Russell 2000
Growth Index providing an 11.9% return versus an 8.7% gain for the Russell 2000
Value Index. A similar performance relationship, but with wider disparity, was
also present in the Wilshire Target Small Cap Index Funds, as the Small Cap
Growth Fund (+13.2%) handily outperformed the Small Cap Value Fund (+3.9%).

PENNSYLVANIA MUTUAL FUND ('PMF'), with its small-cap value orientation,
performed in line with the two small-cap value proxies, posting a 5.7% return
for the six months. Contributing to the Fund's performance were nice gains in
two sectors (retail and consumer durables) which had been mediocre performers in
1995.

Although not always leading in the short-term, PMF's longer-term results are
highly competitive in both an absolute and a relative sense. The Fund's 20-year
average annual total return of 16.4% was built during various periods of both
outperformance and underperformance for small-cap stocks. One of PMF's
additional attributes is its low risk profile. According to independent mutual
fund evaluation service, Morningstar, PMF was one of the lowest risk small-cap
funds for the three years ended June 30, 1996 as measured by standard deviation
(12th lowest out of 194 small-cap funds), beta (25th lowest out of 194 small-cap
funds) and Morningstar's risk ratio (26th lowest out of 194 small-cap funds).
WE BELIEVE THAT OUR APPROACH OF INVESTING IN HIGH QUALITY SMALL-CAP COMPANIES,
USING ABSOLUTE VALUATION STANDARDS, IS AN APPROPRIATE STRATEGY FOR GENERATING
ABOVE AVERAGE LONG-TERM RESULTS.

[GRAPHIC]

FIREWORKS IN JULY

Louis Pasteur once
said, 'Chance favors the prepared mind.' Although everyone was prepared for the
fireworks of July 4th, few were prepared for the market fireworks which began in
June and intensified throughout July. Double digit gains in small-cap indices
were erased and many investors now find themselves starting over at mid-year.

Performance Update Through July 31
<TABLE>
<CAPTION>

% Decline July '96 YTD Return
From High* Return thru 7/31/96
--------- -------- ------------
<S> <C> <C> <C>
PMF -5.8% -4.2% +1.3%

Russell 2000 -13.1% -8.7% +0.7%
Nasdaq Comp. -13.4% -8.8% +2.7%
</TABLE>

* Russell 2000 high was made on 5/22/96.

<PAGE>
<PAGE>
We view the current pyrotechnics of July from the vantage point that these
fluctuations are inevitable and desirable, and part of the normal rhythm of the
market. We are prone to keep ourselves at a distance. This is largely common
sense -- no special preparation needed.

WORTH REPEATING

To be quoted is flattering. To quote oneself presents the dual risk of boring
our readers and tooting our own horn. Nevertheless, we want to repeat some of
our comments from the 1995 Annual Report. (We promise we won't do this again.)

IN OUR LAST REPORT WE SAID:

'An interesting aspect of this five year rise in both
stocks and bonds is the ever increasing participation
of individual investors . . . . In fact, it is that very same
demand which is believed to ensure future success
and prevent any major reversal in market
fortunes . . . . The suggestion that continued success is
nearly guaranteed by demand is a scary
proposition . . . . We remain most astonished, not with
the magnitude of investor appetite for stocks, but the
nearly universal assumption of its permanence.'

WE NOW THINK:

In a perverse way, the least informed (the purchasing public) now appear to
be dictating investment policy to those presumed most knowledgeable (portfolio
managers). Normally prudent professionals have taken comfort in the fact that
the public is pouring money into equity mutual funds. As one of our shareholders
commented, 'The inmates are running the asylum.'

ALSO IN THE 1995 ANNUAL REPORT WE SAID:

'We are certain, particularly in a global
economy, that an ample supply of securities can
be created to meet and even exceed investors'
demands.'

AND NOW:

The $132 billion of new investments in equity mutual funds for the first half
of 1996 has eclipsed the prior annual record set in 1993 ($130 billion for the
full year). Yet, the dramatic upward progress that this commitment was expected
to produce has not materialized. A move up in long-term interest rates and
increased corporate insider selling activity are partly to blame, as well as a
surge in IPO activity. By late June, roughly 80 new offerings a week were
producing a fresh supply of securities at the rate of approximately $20 billion
a month.

[GRAPHIC]

<PAGE>
<PAGE>
One of the most instructive offerings of the recent IPO boom was the creation
and issuance of Berkshire Hathaway Inc. Class B shares. Berkshire Hathaway's
Chairman, Warren Buffett, is perhaps the best known investor of our time.
Multiple warnings on the front page of the prospectus included: 'Neither Mr.
Buffett nor Mr. Munger (Vice Chairman) would currently buy Berkshire shares (at
the current price), nor would they recommend that their families or friends do
so' and 'Berkshire has attempted to assess the current demand for Class B shares
and has tailored the size of this offering to fully satisfy that demand (and)
therefore, buyers hoping to capture quick profits are almost certain to be
disappointed.' Yet, despite the warnings, over $500 million was raised. WALL
STREET HAS BEEN SUCCESSFUL IN CREATING AN AMPLE SUPPLY OF NEW AND SECONDARY
OFFERINGS TO FULLY SATISFY DEMAND. HOWEVER, IT PROVIDES NO SIMILAR 'WARNING
LABELS.'

ADDITIONALLY WE SAID:

'The magnitude of the decline in interest rates
is virtually not repeatable. Consequently, a
further decline in interest rates will not have the
same favorable impact on stock prices, no
matter how bullish one is on rates.'

AND NOW:

The consensus expectations of lower rates (then at 6%) in an election year
have proved to be wrong. Long-term government bond yields rose by over 20% in
the first half to a current yield of over 7.0%. While this surprise has not
ended the party, it's getting hard to find the punch bowl.

AND FINALLY WE SAID:

'THE NEXT FIVE YEARS WILL BE DIFFERENT! It's
not likely that the next five years will rival the
previous five in terms of ideal wind conditions
or spectacular performance. History tells us
that periods of high valuation and high return
are usually followed by periods of lower, less
dynamic returns . . . . We see no reason why
performance should not revert to the mean and,
thus, a period of lower five year returns is
likely. Very simply, the last five years was a
period in which risk and reward were
synonymous and one in which risk management
provided virtually no benefit. It's likely that we
have completed the best five year performance
period for this decade.'

AND NOW?

Enough said.

THE VALUE IN VALUE INVESTING

A basic premise of value investing is that stocks, like other goods and
services, should be purchased at the most attractive prices possible, preferably
at a discount to their 'intrinsic worth.' The reality for most investors is just
the opposite. In other words, investor comfort levels and, therefore, demand
increase when prices rise, and diminish as prices decline. The higher a stock
rises, the greater the perceived opportunity.

Value investing, on the other hand, takes a contrary view to this highly
emotional process. By systematically reducing risk when others ignore it and
taking risk when it is feared, one can capitalize on valuation discrepancies
(opportunities) which develop from time to time. The greatest risk that the
value investor confronts is the loss of either patience or discipline when faced
with the prospect of being out-of-sync with the market. THE VALUE IN

<PAGE>
<PAGE>
'VALUE INVESTING' IS TO PROVIDE A COHERENT SYSTEM FOR RATIONAL DECISION MAKING
. . . THE PURPOSE OF WHICH IS TO COMPOUND WEALTH WHILE MINIMIZING RISK. Its
basic premise is that the price one pays for an investment makes a significant
difference in the return one receives.

WHAT WE DO

[GRAPHIC] Pennsylvania Mutual Fund uses a risk-averse approach to
invest in the securities of small-cap companies. Experience
tells us that paying attention to risk does not diminish
long-term results, although individual market phases may not necessarily confirm
this.

Our approach attempts to understand and value a company's private
worth -- what we believe an enterprise would sell for in a transaction between
rational parties. The price we will pay for a security must be significantly
under our appraisal of its private worth. The consistent use of this discipline,
applied to less well-known securities, is the source of our performance.

NO OTHER PLACE WE WOULD RATHER BE

While the Fund focuses on companies with market caps below $1 billion, our
weighted average and median market caps are actually much lower, $392 million
and $294 million, respectively, at June 30, 1996.

Although our orientation is small-cap stocks, our picking universe is by no
means small, with over 10,000 companies valued at more than $900 billion in
total market capitalization. It is both robust and perpetuating; IPO's, spin-
offs and reorganizations create hundreds of new prospects each year. It is a
sector rich in opportunity and easily accommodates our strategy given the size
of the investable universe.

From time to time we are criticized for the large number of securities that
we hold in the portfolio. In fact, given the size of our universe, we believe
our strategy is quite focused because total portfolio holdings represent fewer
than 3% of the available small-cap universe. Not many large-cap managers would
be content with only 15 selections from the S&P 500.

Not long ago we had a conversation with a highly successful and respected
fund manager about diversification. His contention was that statistical
diversification could be achieved with just 13 holdings. His own portfolio was
concentrated in a mere 20 selections. We were impressed. Yet, upon further
examination, we discovered his 20 large-cap holdings were involved in 61
different businesses. As defined by Standard Industrial Classification codes
(SICs), Philip Morris has seven different business groups, Pepsi has six,
Johnson & Johnson has five and so on. In contrast, the vast majority of our
holdings have single lines of business. When one adds up the numbers, there's
really not much difference in terms of diversification between our approach and
that of 'focused' managers.

HOW IT WORKS

Our approach to investing in individual small-cap
companies has proven historical benefits, but can be both [GRAPHIC]
unpredictable and frustrating in the near-term. We believe that the stock market
in the short-term is a polling place, and in the long-term, a highly efficient
weighing device. While our ultimate success will continue to be driven by the
process of 'weighing the true value' of the small companies in which we have
invested, the following provides a brief glimpse of some of this year's
'election results.'
5

FALLING IN LOVE

[GRAPHIC] Despite a generally rising market, there were
numerous opportunities for us to either add new
positions or increase our investment in some old
favorites. The following companies represent our most
significant commitments in 1996's first half. More importantly, they represent
examples of works in progress which we hope will build future performance.

<TABLE>
<CAPTION>
SECURITY DOLLARS INVESTED
- --------------------------------------- ----------------

<S> <C>
Electroglas Inc. $3,787,690
Zenith National Insurance 3,638,173
Penn Manufacturing 2,955,625
Haemonetics Corporation 2,841,204
The Commerce Group, Inc. 2,823,807
</TABLE>

Our largest new purchase, Electroglas is, much to our surprise, a technology
company. What a difference a year makes in terms of valuations in the high tech
field. Electroglas dominates its industry niche, gets wonderful returns on its
own capital, has a fortress-like balance sheet and now trades at one third of
last years' market valuation. At two times cash on hand we couldn't resist.
Zenith National Insurance, Pennsylvania Manufacturers and The Commerce Group are
all insurance companies. Each is well managed, conservatively capitalized, and
so far, unrecognized for their historically superior performance. Rising
interest-rates and continuing price competition in the industry have provided us
with the opportunity to increase our ownership in these companies on very
favorable terms. Finally, Haemonetics is a market leader in providing equipment
and dispensable supplies to the blood collection business. Near-term earnings
growth slowed at Haemonetics as the company is transitioning to a new generation
of blood collection products. If Haemonetics' new systems are accepted, and all
the evidence suggests they will be, we believe this could become a new growth
stock star.

HARVEST SEASON

Selling stocks is always difficult for the value
investor for it requires either parting with success or [GRAPHIC]
admitting mistakes. So far this year we have done both. The following is a list
of our five largest divestitures year to date.

<TABLE>
<CAPTION>
SECURITY NET PROCEEDS
- ----------------------------------------- ------------

<S> <C>
Camco International Inc. $5,191,084
Claire's Stores, Inc. 5,011,988
Comdisco, Inc. 4,843,471
NCH Corporation 4,658,000
Mine Safety Appliances Company 4,571,500
</TABLE>

In the cases of Camco International, Claire's Stores, and Comdisco, we
reduced our exposure due to full and fair valuations. Each of these companies
were purchased when conditions in their respective industries were challenging
and their potential obscured to most investors. Lately, fortunes in the energy,
retailing and computer leasing industries have improved and we have enjoyed some
winners.

NCH Corporation and Mine Safety Appliance Company, on the other hand, may
have been mistakes. While we suffered no material loss on either position, our
confidence of future gain has diminished to the point that even our patience is
running thin.

VOLATILITY IS A FRIEND

Recently, stock market volatility has generated a great deal of attention
from the financial press. While large changes (100 point or greater moves) in
the Dow Jones Industrial Average make interesting reading in the morning papers,
their significance is exaggerated. The table below depicts the Russell 2000's
yearly price variation using the index's annual range as a percentage of the
beginning year's price.

[GRAPHIC]

It's interesting to note how tame the markets have remained in the last four
and a half years relative to the prior thirteen. TO US, VOLATILITY IS A FRIEND
IN THAT IT CREATES IRRATIONAL PRICING OF SECURITIES AND, THEREFORE,
OPPORTUNITIES FOR US TO CAPITALIZE ON OUR RISK MANAGEMENT SKILLS.

ARE THERE ANY REAL INVESTORS LEFT?

The term 'investor' denotes a long-term supplier of capital. [GRAPHIC]
In contrast, a 'speculator' is one who takes opportunistic risk
in hopes of generating quick profits. In essence, investors
expect to get paid by the correct assessment of underlying business
fundamentals, whereas speculators count on others (often referred to as greater
fools) to buy them out profitably.

In the current bull market, it has become very difficult to tell the
difference between investors and speculators. For example, what exactly is
'momentum investing?' The term seems oxymoronic. While equities represent a
permanent ownership position in an enterprise, in many fund portfolios, they are
reviewed and replaced more frequently than three month Treasury Bills. Wall
Street brokerage firms publish 'Buy' and 'Sell' recommendations based on a
company's quarterly progress down to the penny per share; and the country's
largest equity mutual fund lost its star manager after a short period of
underperformance, which may have contributed to the decision by that fund's
investors to withdraw in excess of $1 billion.

Only time and more difficult market conditions will separate true investors
from disappointed speculators. GIVEN THAT WE BELIEVE THAT EQUITIES REPRESENT
LONG-TERM INTERESTS IN BUSINESSES, THE TERM 'INVESTOR' SUITS US JUST FINE.

WHAT DO WE DO NOW?

Given our belief that the next phase of the market will include lower equity
returns and greater volatility -- the need for basic blocking and tackling, in
the form of commitment, focus and experience, is paramount. We remain committed
to investing in high quality, small-cap companies using absolute valuation
standards; our focus remains sharp, and exclusively on small and micro-cap
companies; and our 20+ years of investment experience ensures that our vigilance
and discipline remain constant. Your continued confidence is appreciated.

Yours faithfully,

CHARLES M. ROYCE Jack E. Fockler, Jr.
Charles M. Royce W. Whitney George
President Vice Presidents

August 1, 1996

P.S. Our 'new era' fund will wait for the 'new era.'

Morningstar proprietary risk ratio, beta and standard deviation are measures of
a fund's relative risk and are calculated for the trailing 36-month period.
Morningstar risk ratio measures a fund's downside volatility relative to all
equity funds which have an average score of 1.00. Beta is a measure of
sensitivity to market movements compared to the unmanaged S&P 500 Index, with
the beta of the S&P 500 equal to 1.00. Standard deviation is a statistical
measure of the range within which a fund's total return falls. The average
Morningstar risk ratio, beta and standard deviation for the 194 small-cap equity
funds with a three-year history as of 6/30/96 were:
1.02, 0.84 & 11.87, respectively. The Morningstar risk ratio, beta and standard
deviation for Pennsylvania Mutual Fund over the same period were: 0.67, 0.57 &
6.82, respectively. Source: Morningstar, Inc.

The Russell 2000, Russell 2000 Growth, Russell 2000 Value and S&P 500 indices
are unmanaged and include the reinvestment of dividends. The Nasdaq Composite is
an unmanaged index. The Wilshire Target Small Company Value and Growth Funds
attempt to replicate the performance of the Wilshire Next 1750 Small Company
Value and Growth Indices, respectively.

FINANCIAL REVIEW

<TABLE>
<CAPTION>
TOTAL
PERIOD RETURN
- ------------------------- ------
<S> <C>
1996 (through 6/30)...... 5.7%
1995..................... 18.7%
1994..................... (0.7%)
1993..................... 11.3%
1992..................... 16.2%
1991..................... 31.8%
1990..................... (11.5%)
1989..................... 16.7%
1988..................... 24.6%
1987..................... 1.4%
1986..................... 11.2%
1985..................... 26.8%
1984..................... 3.1%
1983..................... 40.5%
1982..................... 33.5%
1981..................... 0.7%
1980..................... 25.7%
1979..................... 35.5%
1978..................... 16.6%
1977..................... 23.8%
1976..................... 49.0%
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
----------------------------------
(AS OF 6/30/96)
<S> <C>
20-year.................. 16.4%
15-year.................. 13.3%
10-year.................. 10.2%
5-year................... 11.8%
1-year................... 13.3%
</TABLE>

POSITIVE RETURNS IN 19 OF THE LAST
21 CALENDAR YEARS (1975-1995).

TWENTY YEARS OF BUILDING WEALTH
VALUE OF $10,000 INVESTED ON 6/30/76

Period
Ended: PMF S&P TB
- -------------------------------------------------------
<S> <C> <C> <C>
06/30/76 10,000 10,000 10,000
09/30/76 10,062 10,191 10,124
12/31/76 11,080 10,511 10,232
03/31/77 11,179 9,729 10,347
06/30/77 12,016 10,052 10,473
09/30/77 12,419 9,770 10,626
12/31/77 13,719 9,757 10,784
03/31/78 14,778 9,276 10,955
06/30/78 17,131 10,064 11,133
09/30/78 19,327 10,936 11,326
12/31/78 15,970 10,397 11,556
03/31/79 18,637 11,133 11,824
06/30/79 19,528 11,436 12,108
09/30/79 21,697 12,298 12,392
12/31/79 21,634 12,314 12,722
03/31/80 17,517 11,813 13,112
06/30/80 20,931 13,397 13,522
09/30/80 25,808 14,897 13,810
12/31/80 27,197 16,306 14,210
03/31/81 28,886 16,522 14,724
06/30/81 31,743 16,140 15,244
09/30/81 24,197 14,490 15,820
12/31/81 27,377 15,506 16,379
03/31/82 25,028 14,374 16,862
06/30/82 25,443 14,295 17,403
09/30/82 28,425 15,942 17,912
12/31/82 36,538 18,855 18,286
03/31/83 43,498 20,736 18,657
06/30/83 50,554 23,022 19,049
09/30/83 49,927 22,982 19,474
12/31/83 51,340 23,084 19,912
03/31/84 49,564 22,527 20,360
06/30/84 49,127 21,942 20,849
09/30/84 52,257 24,061 21,378
12/31/84 52,952 24,492 21,898
03/31/85 58,634 26,745 22,349
06/30/85 60,533 28,689 22,776
09/30/85 60,352 27,504 23,181
12/31/85 67,129 32,227 23,577
03/31/86 74,285 36,758 23,969
06/30/86 78,467 38,853 24,347
09/30/86 72,936 36,153 24,696
12/31/86 74,635 38,098 25,034
03/31/87 85,487 46,217 25,387
</TABLE>

<PAGE>

Period
Ended: PMF S&P TB
- -------------------------------------------------------
<S> <C> <C> <C>
06/30/87 86,590 48,602 25,745
09/30/87 90,668 51,814 26,139
12/31/87 75,662 40,073 26,518
03/31/88 86,588 42,377 26,894
06/30/88 92,260 45,149 27,306
09/30/88 93,505 45,316 27,784
12/31/88 94,253 46,684 28,312
03/31/89 100,870 49,962 28,909
06/30/89 106,750 54,358 29,551
09/30/89 111,309 60,147 30,154
12/31/89 109,984 61,362 30,757
03/31/90 109,016 59,485 31,353
06/30/90 112,548 63,232 31,977
09/30/90 93,922 54,506 32,594
12/31/90 97,293 59,401 33,184
03/31/91 116,986 68,049 33,712
06/30/91 118,167 67,907 34,194
09/30/91 122,882 71,560 34,673
12/30/91 128,264 77,542 35,092
03/31/92 137,935 75,565 35,443
06/30/92 134,418 77,054 35,781
09/30/92 137,590 79,442 36,079
12/31/92 149,024 83,502 36,357
03/31/93 156,654 87,101 36,630
06/30/93 154,978 87,528 36,901
09/30/93 161,130 89,777 37,185
12/31/93 165,787 91,851 37,471
03/31/94 163,997 88,351 37,764
06/30/94 160,405 88,696 38,130
09/30/94 166,388 93,051 38,549
12/31/94 164,591 93,060 39,051
03/31/95 171,257 102,124 39,597
06/30/95 182,372 111,857 40,171
09/30/95 195,247 120,794 40,738
12/31/95 195,403 127,969 41,296
03/31/96 199,468 134,943 41,829
06/30/96 206,569 141,070 42,356
</TABLE>

The total returns and risk measurements presented in this report should not
be considered representative of total return or risk of an investment in the
Fund today. They are provided only to give an historical perspective of the
Fund. Total return and principal value of Fund shares will fluctuate, so that
shares may be worth more or less than their original cost when redeemed.

<PAGE>
<PAGE>
RISK AND VOLATILITY ANALYSIS

To focus solely on the return component of the investment equation is the
equivalent of evaluating one's time (return) in a road race without knowing
anything about the course (risk). For example, was the course hilly or flat, did
weather hinder or help performance, were thousands participating or merely a
handful? By knowing the answers to these and related matters, you then can
properly evaluate the quality of the performance. The same is true in the
investment world. Although PMF has had one of the lowest risk profiles among
small-cap funds, that in and of itself is not particularly helpful. Somehow, one
must link the concepts of risk and return together, because one without the
other presents an incomplete picture.

Fund risk (volatility) versus relevant indices and peers can be evaluated
by using the generally accepted measures of standard deviation and beta, as well
as the Morningstar Risk Ratio.

<TABLE>
<CAPTION>
STANDARD WORST TWO MONTHS MORNINGSTAR
DEVIATION* BETA* PERFORMANCE(#) RISK RATIO*
----------- ----------- ---------------- -----------

<S> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND 6.82 0.57 - 7.7% 0.67

Indices
S&P 500 8.12 1.00 - 7.9 0.63`D'
Russell 2000 10.54 0.88 - 11.1 0.90`D'

Peer Group**
Group Average 10.72 0.81 - 10.3 0.95
</TABLE>

OVER THE PAST THREE YEARS, PMF HAD LOWER VOLATILITY THAN THE ABOVE MARKET
INDICES AND WAS AMONG THE LOWEST IN ITS PEER GROUP.

STANDARD DEVIATION is a statistical measure of fund volatility over time.
The lower the standard deviation, the less volatile and more consistent a fund's
historical monthly returns. BETA measures a fund's sensitivity to market
movements. The beta of the S&P 500 index, chosen to represent the market, is
1.00. A fund with a 1.10 beta is expected to perform 10% better in up markets
and 10% worse in down markets. MORNINGSTAR RISK RATIO is a proprietary
measurement of a fund's downside volatility relative to other funds in its
investment category. The average score for the 3 years ended June 30, 1996 for
all equity funds was 1.00. These measures of risk are historical, may change
monthly, and are not necessarily predictive of future volatility.

* Source: Morningstar Mutual Funds. Data reported for the 3-year period ended
June 30, 1996. The indices listed above are unmanaged.

`D' Note: Vanguard Index Trust 500 and Small Cap Stock Portfolios are used as
proxies for measuring the Morningstar Risk Ratio of the S&P 500 and Russell
2000.

** In constructing a peer group, we used the following method. We isolated all
small company mutual funds as identified by Morningstar. We began this
process by first screening the domestic equity mutual fund universe (2,100
funds) for funds with a small company investment style. Of the 408 funds with
a small company investment style, only 305 fell within the small company
style box, which Morningstar has categorized as funds with median market
capitalizations below $1 billion. In other words, we only included funds
whose actual investment practice matched their investment style. We further
narrowed the universe by identifying funds which were in existence at the
last general market peak (6/30/90) so, at a minimum, at least one full market
cycle of comparison would be available. And finally, of the 65 funds which
passed these screens, only 18 funds (managed by other investment advisers)
had $100 million in assets or greater at the last general market peak. We
believe that these 18 funds constitute a relevant peer group. This group's
$12.3 billion in assets represents approximately 14% of all small-cap
category assets.

# Average of the two worst monthly performances since the last small-cap market
peak (9/30/89).

RETURN PER UNIT OF RISK
The Return Per Unit of Risk calculation shows the relationship between a
fund's historical return and the amount of risk associated with the production
of that total return. It is calculated by dividing a fund's average annual total
return by its average annualized standard deviation over a designated period.
PMF's return per unit of risk calculations versus relevant indices and peers
over the past three general market cycles are depicted below.

Market peaks and troughs were derived by taking the daily S&P 500 cycle
highs and lows, defined as a change of 10% or greater from the previous peak or
trough, and rounding to the nearest quarter. (Viz. peaks: 11/26/80; 8/25/87;
7/16/90; troughs: 8/12/82; 12/4/87; 10/11/90.)

<TABLE>
<CAPTION>
Period
Ended S&P 500
- ----------------------------------
<S> <C>
Jun 79 1
Jul 79 1.011
Aug 79 1.073
Sep 79 1.075
Oct 79 1.005
Nov 79 1.057
Dec 79 1.077
Jan 80 1.143
Feb 80 1.146
Mar 80 1.033
Apr 80 1.077
May 80 1.138
Jun 80 1.172
Jul 80 1.251
Aug 80 1.267
Sep 80 1.303
Oct 80 1.327
Nov 80 1.472
Dec 80 1.426
Jan 81 1.363
Feb 81 1.392
Mar 81 1.445
Apr 81 1.414
May 81 1.423
Jun 81 1.411
Jul 81 1.412
Aug 81 1.334
Sep 81 1.267
Oct 81 1.334
Nov 81 1.393
Dec 81 1.356
Jan 82 1.338
Feb 82 1.264
Mar 82 1.257
Apr 82 1.314
May 82 1.269
Jun 82 1.25
Jul 82 1.228
Aug 82 1.377
Sep 82 1.394
Oct 82 1.555
Nov 82 1.617
Dec 82 1.649
Jan 83 1.706
Feb 83 1.749
Mar 83 1.813
Apr 83 1.95
May 83 1.939
Jun 83 2.013
Jul 83 1.95
Aug 83 1.983
Sep 83 2.01
Oct 83 1.983
Nov 83 2.029
Dec 83 2.018
Jan 84 2.002
</TABLE>

<PAGE>

Period
Ended S&P 500
- ----------------------------------
<S> <C>
Feb 84 1.931
Mar 84 1.97
Apr 84 1.985
May 84 1.878
Jun 84 1 919
Jul 84 1.891
Aug 84 2.104
Sep 84 2.104
Oct 84 2.111
Nov 84 2.088
Dec 84 2.142
Jan 85 2.303
Feb 85 2.338
Mar 85 2.339
Apr 85 2.331
May 85 2.471
Jun 85 2.509
Jul 85 2.501
Aug 85 2.485
Sep 85 2.405
Oct 85 2.513
Nov 85 2.692
Dec 85 2.818
Jan 86 2.83
Feb 86 3.046
Mar 86 3.214
Apr 86 3.172
May 86 3.342
Jun 86 3.397
Jul 86 3.203
Aug 86 3.444
Sep 86 3.161
Oct 86 3.339
Nov 86 3.423
Dec 86 3.331
Jan 87 3.777
Feb 87 3.933
Mar 87 4.041
Apr 87 4.005
May 87 4.047
Jun 87 4.249
Jul 87 4.461
Aug 87 4.631
Sep 87 4.53
Oct 87 3.553
Nov 87 3.262
Dec 87 3.503
Jan 88 3.651
Feb 88 3.822
Mar 88 3.705
Apr 88 3.743
May 88 3.772
Jun 88 3.947
Jul 88 3.931
Aug 88 3.801
Sep 88 3.962
Oct 88 4.068
Nov 88 4.01
Dec 88 4.081
Jan 89 4.376
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Period
Ended S&P 500
- ----------------------------------
<S> <C>
Feb 89 4.267
Mar 89 4.368
Apr 89 4.592
May 89 4.778
Jun 89 4.752
Jul 89 5.179
Aug 89 5.278
Sep 89 5.258
Oct 89 5.134
Nov 89 5.24
Dec 89 5.364
Jan 90 5.004
Feb 90 5.068
Mar 90 5.2
Apr 90 5.072
May 90 5.566
Jun 90 5.528
Jul 90 5.51
Aug 90 5.012
Sep 90 4.765
Oct 90 4.748
Nov 90 5.053
Dec 90 5.192
Jan 91 5.423
Feb 91 5.811
Mar 91 5.948
Apr 91 5.965
May 91 6.22
Jun 91 5.936
Jul 91 6.213
Aug 91 6.36
Sep 91 6.256
Oct 91 6.339
Nov 91 6.083
Dec 91 6.779
Jan 92 6.653
Feb 92 6.739
Mar 92 6.606
Apr 92 6.799
May 92 6.835
Jun 92 6.736
Jul 92 7.008
Aug 92 6.866
Sep 92 6.945
Oct 92 6.97
Nov 92 7.206
Dec 92 7.3
Jan 93 7.354
Feb 93 7.453
Mar 93 7.615
Apr 93 7.427
May 93 7.627
Jun 93 7.652
Jul 93 7.616
Aug 93 7.906
Sep 93 7.849
Oct 93 8.009
Nov 93 7.933
Dec 93 8.032
Jan 94 8.302
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Period
Ended S&P 500
- ----------------------------------
<S> <C>
Feb 94 8.076
Mar 94 7.725
Apr 94 7.825
May 94 7.953
Jun 94 7.755
Jul 94 8.012
Aug 94 8.338
Sep 94 8.136
Oct 94 8.325
Nov 94 8.02
Dec 94 8.138
Jan 95 8.348
Feb 95 8.672
Mar 95 8.931
Apr 95 9.194
May 95 9.557
Jun 95 9.782
Jul 95 10.111
Aug 95 10.138
Sep 95 10.564
Oct 95 10.526
Nov 95 10.989
Dec 95 11.192
Jan 96 11.576
Feb 96 11.688
Mar 96 11.803
Apr 96 11.979
May 96 12.288
Jun 96 12.338

</TABLE>

RETURN PER UNIT OF RISK
(PEAK TO PEAK COMPARISON)

<TABLE>
<CAPTION>
1ST PEAK 2ND PEAK 3RD PEAK 1ST PEAK
TO 2ND PEAK TO 3RD PEAK TO CURRENT TO CURRENT
12/31/80- 9/30/87- 6/30/90- 12/31/80-
9/30/87 6/30/90 6/30/96 6/30/96
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND 1.34 0.55 1.06 1.07
Indices
S&P 500 1.28 0.39 1.33 1.04
Russell 2000 0.91 0.07 0.96 0.71
Peer Group*
Group Average 0.89 0.30 0.98 0.77
(# of Funds) (8) (18) (18) (8)
PMF Rank 1 out of 8 3 out of 18 8 out of 18 1 out of 8
</TABLE>

PMF'S RISK ADJUSTED RETURNS HAVE BEEN CONSISTENTLY AMONG THE HIGHEST IN ITS PEER
GROUP.

* See page 9 for a discussion of how the peer group was constructed. The number
of peer group funds in existence during each cycle is shown above.

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND ('PMF')

PORTFOLIO OR PORTFOLIOS?
Throughout its history, Pennsylvania Mutual Fund has provided a
multi-dimensional value approach to small-cap investing. And while PMF remains
true to its historical approach, two core portfolios ('premier' and 'micro-cap')
have evolved. Capitalization parameters and concentration goals differentiate
these two portfolio components.

This core portfolio approach has emerged in response to the changing nature
of the small-cap universe, namely, the number of small company funds and their
respective assets have increased tenfold in the last ten years. At the upper end
of the small-cap range, $300 million to $1 billion, PMF has developed a focused
strategy which emphasizes companies with superior financial characteristics
and/or unusually attractive business prospects, companies we classify as
premier. We believe that holding slightly higher concentrations of these
securities is an appropriate strategy to offset the increasing market
efficiencies found in this segment of the small-cap sector.

Micro-cap, the second core portfolio, represents those securities at the
other end of the capitalization range (below $300 million). Micro-cap companies
are the antithesis of what most professional investors look for, in that they
are not well known, are not well researched and their securities are not easy to
buy and sell. These are precisely the conditions that we believe breed good
investment opportunities. In our view, the micro-cap sector is what small-cap
was 20 years ago in terms of investment opportunities.

CORE PORTFOLIOS
<TABLE>
<S> <C>
% OF PORTFOLIO*
PREMIER COMPANIES: 46%
MIRCOCAP COMPANIES: 54%

</TABLE>

Within each core portfolio are a variety of tactical strategies, two of
which involve 'equity income' and 'low-priced' securities. Both are longstanding
strategies and have central roles in PMF. Equity income focuses on above average
dividend paying companies, a sector not generally associated with small-cap
investing. Low-priced, on the other hand, invests in an area that is often
associated with small-cap investing, stocks trading below $15 per share. Both
portfolio segments remain virtually undiscovered by most professional small-cap
investors.

CORE AND TACTICAL PORTFOLIOS

<TABLE>
<CAPTION>
% OF PORTFOLIO*
<S> <C> <C>
PREMIRE COMPANIES: 46% If one were to sum the core
MICROCAP COMPANIES: 54% and tactical strategies, the
EQUITY INCOME COMPANIES: 41% total would exceed 100% as
LOW PRICE COMPANIES: 27% many issues meet several
criteria.
</TABLE>

We believe that PMF's two tier strategy, combining core and tactical
portfolios, is an effective, all weather approach to capturing the opportunities
within the small-cap sector.

<PAGE>
<PAGE>
PORTFOLIO SUMMARY

The following information is provided as a 'bird's eye' view of the PMF
portfolio. For a more complete picture, the full portfolio and accompanying
financial statements should be read in their entirety.
<TABLE>
<CAPTION>
% OF COMMON
PORTFOLIO COMPOSITION STOCKS VALUE % OF NET ASSETS
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Top 150 Stocks 83.0% $ 427,693,025 79.6%
Other Stocks 17.0 87,731,093 16.3
----------- --------------- -------
Common Stocks 100.0% 515,424,118 95.9
-----------
-----------
Preferred Stocks 361,425 0.1
Cash & Other Net Assets 21,555,178 4.0
--------------- -------
Total Net Assets $ 537,340,721 100.0%
--------------- -------
--------------- -------
PORTFOLIO DIAGNOSTICS
- --------------------------------------------------------------------------------------------------
Weighted Average Market Capitalization (Total Portfolio) $392 Million
Median Market Capitalization $294 Million
Weighted Average P/E Ratio (150 Largest Positions) 14.3x
Weighted Average P/B Ratio (150 Largest Positions) 1.6x
Weighted Average Portfolio Yield (150 Largest Positions) 1.9%

COMMON STOCK SECTORS % OF NET ASSETS
- --------------------------------------------------------------------------------------------------
Industrial Cyclicals 24.5%
Financial 22.9
Services 19.5
Consumer Durables 10.8
Retail 4.4
Consumer Staples 3.6
Miscellaneous 3.2
Technology 2.9
Energy 2.4
Health 1.3
Utilities 0.4
TOP TWENTY POSITIONS VALUE % OF NET ASSETS
- --------------------------------------------------------------------------------------------------
1. The Standard Register Company $6,538,184 1.2%
2. Zenith National Insurance Corp. 6,077,250 1.1
3. Kimball International, Inc. Cl. B 5,884,125 1.1
4. Lilly Industries, Inc. Cl. A 5,492,904 1.0
5. Family Dollar Stores, Inc. 5,207,287 1.0
6. Juno Lighting, Inc. 5,018,400 0.9
7. Trenwick Group Inc. 5,015,000 0.9
8. ALLIED Group, Inc. 4,998,150 0.9
9. Air Express International Corporation 4,977,650 0.9
10. Pennsylvania Manufacturers Corporation 4,949,550 0.9
11. Marshall Industries 4,782,400 0.9
12. Fab Industries, Inc. 4,772,347 0.9
13. The Pioneer Group, Inc. 4,710,675 0.9
14. Stanhome Inc. 4,653,400 0.9
15. Tecumseh Products Company 4,619,175 0.9
16. Crawford & Company 4,611,712 0.9
17. Florida Rock Industries, Inc. 4,556,588 0.8
18. Haemonetics Corporation 4,358,100 0.8
19. Wesco Financial Corporation 4,310,725 0.8
20. Vallen Corporation 4,273,500 0.8
</TABLE>

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS - 95.9%

<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONSUMER DURABLES - 10.8%
57,511 Allen Organ Company Cl.
B....................... $ 2,250,118
39,100 *Baldwin Piano & Organ
Company................. 576,725
73,675 Bassett Furniture
Industries,
Incorporated............ 1,970,806
37,506 Burnham Corporation Cl.
A....................... 965,780
205,848 *Delta Woodside
Industries, Inc......... 1,054,971
166,200 Ethan Allen Interiors
Inc..................... 4,113,450
182,600 Flexsteel Industries,
Inc..................... 2,145,550
82,100 Garan Incorporated........ 1,395,700
21,800 Haggar Corp............... 294,300
94,400 *Johnson Worldwide
Associates, Inc. Cl.
A....................... 1,298,000
295,200 Juno Lighting, Inc........ 5,018,400
25,000 Justin Industries, Inc.... 328,125
134,100 K-Swiss Inc. Cl. A........ 1,458,337
71,000 La-Z-Boy Chair Company.... 2,138,875
115,400 *Lazare Kaplan
International, Inc...... 1,514,625
186,450 **Liberty Homes, Inc. Cl.
A....................... 2,353,931
267,429 *`D'Lifetime Hoan
Corporation............. 2,874,862
16,100 Matthews International
Corporation Cl. A....... 442,750
85,150 National Presto
Industries, Inc......... 3,235,700
78,200 The Rival Company......... 1,798,600
101,600 Russ Berrie and Company,
Inc..................... 1,866,900
61,800 The Singer Company N.V.... 1,251,450
163,800 Skyline Corporation....... 4,095,000
138,700 The Stride Rite
Corporation............. 1,144,275
84,900 Sturm, Ruger & Company,
Inc..................... 3,947,850
129,400 Thomaston Mills, Inc. Cl.
A....................... 1,455,750
201,500 Thor Industries, Inc...... 4,130,750
292,100 *The Topps Company, Inc... 1,643,063
38,500 Weyco Group, Inc.......... 1,559,250
------------
58,323,893
------------
CONSUMER STAPLES - 3.6%
79,500 A.T. Cross Company Cl.
A....................... $ 1,411,125
30,350 Farmer Bros. Co........... 4,188,300
30,000 *J & J Snack Foods
Corp.................... 345,000
272,300 *`D'Midwest Grain
Products, Inc........... 3,539,900
175,600 Stanhome Inc.............. 4,653,400
65,000 Velcro Industries N.V..... 3,607,500
107,900 WLR Foods, Inc............ 1,510,600
------------
19,255,825
------------
ENERGY - 2.4%
20,100 *Belden & Blake
Corporation............. 417,075
49,500 *Tom Brown, Inc........... 847,687
54,500 Camco International Inc... 1,846,188
5,172 The Coal Creek Mining and
Manufacturing Company... 532,716
60,700 Devon Energy
Corporation............. 1,487,150
78,050 *Equity Oil Company....... 375,616
36,900 *Gulfmark International
Inc..................... 1,282,275
109,944 Lufkin Industries, Inc.... 2,253,852
102,200 *Offshore Logistics,
Inc..................... 1,418,025
72,500 *Parker Drilling Company.. 416,875
57,343 Penn Virginia
Corporation............. 2,007,005
------------
12,884,464
------------
FINANCIAL - 22.9%
16,975 *Alleghany Corporation.... 3,259,200
114,900 ALLIED Group, Inc......... 4,998,150
111,750 Argonaut Group, Inc....... 3,492,187
42,569 *Avatar Holdings Inc...... 1,463,309
26,020 Baker Boyer Bancorp....... 910,700
176,078 Baldwin & Lyons, Inc. Cl.
B....................... 3,631,609
75,225 W. R. Berkley Corp........ 3,140,644
154,500 E.W. Blanch Holdings,
Inc..................... 3,070,688
30,000 The Boston Bancorp........ 1,297,500
155,007 Comdisco, Inc............. 4,127,061
184,542 The Commerce Group,
Inc..................... 3,852,314
38,349 Community Banks, Inc...... 901,202
</TABLE>

The accompanying notes are an integral part of the financial statements.
14

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
FINANCIAL - (continued)
39,800 Consolidated-Tomoka Land
Co...................... $ 786,050
177,350 Crawford & Company Cl.
A....................... 3,014,950
91,900 Crawford & Company Cl.
B....................... 1,596,762
55,700 Eaton Vance Corp.......... 2,019,125
5,536 Exchange Bank............. 340,464
13,800 F & M Bancorporation...... 565,800
1,542 Farmers & Merchants Bank
of Long Beach........... 2,811,066
715 The First National Bank of
Anchorage............... 1,079,650
117,750 `D'Fremont General
Corporation............. 2,708,250
132,500 Arthur J. Gallagher &
Co...................... 4,240,000
179,800 *Gryphon Holdings Inc..... 2,697,000
149,100 Guaranty National
Corporation............. 2,683,800
123,726 *Hanmi Bank............... 974,342
217,125 Hilb, Rogal & Hamilton
Company................. 3,012,609
56,700 Intercargo Corporation.... 489,037
42,834 Investors Financial
Services Corporation.... 995,890
54,800 The John Nuveen Company... 1,363,150
75,249 Keystone Heritage Group,
Inc..................... 1,702,509
157,472 Leucadia National
Corporation............. 3,858,064
57,609 *MAIC Holdings, Inc....... 2,145,935
404 MidCity Financial Corp.... 1,050,400
48,200 NYMAGIC, INC.............. 909,775
26,671 National Bancorp of
Alaska, Inc............. 1,680,273
49,700 New England Investment
Companies, L.P.......... 1,167,950
213,700 The Newhall Land and
Farming Company......... 3,526,050
13,200 Nobel Insurance Limited... 153,450
59,806 Orion Capital
Corporation............. 3,050,106
291,150 Pennsylvania Manufacturers
Corporation............. 4,949,550
94,600 Phoenix Duff & Phelps
Corporation............. $ 709,500
176,100 The Pioneer Group, Inc.... 4,710,675
183,200 Piper Jaffray Companies
Inc..................... 2,290,000
47,594 Portsmouth Bank Shares,
Inc..................... 660,367
57,825 RLI Corp.................. 1,409,484
19,591 *Reliance Group Holdings,
Inc..................... 40,416
14,300 Student Loan Corporation.. 514,800
95,639 *Sunrise Bancorp.......... 346,691
20,200 Transatlantic Holdings,
Inc..................... 1,416,525
68,200 Transnational Re
Corporation............. 1,679,425
100,300 `D'Trenwick Group Inc..... 5,015,000
16,757 TriCo Bancshares.......... 305,815
17,930 Webster Financial
Corporation............. 502,040
26,900 Wesco Financial
Corporation............. 4,310,725
278,400 `D'`D'Willis Corroon Group
plc..................... 3,306,000
222,000 Zenith National Insurance
Corp.................... 6,077,250
------------
123,011,284
------------
HEALTH - 1.3%
39,000 Diagnostic Products
Corporation............. 1,501,500
238,800 *Haemonetics Corporation.. 4,358,100
33,400 Life Technologies, Inc.... 1,052,100
------------
6,911,700
------------
INDUSTRIAL CYCLICALS - 24.5%
114,600 *Ag-Chem Equipment Co.,
Inc..................... 2,435,250
95,100 American Filtrona
Corporation............. 3,043,200
55,500 *Ameron International
Corp.................... 2,192,250
15,509 Ash Grove Cement
Company................. 1,729,254
31,500 *Athey Products Corp...... 133,875
98,087 BHA Group, Inc. Cl. A..... 1,299,659
91,500 *Bird Corp................ 300,234
174,000 Blessings Corporation..... 1,783,500
97,900 W. H. Brady Co. Cl. A..... 2,178,275
</TABLE>

The accompanying notes are an integral part of the financial statements.
15

INDUSTRIAL CYCLICALS - (continued)
62,000 Minuteman International,
Inc..................... $ 527,000
58,300 The Monarch Machine Tool
Company................. 685,025
62,700 *Moore Products Co........ 1,175,625
32,900 Paul Mueller Company...... 1,118,600
133,620 Myers Industries, Inc..... 2,488,672
54,200 Nordson Corporation....... 3,062,300
42,550 Oil-Dri Corporation of
America................. 632,931
37,500 The Oilgear Company....... 553,125
181,000 Oregon Steel Mills,
Inc..................... 2,488,750
149,800 Oshkosh Truck Corporation
Cl. B................... 2,115,925
186,150 Penn Engineering and
Manufacturing Inc....... 3,513,581
49,550 Penn Engineering and
Manufacturing Corp. Cl.
A....................... 1,170,619
73,693 Preformed Line Products
Company................. 2,505,562
43,300 *Proler International
Corp.................... 265,213
122,000 Puerto Rican Cement
Company, Inc............ 3,797,250
195,764 Quaker Chemical
Corporation............. 2,495,991
73,310 Robroy Industries, Inc.
Cl. A................... 1,136,305
145,700 *Simpson Manufacturing
Co., Inc................ 2,914,000
23,700 *Steel of West Virginia,
Inc..................... 213,300
35,000 Synalloy Corporation...... 568,750
71,600 Tab Products Co........... 528,050
12,650 Tecumseh Products
Company................. 657,800
73,700 Tecumseh Products Company
Cl. A................... 3,961,375
96,500 *`D'Todd Shipyards
Corporation............. 723,750
150,900 *UNC, Inc................. 1,263,788
96,500 Unifi, Inc................ 2,714,062
90,532 Versa Technologies, Inc... 1,222,182
43,500 Watts Industries, Inc. Cl.
A....................... 810,187
41,718 Woodward Governor
Company................. 3,671,184
</TABLE>

The accompanying notes are an integral part of the financial statements.
16

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
INDUSTRIAL CYCLICALS - (continued)
105,800 Zero Corporation.......... $ 2,261,475
------------
131,387,073
------------
RETAIL - 4.4%
163,900 *CATHERINES STORES
CORPORATION............. 1,618,512
112,100 *Charming Shoppes, Inc.... 791,706
123,000 Claire's Stores, Inc...... 3,397,875
382,700 *The Dress Barn, Inc...... 4,018,350
299,700 Family Dollar Stores,
Inc..................... 5,207,287
10,800 LANDS' END, INC........... 267,300
177,600 *Mikasa, Inc.............. 1,953,600
57,700 *Old America Stores,
Inc..................... 468,813
84,000 Oshkosh B'Gosh, Inc. Cl.
A....................... 1,512,000
274,155 Pier 1 Imports, Inc....... 4,078,056
35,400 *Stein Mart, Inc.......... 646,050
------------
23,959,549
------------
SERVICES - 19.5%
79,700 ABM Industries
Incorporated............ 3,118,262
64,094 Aceto Corporation......... 1,009,481
176,200 `D'Air Express
International
Corporation............. 4,977,650
249,800 Arnold Industries, Inc.... 3,559,650
176,700 *Guy F. Atkinson Company
of California........... 2,385,450
64,200 Atlantic Southeast
Airlines, Inc........... 1,813,650
57,900 *Banister Foundation
Inc..................... 455,963
89,252 *Bell Industries, Inc..... 1,494,971
102,300 Bowl America Incorporated
Cl. A................... 716,100
119,100 Bowne & Co., Inc.......... 2,456,438
116,700 *`D'Jenny Craig, Inc...... 2,086,012
174,700 Dames & Moore............. 2,118,238
13,800 *Devon Group, Inc......... 448,500
76,433 DUFF & PHELPS CREDIT
RATING CO............... 1,624,201
156,100 Ennis Business Forms,
Inc..................... 1,775,638
50,000 Expeditores International
of Washington, Inc...... 1,550,000
85,900 *FRP Properties, Inc...... 1,760,950
127,000 *FCA International Ltd.... 215,755
4,768 Fisher Companies Inc...... 417,200

22,500 FlightSafety
International, Inc...... $ 1,220,625
240,021 Frozen Food Express
Industries, Inc......... 2,700,236
17,259 Grey Advertising Inc...... 3,814,239
210,737 The Harper Group.......... 4,109,371
82,000 *International Dairy
Queen, Inc. Cl. A....... 1,804,000
83,600 *International Dairy
Queen, Inc. Cl. B....... 1,797,400
70,800 Kenan Transport Company... 1,469,100
8,171 *Lady Baltimore Foods,
Inc..................... 359,524
77,700 Lawson Products, Inc...... 1,961,925
55,250 The Marcus Corporation.... 1,388,156
170,800 *Marshall Industries...... 4,782,400
103,900 Merrill Corporation....... 2,597,500
65,200 *Milgray Electronics,
Inc..................... 766,100
151,700 New England Business
Service, Inc............ 2,958,150
35,200 *Nichols Research
Corporation............. 1,100,000
59,600 PCA International, Inc.... 998,300
72,600 *PAYCO AMERICAN
CORPORATION............. 635,250
93,900 *Perini Corporation....... 1,126,800
58,150 Pioneer-Standard
Electronics, Inc........ 770,487
89,650 Plenum Publishing
Corporation............. 3,137,750
103,862 Richardson Electronics,
Ltd..................... 1,038,620
135,300 *Rollins Environmental
Services, Inc........... 524,288
187,156 Rykoff-Sexton, Inc........ 2,690,367
14,700 Scope Industries.......... 543,900
231,600 *Shoney's, Inc............ 2,518,650
248,500 Sotheby's Holdings, Inc.
Cl. A................... 3,603,250
265,510 The Standard Register
Company................. 6,538,184
80,200 Stone & Webster, Inc...... 2,736,825
131,250 Super Food Services,
Inc..................... 1,246,875
292,977 *TBC Corporation.......... 2,526,927
68,900 True North Communications
Inc..................... 1,533,025
</TABLE>

The accompanying notes are an integral part of the financial statements.
17

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
SERVICES - (continued)
80,100 *The Turner Corporation... $ 921,150
244,200 *Vallen Corporation....... 4,273,500
17,625 Wyle Electronics.......... 583,828
------------
104,760,811
------------
TECHNOLOGY - 2.9%
99,600 *Astrosystems, Inc........ 634,950
15,500 BGS Systems, Inc.......... 604,500
25,300 *CEM Corporation.......... 335,225
38,400 *`D'Comptek Research,
Inc..................... 211,200
33,387 *DH Technology, Inc....... 801,288
66,838 *Dionex Corporation....... 2,155,526
177,200 Exar Corporation.......... 2,303,600
49,205 Hach Company.............. 787,280
19,300 MacNeal-Schwendler
Corporation............. 144,750
46,400 Modern Controls, Inc...... 481,400
87,003 National Computer Systems,
Inc..................... 1,859,689
135,900 `D'Newport Corporation.... 1,342,013
186,100 Scitex Corporation
Limited................. 3,210,225
53,150 Woodhead Industries,
Inc..................... 624,513
------------
15,496,159
------------

UTILITIES - 0.4%
69,838 *Southern Union Company... $ 1,536,436
38,745 Southwest Water Company... 445,567
------------
1,982,003
------------
MISCELLANEOUS - 3.2% 17,451,357
------------
Total Common Stocks
(Cost $352,291,534)..... 515,424,118
------------
PREFERRED STOCK - 0.1%
23,700 Bird Corp. $1.85 Conv.
(Cost $ 369,469)........ 361,425
------------
REPURCHASE AGREEMENT - 4.2%
State Street Bank and Trust Company,
4.90% due 7/01/96, collateralized by
U.S. Treasury Notes, 5.25%, due
12/31/97, valued at $23,156,585 (Cost
$22,700,000).......................... 22,700,000
------------
TOTAL INVESTMENTS - 100.2% (COST
$375,361,003)......................... 538,485,543
LIABILITIES LESS CASH AND OTHER
ASSETS - (0.2)%....................... (1,144,822)
------------
NET ASSETS - 100.0%..................... $537,340,721
------------
------------
</TABLE>

* Non-income producing.

** At June 30, 1996, the Fund owned 5% or more of the Company's outstanding
shares, thereby making the Company an affiliated person as defined in the
Investment Company Act of 1940.

`D' A portion of these securities are on loan at June 30, 1996. Total market
value of all securities on loan is $7,772,918, for which the Fund received
$7,979,583 as collateral.

`D'`D' American Depository Receipt.

INCOME TAX INFORMATION -- The cost of total investments for federal income tax
purposes was $375,361,003. At June 30, 1996, net unrealized appreciation for all
securities amounted to $163,124,540, consisting of aggregate gross unrealized
appreciation of $177,500,610 and aggregate gross unrealized depreciation of
$14,376,070.

The accompanying notes are an integral part of the financial statements.
18

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
Investments at value (identified cost $375,361,003)........................................... $538,485,543
Cash.......................................................................................... 78,476
Receivable for investments sold............................................................... 3,106,593
Receivable for shares of beneficial interest sold............................................. 221,882
Receivable for dividends and interest......................................................... 797,414
Prepaid expenses and other assets............................................................. 108,327
------------
TOTAL ASSETS........................................................................... 542,798,235
------------
LIABILITIES:
Payable for investments purchased............................................................. 3,941,163
Payable for shares of beneficial interest redeemed............................................ 974,386
Payable for investment advisory fees.......................................................... 261,667
Accrued expenses.............................................................................. 280,298
------------
TOTAL LIABILITIES...................................................................... 5,457,514
------------
NET ASSETS............................................................................. $537,340,721
------------
------------
ANALYSIS OF NET ASSETS:
Undistributed net investment income........................................................... $ 2,868,444
Accumulated net realized gain on investments.................................................. 82,926,553
Net unrealized appreciation on investments.................................................... 163,124,540
Shares of beneficial interest................................................................. 65,972
Additional paid-in capital.................................................................... 288,355,212
------------
NET ASSETS............................................................................. $537,340,721
------------
------------
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($537,340,721[div]65,971,631 shares outstanding)............................................ $8.15
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months ended
June 30, 1996 Year ended
(unaudited) December 31, 1995
----------------- -----------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income............................................ $ 2,865,763 $ 8,281,365
Net realized gain on investments................................. 62,650,050 95,221,780
Net change in unrealized appreciation on investments............. (34,091,348) 17,417,882
----------------- -----------------
Net increase in net assets resulting from investment
operations..................................................... 31,424,465 120,921,027
DIVIDENDS AND DISTRIBUTIONS:
From net investment income....................................... -- (8,285,016)
From net realized gain on investments............................ -- (73,143,226)
----------------- -----------------
Total dividends and distributions................................ -- (81,428,242)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets from capital share transactions....... (124,202,355) (180,790,798)
----------------- -----------------
NET DECREASE IN NET ASSETS......................................... (92,777,890) (141,298,013)
NET ASSETS:
Beginning of period.............................................. 630,118,611 771,416,624
----------------- -----------------
End of period (including undistributed net investment income of
$2,868,444 and $2,681, respectively)........................... $ 537,340,721 $ 630,118,611
----------------- -----------------
----------------- -----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................................................ $ 5,140,358
Interest......................................................................................... 588,345
------------
Total Income.............................................................................. 5,728,703
------------
Expenses:
Investment advisory fees......................................................................... 2,270,843
Custodian and transfer agent fees................................................................ 206,376
Administrative and office facilities expenses.................................................... 153,132
Trustees' fees................................................................................... 46,046
Other expenses................................................................................... 284,617
------------
Total Expenses............................................................................ 2,961,014
------------
Fees waived by investment advisor......................................................... (98,074)
------------
Net Expenses.............................................................................. 2,862,940
------------
Net Investment Income............................................................... 2,865,763
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................................... 62,650,050
Net change in unrealized appreciation on investments............................................... (34,091,348)
------------
Net realized and unrealized gain on investments.................................................. 28,558,702
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 31,424,465
------------
------------
</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance for the periods presented.

<TABLE>
<CAPTION>
Six
Months
ended
June 30, Years ended December 31,
1996 ----------------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
-------- -------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $7.71 $7.41 $8.31 $8.00 $7.29 $5.78
INVESTMENT OPERATIONS:
Net investment income......................... 0.04 0.11 0.12 0.11 0.11 0.12
Net realized and unrealized gain on
investments................................. 0.40 1.27 (0.18) 0.79 1.07 1.72
Total from investment operations............ 0.44 1.38 (0.06) 0.90 1.18 1.84
DIVIDENDS AND DISTRIBUTIONS:
Net investment income......................... -- (0.11) (0.11) (0.11) (0.10) (0.12)
Net realized gain on investments.............. -- (0.97) (0.73) (0.48) (0.37) (0.21)
Total dividends and distributions........... -- (1.08) (0.84) (0.59) (0.47) (0.33)
NET ASSET VALUE, END OF PERIOD.................. $8.15 $7.71 $7.41 $8.31 $8.00 $7.29
TOTAL RETURN.................................... 5.7% 18.7% (0.7)% 11.3% 16.2% 31.8%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands)........ $537,340 $630,119 $771,417 $1,022,161 $1,102,224 $789,141
Ratio of Expenses to Average Net Assets(a)...... 0.99%* 0.98% 0.98% 0.98% 0.91% 0.95%
Ratio of Net Investment Income to Average Net
Assets........................................ 0.99%* 1.18% 1.33% 1.23% 1.48% 1.73%
Portfolio Turnover Rate......................... 16% 10% 17% 24% 22% 29%
Average Commission Rate Paid`D'................. $ 0.0598 -- -- -- -- --
</TABLE>

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

(a) Expense ratio before fee waivers by the investment adviser would have been
1.02% for the six months ended June 30, 1996 and .99% for the year ended
December 31, 1995.

* Annualized.

+ For fiscal years beginning on or after October 1, 1995, the Fund is required
to disclose its average commission rate paid per share for purchases and
sales of investments.

The accompanying notes are an integral part of the financial statements.

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Pennsylvania Mutual Fund (the 'Fund') is a series of The Royce Fund (the
'Trust'), a diversified open-end management investment company established as a
business trust under the laws of Delaware. The Fund was a separate investment
company organized as a Delaware business trust until the close of business on
June 28, 1996, when it was merged into a counterpart series of the Trust.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

a. Valuation of investments:

Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked prices
for Nasdaq securities. Quotations are taken from the market where the security
is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotations are not readily available are valued at their fair value
under procedures established and supervised by the Board of Trustees. Bonds and
other fixed income securities may be valued by reference to other securities
with comparable ratings, interest rates and maturities, using established
independent pricing services.

b. Investment transactions and related investment income:

Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation are determined on the basis of
identified cost for book and tax purposes.

c. Taxes:

As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal year.
The Schedule of Investments includes information regarding income taxes under
the caption 'Income Tax Information'.

d. Distributions:

Dividend and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. These distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassifications to paid-in capital
and may affect net investment income per share. Undistributed net investment
income may include temporary book and tax basis differences which will reverse
in a subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.

e. Repurchase agreements:

The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ('SSB&T'), the
custodian of its assets. The Fund restricts repurchase

<PAGE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
agreements to maturities of no more than seven days. Securities pledged as
collateral for repurchase agreements are held by SSB&T until maturity of the
repurchase agreements. Repurchase agreements could involve certain risks in the
event of default of insolvency of SSB&T, including possible delays or
restrictions upon the ability of the Fund to dispose of the underlying
securities.

f. Security Lending:

The Fund loans securities to qualified institutional investors for the
purpose of realizing additional income. This income is included in interest
income. Loans of securities of the Fund are collateralized by cash and/or
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The collateral is equal to at least 100% of the current
market value of the loaned securities.

2. INVESTMENT ADVISER:

Under the Trust's investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund accrued and paid Quest fees totaling $2,172,769 (net of
$98,074 voluntarily waived by Quest) for the six months ended June 30, 1996. The
agreement provides for fees equal to 1.0% per annum of the first $50 million of
the Fund's average net assets, .875% per annum of the next $50 million of such
net assets and .75% per annum of additional amounts of average net assets. Such
fees are computed daily and are payable monthly to Quest.

3. FUND SHARES:

The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:

<TABLE>
<CAPTION>
Six Months ended
June 30, 1996 Year ended
(unaudited) December 31, 1995
--------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold........................................ 2,712,479 $ 21,146,448 4,913,877 $ 39,278,575
Issued as reinvested dividends and
distributions............................. -- -- 9,739,008 74,600,820
Redeemed.................................... (18,442,843) (145,348,803) (37,019,497) (294,670,193)
</TABLE>

Shares redeemed within one year of purchase are subject to a 1% redemption
fee, payable to the Fund, which is used to offset costs associated with the
redemption.

4. PURCHASES AND SALES OF INVESTMENT SECURITIES:

For the six months ended June 30, 1996, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
amounted to $88,690,283 and $207,833,523, respectively.

5. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES:

An 'Affiliated Company', as defined in the Investment Company Act of 1940,
is a company in which the Fund owns at least 5% of the company's outstanding
voting securities. At June 30, 1996, the Fund owned at least 5% of Liberty
Homes, Inc. Class A. The Fund effected no transactions in shares of this company
during the six months ended June 30, 1996.

<PAGE>
<PAGE>
THE ROYCE FUND
TRUSTEES

Hubert L. Cafritz
Thomas R. Ebright
Richard M. Galkin
Stephen L. Isaacs
William L. Koke
David L. Meister
Charles M. Royce

OFFICERS

Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and Assistant Secretary
John E. Denneen, Secretary

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P.

CUSTODIAN

State Street Bank and Trust Company

<PAGE>
<PAGE>
POSTSCRIPT: NEW ERA DEFINITIONS

A by-product of any new era is a change in its language. The use of new
words and definitions typically signifies the emergence of a new culture. For
example, the acceptance of popular slang words 'cool' and 'hip' in the '60s
ushered in an era known as 'pop culture.'

The protracted bull market of the last five years has many believing that
we have entered into a new age of investing. Just as 'bad' came to mean 'good'
in the slang of the '70s, Steve Leuthold, stock market researcher and money
manager, with further corroboration from USA Today 'Money Talk' columnist,
Daniel Kadlec, has suggested, with tongue firmly in cheek, that the following
'new definitions for a new era' have replaced those established by Mr. Webster:

BEAR MARKET: When stocks decline for a week.

MAJOR CORRECTION: When stocks decline for a day.

OLD-TIMER: A person who knows someone who lost money in the stock market.

CYNIC: Anyone reminding you stocks can go down.

CONSERVATIVE: Anyone without a margin account.

RISK: How much you can lose being out of the market.

INFLATION: Historical phenomena that used to adversely affect stocks.

CONTRARIAN: Someone with nothing to talk about at parties.

IPO: Instant profit opportunity.

SHORT SALE: Temporary condition associated with memory failure.

GRAHAM & DODD: Ancient philosophers who believed the book value of a
company was too much to pay. It's widely assumed they also believed the world
was flat.

MUTUAL FUND: A pool of money guaranteed to grow because it has lots of
contributors, and you just know that many people can't be wrong.

As conservative cynics, we can only hope that when the current market is no
longer 'hip,' it will not find too many people feeling 'bad,' as it was
originally defined.

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

THE ROYCE FUNDS

General Information and Telephone Purchases ....... 1 (800) 221-4268
Shareholder Account Services ...................... 1 (800) 841-1180
Investment Advisor Services ......................... 1 (800) 33-ROYCE
The Royce Funds InfoLine ............................ 1 (800) 78-ROYCE
E-mail Address ............................... roycenet @interport.net
Internet Homepage ......................... http: //www.roycefunds.com

1414 Avenue of the Americas, New York, New York 10019

This report must be accompanied by or preceded by a current prospectus of the
Fund.

STATEMENT OF DIFFERENCES
------------------------

The dagger symbol shall be expressed as `D'
The division sign shall be expressed as [div]

GRAPHIC APPENDIX

On page 2 of the paper format Royce Pennsylvania Mutual Fund report:
Picture of firecracker exploding

On page 3 of the paper format Royce Pennsylvania Mutual Fund report:
A picture of a Prospectus cover of Berkshire Hathaway Inc.

On page 5 of the paper format Royce Pennsylvania Mutual Fund report:
A picture of a scale balancing a dollar sign and a factory.
A picture of a man in long white coat pointing with a pointer.

On page 6 of the paper format Royce Pennsylvania Mutual Fund report:
A picture of Cupid shooting an arrow with two hearts around him.
A picture of a basket of fruit at harvest time.

On page 7 of the paper format Royce Pennsylvania Mutual Fund report:
A bar graph of the Russell 2000 price variations from 1979 to 1996.

A picture of a ticker tape machine.