SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 54 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 54 X
PENN SQUARE MUTUAL FUND FILE NO. 2-13943
(Exact Name if registrant as specified in charter)
2650 Westview drive, Wyomissing, PA 19610
(Address of principal executive offices)
610.670.1031
(Registrant's telephone number)
Dennis J. Westley, 2650 Westview Drive, Wyomissing, PA 19610
(name and address of agent for service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragaph
(b) of rule 485
CROSS REFERENCE SHEET
N-1A Item No. Location
Part A
Item 1 Cover Page Cover Page
Item 2 Synopsis Prospectus
Item 3 Condensed Financial Information Financial Highlights
Item 4 General Description of Registrant Fund Organization,
Investment Objectives
Item 5 Management of the Fund Mangement of the Fund
Item 6 Capital Stock & Other Securities Fund Organization
Item 7 Purchase of Securities Being How to Buy Shares
Offered
Item 8 Redemption or Repurchase How to Redeem Shares
Item 9 Pending Legal Proceedings Not applicable
PART B
Item 10 Cover Page Cover Page
Item 11 Table of Contents Table of Contents
Item 12 General Information and History Not applicable
Item 13 Investment Objectives & Policies Investment Objectives
Item 14 Management of the Fund Trustees of the Fund,
Investment Advisor
Item 15 Control Persons and Principal
Holders of Securities Not applicable
Item 16 Investment Adivsory and Other Investment Advisor,
Services Distributor and Transfer
Agent
Item 17 Brokerage Allocation Portfolio Transactions
and Brokerage
Commissions
Item 18 Capital Stock & Other Securities Not applicable, In
Prospectus-Fund
Organization
Item 19 Purchase, Redemption and Pricing Purchases and Net
of Securities being Offered Asset Value
Redemptions
Item 20 Tax Status Not applicable-See
Prospectus, Dividends
Capital Gains Distribu-
tions and Taxes
Item 21 Underwriters Not applicable-See
Prospectus, Management
Of the Fund
Item 22 Calculation of Performance Data Not applicable-See
Prospectus, Performance
Information
Item 23 Financial Statements Independent Auditors and
Financial Statements
THE WILLIAM PENN FUNDS
SHAREHOLDER SERVICES:
610-670-1031
1-800-523-8440
P.O. Box 1419
Reading, Pennsylvania 19603
Overnight Mail:
2650 Westview Drive
Wyomissing, PA 19610
PENN SQUARE MUTUAL FUND
Growth and Income
Penn Square Mutual Fund
International
Scottish Widows International Fund
Stability
Money Market Portfolio
Income
Quality Income Portfolio
U.S. Government Securities Portfolio
Tax-Free Income
New York Tax-Free Portfolio
Pennsylvania Tax-Free Portfolio
PENN SQUARE MUTUAL FUND
Prospectus
Penn Square Mutual Fund (the Fund) is a diversified open-end management
investment company commonly known as a mutual fund, whose principal
objective is long-term capital growth, with realization of current income
a secondary consideration. The Fund seeks to attain its objectives by
investing principally in common stocks of large, undervalued companies
which are in sound financial condition and are expected to show above
average growth. There can be no assurance that these objectives will be
achieved.This Prospectus sets forth concisely information about the Fund
that a prospective investor should know before investing. Additional
information about the Fund has been filed with the Securities and Exchange
Commission and is available upon request without charge. You may request
the Statement of Additional Information, which is incorporated by
reference into this Prospectus, by writing directly to the Fund or by
calling the telephone numbers listed on the cover.The date of this
Prospectus and the Statement of Additional Information is March 15, 1996.
Table of Contents
Section Page
Financial Highlights 2
Fund Expenses 3
Fund Organization 3
Investment Objectives and Policies 4
Management of the Fund 5
Performance Information 7
Illustration of Assumed Investment 8
Distributions and Taxes 9
Shareholder Inquiries 9
How to Buy Shares 10
How to Transfer Shares 13
How to Redeem Shares 14
Shareholder Services 15
General Information 17
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS ANY COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Financial Highlights
The table that follows is included in the Fund's Annual Report and has
been audited by Ernst & Young LLP independent auditors whose unqualified
opinion is included therein. The financial statements are incorporated
by reference in the Fund's Statement of Additional Information.
Class C Class A *
11/15/95 Year Ended December 31
12/31/95 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net Asset Value:
Beginning of period
$12.18 $10.01 $10.81 $10.44 $10.40 $8.76 $10.00 $8.74 $8.57 $9.21 $9.70
Investment Operations:
Net investment income
0.00 0.23 0.22 0.20 0.23 0.26 0.34 0.37 0.34 0.34 0.39
Net realized and
unrealized gain
(loss) on investments
0.49 2.66 (0.20) 1.12 0.66 2.08 (0.86) 1.83 0.855 0.15 0.76
Total from Investment
Operations
0.49 2.89 0.02 1.32 0.89 2.34 (0.52) 2.20 1.195 0.49 1.15
Distributions:
Dividends from net
investment income
0.00 (0.24) (0.22)(0.19)(0.25)(0.29)(0.37)(0.36)(0.355)(0.35)(0.39)
Distributions from
realized capital gains
(0.76)(0.76)(0.60)(0.76)(0.60)(0.41)(0.35)(0.58)(0.67)(0.78)(1.25)
Total Distributions
(0.76)(1.00)(0.82)(0.95)(0.85)(0.70)(0.72)(0.94)(1.03)(1.13)(1.64)
Net Asset Value:
End of period
$11.91 $11.90 $10.01 $10.81 $10.44 $10.40 $8.76 $10.00 $8.74 $8.57 $9.21
Total Return
(excluding sales charge)
n/a(b)29.2% 0.2% 12.9% 8.8% 27.7% -5.3% 25.7% 14.4% 5.0% 12.8%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year ($millions)
0.076 297 242 252 234 228 190 213 189 189 199
Ratio of expenses
to average net assets*
n/a(b) 0.96% 0.99% 0.97% 0.96% 0.95% 0.93% 0.91% 0.92% 0.81% 0.80%
Ratio of net investment income
to average net assets*
n/a(b) 2.0% 2.1% 1.9% 2.2% 2.6% 3.7% 4.0% 4.0% 3.2% 4.0%
Portfolio turnover rate*
37.9% 37.9% 27.7% 34.3% 27.9% 23.3% 44.5% 41.8% 24.4% 15.0% 22.3%
Number of shares
outstanding
at end of year (thousands)
6 24,929 24,155 23,311 22,394 21,934 21,668 21,283 21,640 22,035 21,591
*Effective November 15, 1995, the Fund commenced offering Class C shares.
All capital shares issued and outstanding as of November 15, 1995, were
reclassified as Class A shares.(a) Portfolio turnover is calculated on the
basis of the Fund as a whole without distinguishing between the classes of
shares issued.(b) Ratios not meaningful due to short period of operation of
Class C shares Fund ExpensesThe following table illustrates all expenses
and fees that a shareholder of the Fund will incur and is intended to assist
you in understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly. The expenses and fees set forth in
the table are based on the year ended December 31, 1995 for Class A shares.
Class C shares were not publicly offered during the entire past fiscal year.
The Annual Fund Operating Expenses shown below are estimates based on
amounts that would have been payable assuming that Class C shares were
outstanding during the entire past fiscal year.
Percentage of
Average Net
Assets
Shareholder
Transaction
Expenses Class Class Annual Fund
Operating Expenses
Class Class
A C A C
Maximum Sales Load
Imposed on Purchases 4.75% None Management Fee 0.65 0.65
Sales Load Imposed
on Reinvested
Dividends None None Distribution
Fees (12b-1) 0.13 1.00
Deferred Sales Load None None Other Expenses 0.18 0.18
Redemption Fee None 1.0%(1)
Exchange Fee None None Total Fund
Operating
Expenses 0.96 1.83
(1)Only if shares are redeemed within 12 months of purchase. See "How to
Buy Shares."
EXAMPLE:
The following example illustrates the expenses that a shareholder would
pay on a $1,000 investment after one year and over a period of three,
five and ten years utilizing the expenses from the chart above and assuming
a 5% annual rate of return and redemption at the end of each period.
Class Class
A C
1 year $ 57 $ 19
3 years 77 58
5 years 98 99
10 years 160 215
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those above. Fund
Organization Penn Square Mutual Fund, organized in Pennsylvania in 1957
as a common-law trust, is an open-end diversified management investment
company commonly called a "mutual fund." The Fund invests the proceeds
from the sale of its shares in a portfolio of securities. This permits
the Fund's shareholders to combine their investments in a professionally
managed portfolio consisting of many different securities. Shareholders
have no preemptive or conversion rights. Shares of the Fund have equal
non-cumulative voting rights and equal rights with respect to dividends,
assets and liquidation. An annual meeting of shareholders is held in May.
Investment Objectives and Portfolio Management Policies
Penn Square Mutual Fund is a growth and income fund. The primary
objective of the Fund is long-term capital growth from a diversified
portfolio of securities, consisting for the most part of blue chip common
stocks. The realization of current income is a secondary consideration,
although an important one. The Fund's objectives cannot be changed without
shareholder approval. Historically, when companies have prospered and grown,
their common stock values have appreciated and their dividends have
increased.All investment activity for the Fund is subject to the Investment
Committee of the Fund. The Fund's investment restrictions are set forth
in the Statement of Additional Information. The following are general
investment guidelines for the Fund, and are not restrictions. The investment
universe for the Fund is generally comprised of stocks in the Standard
& Poor's 500 Stock Index. The Fund usually buys only dividend paying stocks,
and usually requires that the dividend yield of a stock at the time of
purchase equal or exceed that of the S&P 500 at that time. The Fund will
generally not pay a multiple for earnings that exceed a company's expected
earnings growth rate, and will generally not buy the stocks of companies
whose long-term debt exceeds 35% of total capitalization. At times, the
Fund's assets may be invested for defensive purposes in bonds, preferred
stocks, and other debt instruments, or in cash and cash equivalents. In
order to enhance Fund income, the Fund may sell covered-call options. When
appropriate, the Fund may purchase foreign securities through dollar-
denominated American Depository Receipts ("ADRs"). ADRs do not involve
the same currency risks as securities denominated in foreign currency and
are issued by domestic banks and publicly traded in the United States.
By taking a flexible approach and adjusting the portfolio to reflect changes
in the opportunities for sound investments relative to assumed risks,
management hopes to achieve healthy returns without undue risk. However,
all investments are subject to risk, and there can be no assurance that
the Fund's objectives will be achieved.In purchasing and selling portfolio
securities, the primary consideration is to obtain the best possible price
and most efficient execution. If two or more broker/dealers are considered
capable of obtaining the best execution, preference may be given to the
broker/dealer who has sold Fund shares. Further information concerning
portfolio transactions and brokerage commissions will be found in the
Statement of Additional Information.
Management of the Fund
PORTFOLIO MANAGEMENT
The primary responsibility of managing the Fund on a day-to-day basis
belongs to James E. Jordan, Chairman of the Fund and President of the
Advisor, and Emmett M. Murphy, Trustee and Portfolio Manager. Mr. Jordan
has held this responsibility for the past ten years and has over 22 years
of experience as an investment professional. Mr. Murphy has been on the
investment committee of the Fund since 1987, and accepted the additional
responsibility of Portfolio Manager at the beginning of 1996. He has over
21 years of experience as an investment professional.
TRUSTEES
Under the Declaration of Trust, the Fund is managed by a Board of Trustees
who hold office for one year, from June 1st following the annual meeting
of shareholders at which they are elected, to May 31st of the following
year. There may never be fewer than three nor more than ten trustees. The
Board of Trustees exercises all powers not required by statute, or by the
Declaration of Trust, to be exercised by the shareholders.The investment
management of the Fund involves four inter-related activities of which
three are the responsibility of the Fund's investment advisor: economic
research; stock market, industry, and company analysis; and portfolio
recommendations. The fourth activity is investment action; the ultimate
decision to buy, sell or hold securities, rests with the investment
committee. Currently, the investment committee of the Fund, elected by
the Board of Trustees, is comprised of persons who are affiliated with
the Fund's investment advisor or Board of Trustees.
ADVISOR
The investment advisor of the Fund is Penn Square Management Corporation,
2650 Westview Drive, Wyomissing, PA 19610 (mailing address: P.O. Box 1419,
Reading, PA 19603), hereafter called the Advisor. The Advisor, elected
annually by a vote of the shareholders representing more than fifty per
cent of the Fund's outstanding shares, provides research, statistical
services, investment recommendations to the Fund, and general supervision
of the Fund's portfolio. The Advisor also provides and pays for office
space, executive and other personnel, and such services as are required
for the day to day administration of the Fund. Penn Square Management
Corporation and its predecessor have been investment advisor to the Fund
since 1958. Under the investment advisory agreement, the Fund pays the
Advisor a monthly fee based on average daily net assets for each month.
For the year ended December 31, 1995, the fee paid to the Advisor, as a
percentage of average daily net assets, was at the annual rate of .65 of
1%. The ratio of total expenses to average net assets of the Fund was .96%
in 1995.
DISTRIBUTOR
Penn Square Management Corporation is the Distributor of the Fund and under
terms of the distribution contract, which must be renewed annually by the
Fund's shareholders, provides selling and sales services for the Fund. Rule
12(b)-1, which was adopted by the Securities and Exchange Commission under
the Investment Company Act of 1940, permits an investment company directly
or indirectly to pay expenses associated with the distribution of its shares
in accordance with a plan adopted by the Fund and approved by its
shareholders. Pursuant to this rule, the Fund has entered into a Distribution
Services Agreement (the "Plan") with the Distributor.
Class A Shares: The Distributor is entitled to be reimbursed monthly by the
Fund for certain of its expenses incurred in connection with its services
as Distributor at an annual rate not exceeding .50% of the Fund's net assets.
Subject to this percentage limitation, the Distributor may be reimbursed for
its expenses incurred in connection with (a) advertising and marketing Fund
shares; (b) printing and distributing the Prospectus; (c) implementing and
operating the Plan; and (d) payments made by the Distributor for servicing
fees to broker/dealers, financial institutions, or other industry
professionals ("Service Organizations") for distribution and/or shareholder
administrative services provided to their customers who own Fund shares.
Pursuant to a Servicing Agreement with the Distributor, a Service
Organization may receive, on an annual basis, up to .50% of the average
daily net asset value of Fund shares owned by shareholders with whom the
Service Organization has a servicing relationship. The Services provided
by a Service Organization pursuant to a Servicing Agreement may include
distribution or shareholder administrative services, including establishing
and maintaining shareholder accounts, sending confirmations of transactions,
forwarding financial reports and other communications to shareholders, and
responding to shareholder inquiries regarding the Fund.
Class C Shares: The fund has adopted a Distribution Plan for Class C shares
to compensate the Distributor for its services and costs in distributing
Class C shares. Under the Plan, the Fund pays the Distributor an annual
12(b)1 Distribution Fee of 0.75% per year on Class C shares. The Distributor
also receives a Service Fee of 0.25% per year. Both fees are computed on the
average annual net assets of Class C shares, determined as of the close of
each regular business day. The distribution Fee allows investors to buy
Class C shares without a front end sales charge while permitting the
Distributor to compensate dealers who sell Class C shares. The Distribution
Fee and Service Fee increase Class C expenses by 1.00% of average net assets
per year.The Distributor pays sales commissions of 1.00% of the purchase
price to dealers from its own resources at the time of the sale. The
Distributor retains the Distribution Fee during the first year shares are
outstanding to recoup the sales commission it pays, the advances of service
fee payments it makes, and its financing costs. The Distributor plans to
pay the Distribution Fee and a portion of the Service Fee as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.The Distributor receives no other compensation for its
services as distributor, except that the sales charge (see "How to Buy
Shares") will be paid to the Distributor. The Distributor may, in turn,
pay such sales charge to broker/dealers as a commission for generating
sales of Fund shares.
TRANSFER AGENT
Penn Square Management Corporation acts as Transfer Agent for the Fund.
For the services it provides in these capacities, the Corporation is
reimbursed only for the actual costs incurred in providing such services.
The Corporation will continue to provide services as Transfer Agent at
cost or below cost.
Performance Information
During the period from June 25, 1958 (the initial public offering date)
to December 31, 1995, $10,000 invested in Penn Square Mutual Fund would
have grown to $746,702, if all distributions were reinvested.For
comparative purposes, the figures below show total appreciation of an
investment in the Fund for various periods ended December 31, 1995. These
figures assume the reinvestment of all income dividends and capital gains
distributions in additional shares of the Fund. These figures are not
necessarily indicative of future results. The performance of the Fund is
a function of portfolio management in selecting the type and quality of
portfolio securities and is also affected by operating expenses.
Performance information shown below may not provide a basis for comparison
with other investments using different dividend reinvestment assumptions or
time periods. No adjustment has been made for any income taxes payable by
shareholders on any distributions.
Average Annual Total Returns:
Years Ended December 31, 1995 One Year 5 Years 10 Years
Reflects 4.75% initial sales charge 23.1% 14.1% 12.1%
Without sales charge 29.2% 15.2% 12.6%
Cumulative Total Returns:
Years Ended December 31, 1995 5 Years 10 Years 20 Years
Reflects 4.75% initial sales charge 93.5% 212.1% 1172.7%
Without sales charge 103.2% 227.7% 1236.2%
Standard & Poor's 500 Stock Index 115.2% 299.6% 1426.5%
Information is compiled by Lipper Analytical Services. The S&P 500 is
an unmanaged index of stock prices.
Illustration of an Assumed
Investment of $10,000
NO CHART PUT IN
Dividends, Capital Gains Distributions and Taxes
Dividends from net investment income are paid to shareholders quarterly
on the last Friday of January, April, July, and October. Dividends may be
taken in cash, or reinvested in additional shares on the date of
distribution. Capital gains distributions, if available, will be paid
in December of the year in which they were generated. If net short-term
capital gains are realized they will also be distributed and are currently
treated as ordinary income for shareholder tax purposes. Capital gains
distributions may be accepted in cash or additional shares through the
distribution reinvestment plan.It is the Fund's policy to meet the
requirements of Sub-Chapter M of the Internal Revenue Code and such
requirements were met in the fiscal year ended December 31, 1995.
Shareholders, however, must report dividends and capital gains
distributions as taxable income. Shareholders are informed of the federal
tax status of dividend and capital gains distributions on IRS Form
1099-DIV shortly after the end of each calendar year.The Fund is organized
as a Pennsylvania common law trust. As such, it will not be liable for any
corporate income or franchise tax in the Commonwealth of Pennsylvania.
Shareholders who are Pennsylvania residents may be subject to personal
property tax on their shares.You should consult your tax adivsor on state
and local taxes as well as on the tax consequences of gains or losses from
the redemption of Fund shares. The Fund may be required to withhold and
remit to the U.S. Treasury 31% of any redemption proceeds and of any
dividend or distribution on any account where a payee fails to provide
and/or certify a taxpayer identification number or provides the wrong
number.
Shareholder Inquiries
Shareholders should contact the Shareholder Services Department for
further information and forms for the Retirement Plans, Systematic
Purchase Plan, Withdrawal Plan, Exchange Plan, or any additional
information concerning the fund. Inquiries about Penn Square Mutual
Fund, Scottish Widows International Fund and The William Penn Interest
Income Fund, "Pennsylvania's Hometown Mutual Funds," may be made toll
free by calling the Fund at (800) 523-8440 and locally at (610) 670-1031.
Shareholders may address written inquiries to P.O. Box 1419, Reading,
PA 19603.
How to Buy Shares
Minimum Investments: The minimum initial investment is $500 and the
minimum repeat purchase is $100. A minimum ini tial investment of $250
will be accepted for any retirement plan. For certain accounts introduced
by professional investment advisors these minimums may be waived.
Shares may be purchased by the following methods:
By Investment Dealer: Through any broker/dealer, bank or savings bank
which is registered in the state where the purchase is made and which
has a sales agreement with the William Penn Funds.
By Mail: Make your check payable to the Fund and mail along with a new
account application or reorder form to the address on the cover.
By Wire: Purchases by wire will be accepted only for additions to existing
accounts. Instruct your bank to wire funds to:
CoreStates BankPhiladelphia, PA
ABA #031000011
Credit:William Penn Funds
a/c #0036438916
Penn Square Mutual Fund
(your fund acct. no.)
By Telephone: Payments for telephone orders must be received within
three business days of the order. If payment is not timely received, the
Fund may cancel the order and redeem shares in the account to compensate
the Fund for any decline in value of the canceled purchase.
In Person: By visiting our office at 2650 Westview Drive, Wyomissing, PA.
All purchase orders are executed based on the net asset value calculated
at the close of business on the day such purchase orders are received.
Purchase orders received after the close of the New York Stock Exchange
will be executed based on the net asset value calculated on the next
business day. The Trustees reserve the right to reject all orders that
are considered to be not in the best interest of the Fund. Share
certificates will not be issued unless an investor specifically requests
them.Net Asset Value: The net asset value per share is calculated by
adding the current value of all the securities in the Fund's portfolio
and all other assets, subtracting the liabilities, and dividing the
remainder by the number of the Fund's outstanding shares. Securities
listed on the New York Stock Exchange or any other exchange approved by
the Trustees are valued on the basis of the closing sale that day, or
if there is no sale, on the basis of the median of the closing bid and
ask price of that day. All other securities shall be valued at the median
of the closing bid and ask price of that day. If there is no sale or
closing bid and ask price on the day of calculation, a portfolio security
will be valued at the preceeding business day's available sale or median
of the bid and ask prices. When market quotations are not readily available,
such securities are valued as determined in good faith by the Board of
Trustees. See the Statement of Additional Information for an illustration
of net asset value determination.
Class A Shares: The offering price for a share of beneficial interest
of the Fund is the net asset value per share plus a sales charge as shown
in the following illustration:
Sales Charge
Sales Charge as a % of
Amount of as a % of Net Asset Dealers
Purchase Offering Price Value Concession
Less than
$50,000 4,75% 5.00% 4.00%
$50,000 to
less than
$100,000 3.50% 3.60% 3.00%
$100,000 to
less than
$250,000 2.75% 2.80% 2.40%
$250,000 to
less than
$500,000 2.25% 2.30% 2.00%
$500,000 to
less than
$1,000,000 1.25% 1.30% 1.00%
$1,000,000
and over -0-% -0-% -0-%
There is no sales charge on purchases exceeding the maximum amount stated
above, on purchases by certain employee benefit plans, on purchases made
through a recognized fee based program offered by some broker/dealers,
on purchases by policyholders of selected insurance companies, on
purchases by certain investment advisors on behalf of their discretionary
accounts, or on purchases by certain other persons as described in the
Statement of Additional Information. In addition, any person who was
invested in Penn Square Mutual Fund as of November 30, 1988 will not
be charged a sales charge for purchases made in any portfolio of the
William Penn family of funds providing the account has remained open.
Retirement accounts opened prior to July 19, 1990 will not be subject
to a sales charge. The Fund receives all monies paid equal to the net
asset value per share, and any sales charge will be allocated to the
Fund's distributor. The distributor may, in turn, pay such amounts to
broker/dealers as commission for sales of Fund shares. The distributor
may also, at its expense, provide additional promotional incentives to
broker/dealers who sell shares of the Fund. The Fund reserves the right
to modify the sales charge at its discretion. From time to time the Fund
may sponsor sales contests among registered representatives who sell
shares of the Fund.
Class C Shares: Class C shares are sold at net asset value without an
initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% is deducted from redemption proceeds. The contingent
deferred sales charge is paid to the Distributor to reimburse its expenses
in providing distribution related services to the Fund in connection
with the sale of Class C shares. The contingent deferred sales charge
is assessed on the lesser of the net asset value of the shares at the
time of redemption or purchase, and does not apply to shares purchased
through the reinvestment of dividends or capital gains.
Waiver of Class C Contingent Deferred Sales Charge: The Class C contingent
deferred sales charge will be waived if the shareholder requests a
redemption for any of the following reasons (1) distributions to participants
or beneficiaries from Retirement Plans, if the distributions are made
(a) under a Systematic Withdrawal Plan, or (b) following death or disability
(as defined in the Internal Revenue Code) of the participant or beneficiary;
(2) redemptions from accounts other than Retirement Plans following death or
disability of the shareholder accompanied by evidence of a determination of
disability by the Social Security Administration, and (3) returns of excess
contributions to Retirement Plans.
Class Share Distinction: Once you decide that the Fund is an appropriate
investment for you, deciding which class of shares is best suited to your
needs depends on a number of factors which you should discuss with your
broker or financial advisor. Because a fund's operating costs, the effect
of the different types of sales charges and 12(b)1 distribution fees that
apply to a class of shares will affect your investment results over time;
how much you plan to invest and how long you plan to hold your investment
become very important considerations. If your investment goals and
objectives change over time and you plan to purchase additional shares,
you should reevaluate those factors to see if you should consider another
class of shares. Your investment advisor will help you determine which class
of shares is best for you.
Generally, an investor who expects to invest less than $50,000 in any of
the William Penn Funds and who expects to make substantial redemptions after
one year but within six years of investment should consider purchasing
Class C Shares. Class C Shares have no initial sales charge, and after one
year, have no redemption penalty. Depending on your investment time horizon,
you may also prefer to balance purchases of A Share investments with C Share
investments in order to spread the cost of investing over time.If you plan
to invest more than $50,000 and your investment horizon is six years or
more, Class C shares might not be as advantageous as Class A shares. This
is because the annual asset based Distribution Fee on Class C shares will
have a greater impact on your account over the longer term than the reduced
front end sales charge available for larger purchases of Class A shares.
For example, Class A shares might be more advantageous than Class C shares
for investments of more than $50,000 expected to be held for 5 years or
more, for investments over $250,000 expected to be held 3 years or more,
or investments over $500,000 for which an investor's time horizon is
expected to be longer than 2 or more years.
Account Registration: Guidelines are printed on the New Account Application
form contained in this Prospectus. In the case of joint registrations, joint
tenancy with rights of survivorship (JTWROS) is assumed, unless otherwise
indicated.
Right of Accumulation: Reduced sales charges apply to any purchase of
shares in the William Penn family of funds except the William Penn
Money Market Portfolio (which does not impose a sales charge), where the
aggregate investment, including such purchase, is $50,000 or more. If,
for example, you previously purchased and still hold shares of any eligible
portfolio or combination thereof, with an aggregate current market value
of $40,000 and subsequently purchase shares of an eligible portfolio having
a current value of $20,000, the charge applicable to the subsequent purchase
would be reduced to 3.50% of the offering price. All present holdings of
eligible portfolios may be combined to determine the current offering price
of the aggregate investment in ascertaining the sales charge applicable to
each subsequent purchase.To qualify for reduced sales charges, at the time
of a purchase you or your dealer/advisor must notify Penn Square Management
Corporation. This may be accomplished by checking the appropriate box on a
New Account Application. The reduced charge is subject to confirmation of
your holdings through a check of appropriate records.
Redemption Proceeds from other Mutual Funds and Commissioned Investments: No
sales charge will apply to any purchase of shares in the Fund if the amount
invested represents redemption proceeds from another mutual fund or
commissioned investment and the shareholder previously paid a sales charge
for such other mutual fund or commissioned investment. In order to qualify
for this privilege, (i) Penn Square shares must be purchased within thirty
days after the redemption from the other mutual fund or commissioned
investment, and (ii) documentation of such redemption satisfactory to Penn
Square Management Corporation shall be required at the time of purchase.
Letter of Intent: A prospective shareholder may qualify for a reduced sales
load immediately by signing the non-binding Letter of Intent to invest in
one or more of the William Penn family of funds except Money Market, over a
thirteen month period an amount that would qualify for a reduced sales
charge. The shareholder or his dealer/advisor must notify Penn Square
Management when any investment is being made pursuant to the Letter of
Intent. Acceptable forms of Letters of Intent are available from the
Shareholder Services Department or on a New Account Application. A Letter of
Intent may be backdated 90 days, to the date of purchase.
How to Transfer Shares
Shares of the Fund, where a certificate has been issued, may be transferred
by endorsing the certificate on the reverse side exactly as the registered
name appears on the face of the certificate. Signatures must be guaranteed
by a commercial bank, savings bank, or broker/dealer.Shares of the Fund
held in book or statement form may be transferred by sending a letter to
the Fund requesting transfer. This letter must be signed by the registered
owner(s) and the signature(s) must be guaranteed.
How to Redeem Shares
Shareholders wishing to redeem certificated shares must send their redemption
request along with the share certificates directly to the Fund. If shares
are held in book or statement form, a signature guaranteed letter requesting
redemption must be sent directly to the Fund. The Fund will redeem shares
as of the date of receipt providing the certificates and/or letter
requesting redemption are in proper delivery form. Alternatively, a
telephone authorization form must be completed in order for uncertificated
shares to be redeemed by telephone. Shares presented for redemption, either
in certificate, letter form or by telephone, prior to the close of the New
York Stock Exchange on any business day are redeemed at the net asset value
calculated at the close of the exchange that day, except that some Class C
shares may be subject to a 1.0% contingent deferred sales charge. Shares
presented for redemption either in certificate, letter form or by telephone
after the close of the New York Stock Exchange on any business day are
redeemed at the net asset value calculated at the close of the Exchange on
the next business day, except that some Class C shares may be subject to a
1.0% contingent deferred sales charge. Checks for redemption proceeds will be
mailed within three business days. However, redemption checks will not be
mailed until all checks in payment for the shares redeemed have been cleared.
Letters requesting redemptions of book or statement shares must be properly
signed by the registered owner(s) with signature(s) guaranteed. A certificate
for shares presented for redemption must be endorsed by the registered owner,
with signature guaranteed only if the redemption proceeds are to be paid to
someone other than the registered owner. Requests for IRA Transfer, Qualified
Retirement Plan Transfer, or Direct Rollover require signature guarantee
only if the amount involved exceeds $10,000.00.
A signature guarantee is a widely accepted way to protect you and the fund
by verifying the signature on your request. A signature guarantee may not
be provided by a notary public. The following institutions should be able
to provide you with a signature guarantee: a national or state bank,
a federal savings and loan association, a trust company or a member firm of
a national stock exchange.Shareholders who liquidate accounts may repurchase
shares in the fund at Net Asset Value within 60 days of redemption. The
shareholder (or agent) must notify the Transfer Agent of his or her intention
to take advantage of the 60 day repurchase option.
The Fund imposes no charges for redemptions of Class A shares. For Class C
shares, redemptions within the first year of purchase will bear a redemption
charge of 1% of net assets. See "Class C Shares" in "How to Buy Shares"
section. However, redemptions may be made through a broker/dealer and
that broker/dealer may charge a transaction fee.
Shareholder Services
Distribution Reinvestment: Dividends and/or capital gains distributed by
the Fund may be automatically reinvested in additional shares of Penn
Square Mutual Fund, or in shares of any portfolio of The William Penn
Interest Income Fund or the Scottish Widows International Fund (see
"Flexivest" below). The cost of shares purchased is calculated on the
date of distribution. There is no sales charge for the purchase of shares
through reinvestment.
Dividends are distributed in January, April, July, and October; capital
gains, if any, are distributed in December. Any changes in automatic
reinvestment plans must be made in writing at least 10 days before any
distribution date. If no distribution election is made, the Fund will
assume automatic reinvestment. The automatic reinvestment plans are
more fully described in the Statement of Additional Information.If you
elect to receive dividends and distributions in cash and the U.S. Postal
Service cannot deliver the checks, or if the checks remain uncashed for
twelve months, the checks will be reinvested into your account at the
then current net asset value.
Systematic Purchase Plan: Shareholders may establish a Systematic
Purchase Plan (SPP) by checking the appropriate box on a New Account
Application or by calling Shareholder Services for an appropriate form.
This Plan authorizes The William Penn Funds to debit a Shareholder's
designated checking or savings account at a bank or savings bank on a
regular basis in order to purchase additional Fund shares.
As Custodian of the Fund, CoreStates Bank acts as agent for these
transactions, and funds are sent directly from the Shareholder's
financial institution to CoreStates Bank for purchase of fund shares.
Purchases are made monthly or quarterly, on the 20th day of the month
or quarter, or the following business day if the 20th is not a business
day. The SPP is more fully described in the Statement of Additional
Information.
Systematic Withdrawal Plan: Shareholders may establish a Systematic
Withdrawl Plan (SWP) by checking the appropriate box on a New Account
Application or by calling Shareholder Services for the appropriate form.
A minimum account balance of $10,000 is required to establish a SWP.
With a SWP, a sufficient number of Fund shares are redeemed each month
or quarter from a Shareholder's account to provide the Shareholder with
a regular payment. Shares are redeemed on the 10th day of each month or
quarter (on the 15th day for IRA and Keogh Plans), or the next business day,
in order to provide for the withdrawal payment, and share redemptions are
calculated to the third decimal.
Although income and capital gains distributions will be reinvested, continued
withdrawals in excess of current income may eventually exhaust principal,
particularly in a period of declining market prices. The fund reserves the
right to terminate the Plan when withdrawal payments are indefinitely
suspended at the request of the Plan participant.
Systematic Exchange Plan: Shareholders may establish a Systematic Exchange
Plan (SEP) by checking the appropriate block on the New Account Application
or by calling Shareholder Services for the appropriate form. This plan
authorizes The William Penn Funds to exchange a fixed dollar amount from
one portfolio to another on the 5th day of each month, or the next business
day if the 5th is not a business day. The Shareholder should understand
the tax consequences of such an exchange. The Plan may be terminated on
written instruction at least 10 days prior to the next scheduled exchange.
Retirement Plans: The Fund offers IRA Plans, including Simplified Employee
Pension Plans (SEP-IRA) and Salary Reduction Plans (SAR-SEP); Profit Sharing;
and Money Purchase Plans. There is a $250 minimum on initial purchases for
all retirement plans.
Flexivest: Shareholders may elect to have dividends and/or capital gains
automatically invested into another William Penn portfolio by indicating
the receiving portfolio on a New Account Application. For existing accounts,
shareholders may request the form by calling Shareholder Services. The Plan
may be terminated on written instruction at least 10 days prior to the next
dividend or capital gain distribution payable date.
Exchange Privilege: As a shareholder of the William Penn family of funds, you
may exchange shares of Penn Square Mutual Fund for shares of the Scottish
Widows International Fund or any of the Portfolios of The William Penn
Interest Income Fund including the U.S. Government Securities Income
Portfolio, Quality Income Portfolio, New York Tax-Free Income Portfolio,
Pennsylvania Tax-Free Income Portfolio and Money Market Income Portfolio,
without incurring an exchange fee. A sales charge will not be incurred if
the amount exchanged had previously incurred a sales charge. Exchanges
involve the redemption of shares, and a tax liability may be incurred. For
more complete information, including a telephone authorization form and the
Prospectus of The William Penn Interest Income Fund or the Scottish Widows
International Fund, call our Shareholder Services Department.
For purposes of exchanging shares within the William Penn Funds, all shares
issued prior to November 15, 1995 are designated Class A shares to
distinguish them from the new Class C shares. Shares of a particular class
may be exchanged only for shares of the same class in the other William
Penn family of funds. For example, you may exchange Class C shares of a
Fund only for Class C shares of another Fund and Class A shares for other
Class A shares.
The exchange privilege is only available in states where the exchange may
legally be made.
Automated Clearing House (ACH) Transfers: Shareholders may have their
dividend, capital gain or systematic withdrawal plan checks transferred
directly into their checking or saving accounts by ACH. There is no charge
for this service. Please call shareholder services if you wish to enroll
in this program. This service may take one month to activate and a check
will be received in the interim.
General Information
Reports: Shareholders receive semi-annual and annual financial statements
and first and third quarter updates. Annual financial statements are
audited by Ernst & Young LLP, independent auditors, whose selection is
ratified by shareholders.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the days on which the New York Stock Exchange
and/or the Fund are closed for business are: Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day
and New Year's Day.
Trustees
James E. Jordan, Chairman
Paul J. Lawler, Vice Chairman
Lee D. Arning
Gail M. Harrity
Emmett M. Murphy, CFA
John D. Tenhula, Ph.D.
Ferdinand Thun
Officers
James E. Jordan, President
Dennis J. Westley, CPA, V.P. & Treasurer
Sandra J. Houck, Secretary
Investment Advisor, Distributor,
Transfer Agent andDividend Disbursing Agent
Penn Square Management Corp.
2650 Westview Drive
Wyomissing, PA 19610
Independent Auditors
Ernst & Young LLP
Reading, PA
Counsel
Stevens & Lee
Reading, PA
Custodian
CoreStates Bank
THE WILLIAM PENN FUNDS
PENN SQUARE MUTUAL FUND
2650 Westview Drive Wyomissing, PA 19610
Statement of AdditionalInformation
March 15, 1996
This Statement of Additional Information is not a Prospectus.
A Prospectus may be obtained from Penn Square Management Corporation,
P.O. Box 1419, Reading, PA 19603. This Statement relates to, and should
be read in conjunction with, the Prospectus dated March 15, 1996.
Table of Contents Page
Investment Objectives 2
Investment Policies and Restrictions 2
The Trustees of the Fund 3
Investment Advisor 4
Distributor and Transfer Agent 5
Legal Counsel, Auditors, and Custodian 6
Portfolio Transactions and Brokerage Commissions 7
Purchases and Net Asset Value 7
Distribution Reinvestment Plan 8
Withdrawal Plan and Retirement Plans 8
Redemptions 9
Exchange Privilege 9
Independent Auditors and Financial Statements 10
SHAREHOLDER SERVICES:
610-670-1031
800-523-8440
P.O. Box 1419
Reading, Pennsylvania 19603
<PAGE>
Investment Objectives
In addition to the investment objective described in the Prospectus
under Investment Objectives, prospective shareholders should be aware
that the Fund is not intended to provide a vehicle for those who wish
to play short-term swings in the stock market which would be inconsistent
with the Fund's primary objective of long-term capital growth. Consistent
with this investment objective, the Trustees of the Fund normally expect
to have a portfolio turnover rate of approximately 20%-40% annually. The
portfolio turnover rates for 1993, 1994, and 1995 were 34.3%, 27.9%, and
37.9% respectively.
Investment Policies and Restrictions
The policy of Penn Square Mutual Fund is to invest generally in blue chip
common stocks and securities convertible into blue chip common stocks. At
times, however, for defensive purposes, the Trustees may deem it prudent
to invest in preferred stocks, bonds, or cash equivalents. The Fund's
portfolio reflects a policy of investing in companies
representing a
diversified cross section of industries. These policies may be modified
whenever it appears advisable for the benefit of the
shareholders.The
Fund's investment objectives and policies are described in the Prospectus
on page 4. In addition to those policies described in the
Prospectus, the
Fund is subject to the following investment restrictions which cannot be
changed without approval of a majority of the outstanding shares. The Fund
may not: (1) sell short or buy on margin; (2) purchase or retain any common
or preferred stock of an issuer if the Trustees together own more than 5% of
any class of securities of such issuer; (3) purchase securities of any issuer
if such purchase would cause more than 5% of the total assets at market to be
invested in the securities of such issuer (other than obligations of the
United States, its agencies and instrumentalities) or if such purchase, except
temporarily in the event of a merger of a portfolio company, would cause more
than 10% of any class of securities of such issuer to be held in the Fund's
portfolio: (4) invest in companies for the purpose of exercising control of
management; (5) buy or sell real estate except real estate investment trusts;
(6) make loans to other persons (except by the purchase of bonds and other
obligations constituting part of a public issue), or underwrite securities
issued by others; (7) purchase the securities of any other investment company,
except where such purchase is a part of a plan of merger or consolidation;
(8) purchase securities of companies which including predecessors have not
had a record of continuous operation for at least five years; (9) borrow
money on behalf of the Fund or Trustees of the Fund; (10) invest more than
25% of its assets in any one industry; and (11) no member of the Investment
Committee of the Fund may serve as a director, trustee, or officer of any
issuer during such period that securities of said issuer are held in the
Fund's portfolio.In addition to the above, the Investment
Committee of the
Fund has a policy of not investing in warrants or letter stock, and also
of not investing in oil, gas, or mineral development programs. These
Investment Committee Policies may be changed without Shareholder approval.
The Trustees annually elect an Investment Committee which selects stocks
for portfolio purchase or sale on recommendations of the
Investment Advisor.
The portfolio activities are subject to quarterly review by the disinterested
Trustees. The members of the Investment Committee are James E.
Jordan, Chairman, Lee D. Arning, Emmett M. Murphy and Paul J. Lawler. Mr.
Jordan is Chairman of the Board of Trustees and Messrs. Arning, Murphy and
Lawler are Trustees of the Fund.
<PAGE>
The Trustees of the Fund
The names of the Trustees of Penn Square Mutual Fund, and their principal
occupations and affiliations for the past five years are as follows:
James E. Jordan, Chairman and Trustee*
Chief Investment Officer, Penn Square Management Corporation, 1986 to date;
and President, 1989 to date. Director and President, William Penn Company,
since 1986. Director, Leucadia National Corporation; and
Director, Mezzanine Capital & Income Trust. Trustee and Chairman, William Penn
Interest Income Fund, 1987 to date. Chairman and Trustee of Scottish
Widows International Fund, 1995 to date.
Lee D. Arning, Trustee
Director and Treasurer, The Lighthouse, Inc.; and Director and Vice
Chairman, Burdette Tomlin Memorial Hospital, Cape May, N.J. Trustee of
William Penn Interest Income Fund, 1987 to date. Trustee of Scottish
Widows International Fund, 1995 to date.
Gail M. Harrity, Trustee
Deputy Director for Finance and Administration of the Solomon R. Guggenheim
Museum, 1989 to date. Assistant Treasurer of the Metropolitan Museum of Art
from 1982 to 1989. Trustee of William Penn Interest Income Fund, 1993 to
date. Trustee of Scottish Widows International Fund, 1996.
Paul J. Lawler, Vice Chairman and Trustee
Vice President for Finance of Rensselaer Polytechnic Institute from 1985
to date. From 1976 to 1985, Director of Investment Planning and Assistant
Vice President for Finance and Treasurer, Columbia University, Director
and Chairman of the Finance Committee of Genesis, Ltd., an offshore
insurance company for colleges and universities. Trustee of William Penn
Interest Income Fund, 1987 to date. Trustee of Scottish Widows International
Fund, 1995 to date.
Emmett M. Murphy, Trustee*
General Partner, Threshold Investment LP, 1996. Partner, Luther King Capital
Management 1981 to 1995. Trustee of William Penn Interest Income Fund, 1993
to date. Trustee of Scottish Widows International Fund, 1995 to date.
Portfolio manager of Penn Square Management Corporation since 1996.
John D. Tenhula, Trustee
President and Chief Executive Officer of the Balch Institute since 1991.
Previously, Legal Officer, United Nations High Commissioner for Refugees.
Adjunct Professor, School of International Affairs, Columbia University
from 1979 to present. Trustee of William Penn Interest Income Fund, 1993
to date.
Ferdinand Thun, Trustee
Formerly, Director of Planned Giving for Lehigh University, since 1974.
Managing Partner of Thun Partnership, since 1986. Trustee of William Penn
Interest Income Fund, 1989 to date.
*Employee or consultant of Penn Square Management Corporation, Fund Advisor,
and interested person as defined by The Investment Company Act of 1940.The
mailing address for all the Fund's Trustees is in care of the Fund, P.O.
Box 1419, Reading, PA 19603.Under the Declaration of Trust, there may never
be less than three nor more than ten Trustees. Trustees hold office for one
year, from June 1st following the annual meeting at which they are elected
to May 31st of the following year. Any vacancy for any cause may be filled
by action of the remaining Trustees, unless such a vacancy occurs between
May 1st and the annual meeting in May. In this circumstance, the vacancy
will be filled by the shareholders at the annual meeting.Any Trustee who
is affiliated with the Fund's Investment Advisor or the Fund's legal counsel
or who is an officer or employee of the Fund shall serve without compensation,
and each Trustee who is not so affiliated shall receive
compensation from
the income of the Fund to be fixed by the Trustees at a rate per annum not
exceeding $5,200, such compensation to be paid quarterly. In 1995, the
disinterested trustees of Penn Square Mutual Fund as a group received
$30,159. The Trustees who received this compensation were: Lee D. Arning,
Paul J. Lawler, June A. Roedel (since deceased), Gail M. Harrity, Emmett M.
Murphy, John D. Tenhula and Ferdinand Thun.As of December 31, 1995, the
Trustees as a group owned less than 1% of the Fund's outstanding shares.
1996 Trustee Compensation
Penn Square William Penn
Mutual Fund
Fund Family*
Name
James E. Jordan $ -0- $ -0-
Lee D. Arning 4,000 12,000
Gail M. Harrity 4,000 12,000
Paul J. Lawler 4,000 12,000
Emmett M. Murphy -0- -0-
John Tenhula 4,000 8,000
Ferdinand Thun 4,000 8,000
*The William Penn family of funds consists of the following: Scottish
Widows International Fund, Penn Square Mutual Fund, and the William Penn
Interest Income Fund.
<PAGE>
The Fund employs Penn Square Management Corporation (The
Corporation) as
the Investment Advisor of the Fund under an Investment Advisory Contract.
The contract must be approved annually by the disinterested Trustees at a
special meeting called for that purpose and also by a majority vote of the
Fund's outstanding shares. The contract will automatically terminate in the
event of its assignment and may be terminated by a majority vote of the
outstanding shares of the Fund; or upon sixty days written notice by the
Trustees to the Advisor, or by the Advisor to the Trustees. Under terms of
the contract, the Corporation will provide sole investment and market
advice to the Fund.The Corporation will also supply and pay for such
services as are deemed by the Trustees to be necessary,
desirable, and
proper for the continuous operation of the Fund. Included in the services
but not limited to them are the furnishing of office space and facilities
including computers, clerical, telephone, mailing and other facilities as
the Trustees shall request in connection with the operation of the Fund.
The Corporation will also pay for the fees required for the registration
of the Fund under federal and state acts or statutes. The
Corporation
shall not be required to pay for the services of Disinterested Trustees,
to pay the commissions or fees of the custodian, distributor, transfer
agent, dividend disbursing agent, independent auditors and legal counsel.
The Corporation shall not pay for any expenses in connection with the
Fund's administrative activities which are not directly connected with
the act of selling the Fund's shares including without limitation the
printing and mailing costs of Fund share certificates, reports and notices
to Fund shareholders, and proxy materials; and taxes, commissions and
other expenses in connection with the purchase and sale of Fund investments,
provided, however, that the Corporation shall reimburse the
Fund for any expenses, excluding taxes and brokerage commissions, that
exceed the maximum expense limitation imposed by the applicable law of
any jurisdiction where the Fund's shares are offered for sale.The Fund
will pay to Penn Square Management Corporation, as compensation for the
services provided under the Investment Advisory Contract, a sum per annum
equal to the aggregate of .65 of 1% on the first $250,000,000 of average
daily net assets, .60 of 1% on the next $250,000,000 of average daily net
assets, and .55 of 1% on average daily net assets exceeding $500,000,000.
There can be no assurance that the average net asset value of the Fund per
annum will reach the levels indicated. As of December 31, 1995, total net
assets were $296,861,333. The advisory fees received in 1995, 1994 and 1993
were respectively, $1,760,748, $1,616,347, and $1,583,256.Penn Square
Management Corporation is a wholly-owned subsidiary of The William Penn
Company. The shareholders of The William Penn Company are John W. Jordan II,
David W. Zalaznick, James E. Jordan, Jonathan F. Boucher, John R. Lowden,
Paul R. Rodzevik, and Leucadia National Corporation, a financial services
company listed on the New York Stock Exchange.The Officers and Directors
of the Advisor are James E. Jordan, President and Director; Dennis J.
Westley, Senior Vice President for Finance and Administration, Kevin J.
Mailey, Senior Vice President for Sales and Marketing; and Sandra J. Houck,
Secretary. John W. Jordan II and David W. Zalaznick are also Directors of
the Advisor.An Investment Advisory Contract between the Advisor and the
Fund was approved by the holders of a majority of the outstanding shares
of the Fund on May 16, 1995 and will remain in effect until May 31, 1996,
and from year to year thereafter, provided that the continuance is approved
at least annually by the holders of a majority of the outstanding shares of
the Fund.
Distributor and Transfer Agent
Penn Square Mangement Corporation is the sole distributor of Fund shares
and under terms of the Distribution Contract shall provide selling and
sales services for the Fund.Pursuant to Rule 12b-1 of the
Investment Company
Act of 1940 ("1940 Act"), the Fund has adopted a Distribution Services
Agreement (the "Plan") which, together with the related
distribution
agreement between the Fund and the Distributor (the "Distribution Agreement"),
is described in the Prospectus. Under the Plan, the Distributor may be
reimbursed for expenses at an annual rate not exceeding
.50% of the Fund's net assets. Such expenses may include payment to certain
broker/dealers and financial companies ("Service Organizations") that
provide distribution and administrative services to their clients such as:
(I) processing purchase and redemption orders with the
Distributor; (ii)
providing clients with a service that invests the assets of their accounts
in Fund shares pursuant to pre-authorized instructions; (iii) processing
dividend payments from the Fund on behalf of clients and
assisting clients
in changing dividend options, account designations, and
addresses; (iv)
arranging for bank wires; (v) providing subaccounting services with respect
to Fund shares; and (vi) providing distribution services and any other
services as the Fund or the Distributor may reasonably request.A report of
the amounts paid to the Distributor and Service Organizations, and the
purposes for which such expenditures were incurred, must be made to the
Board of Trustees for its review at least quarterly. In addition, the Plan
provides that it may not be amended to increase materially the costs the
Fund may bear for distribution pursuant to the Plan without shareholder
approval and that other material amendments of the Plan must be approved
by a majority of the Board of Trustees, and by a majority of the Trustees
who are neither "interested persons" (as defined in the 1940 Act) of the
Fund nor have any direct or indirect financial interest in the operation
of the Plan or in any related Distribution Agreement (the
"Independent
Trustees"), by vote cast in person at a meeting called for the purpose of
considering such amendments. The 1940 Act requires that the incumbent
Independent Trustees be responsible for the selection and
nomination of
persons to serve as Independent Trustees. The Plan and the related
Distribution Agreement have been approved, and are subject to annual
approval by, a majority of the Independent Trustees, by vote cast in
person at a meeting called for the purpose of voting on the Plan. The
Plan and the Distribution Agreement are each terminable at any time by
vote of a majority of the Independent Trustees, or by vote of the holders
of a majority of the shares of a Fund, and both the Plan and Distribution
Agreement will terminate automatically in the event of their assignment.
The Distribution Agreement is also terminable by the
Distributor.The
Distributor receives no other compensation for its services as distributor,
except that the sales charge (see "PURCHASES AND NET ASSET VALUE") will be
paid to the Distributor. The Distributor may, in turn, pay such sales charge
to broker/dealers as a commission for generating sales of Fund shares.In
addition to its investment advisory and distribution function, the
Corporation also acts as Transfer Agent and Dividend Disbursing Agent for
the Fund. For the services it provides as Transfer Agent and Dividend
Disbursing Agent, the Corporation is reimbursed only for the actual costs
incurred. The Corporation has provided Transfer Agent and
Dividend
Disbursing Agent services at cost or below cost and will continue to do so
in the future.
Legal Counsel, Auditors, and Custodian
Stevens & Lee, 607 Washington St., P.O. Box 679, Reading, Pa. 19603, serves
as legal counsel to the Fund.Ernst & Young LLP, 875 Berkshire Blvd., Reading,
Pa. 19610, is the independent auditor of the Fund and must be approved at
least annually by the Board of Trustees and by a majority of the Fund's
shares to continue in such capacity. Ernst & Young performs audit services
for the Fund including the audit of the financial statements contained in
the Annual Report to shareholders.CoreStates Bank, P.O. Box 7618,
Philadelphia, Pa. 19101, serves as the custodian of the Fund's portfolio
securities and cash. It meets the qualification requirements for banks and
trust companies to serve as custodian under the Investment Company Act of
1940.
Portfolio Transactions and Brokerage Commissions
The Fund's policy is to have purchases and sales of portfolio securities
executed at the most favorable prices, considering all costs of the
transaction including brokerage commissions. Consistent with obtaining the
best execution, the Advisor may pay a higher commission as described below.
Where a commission is payable, the Advisor attempts to negotiate with
brokers qualified to provide best execution. Unlisted portfolio securities
are traded only through brokers or dealers who make "primary markets" in
such securities.Broker/dealers are selected to participate in portfolio
transactions on the basis of their professional capability and the value
and quality of their brokerage and research services. The
selection is
made by the Investment Committee of the Fund which also directs the
trading for the Fund.Subject to obtaining the best execution, a broker/dealer
may receive a commission for portfolio transactions exceeding
the amount another broker/dealer would have charged for the same transaction,
if the traders determine that such commission is reasonable in relation
to the value of the brokerage and research services performed by the
executing broker/dealer. Brokerage services may include such factors as
furnishing market quotations, knowledge of a particular security or market,
proven ability to handle a particular type of trade, willingness and
ability to take positions in securities, and promptness,
reliability, and
confidentiality. Research services may include the furnishing of analyses
and reports concerning industries, securities, economic factors and
portfolio strategy. Although such research is often useful, the Investment
Advisor to the Fund has advised the Fund that it is not a
substitute for
services provided by the Advisor to the Fund. The receipt of research
services from broker/dealers does not materially reduce or otherwise affect
the expenses incurred by the Investment Advisor in the
performance of its
services to the Fund. During 1995, the Investment Advisor
allocated
approximately $90,000 of brokerage commissions for various research reports
and services. Broker/dealers who have sold Fund shares may participate in
portfolio transactions subject to meeting the best execution and price
criteria described herein. There is no formula for determining the
allocation of trading among broker/dealers.Neither the Investment Advisor
nor any person affiliated with the Investment Advisor received any
commissions or remuneration, either directly or indirectly, in connection
with the Fund's portfolio transaction during the year 1995. During the
fiscal years ending December 31, 1995, 1994, and 1993, total brokerage
commissions were $303,180, $210,068, and $273,399 respectively.
Purchases and Net Asset Value
Information concerning the purchase and redemption of Fund shares and the
method used to value the shares are described in the Prospectus under
"How to Buy Shares" and "How to Redeem Shares."No sales charge will be
charged to persons who are and have been for at least 90 days trustees,
directors, officers or employees of the Fund or the Advisor; to certain
immediate relatives of such persons; to registered
representatives of
broker/dealers who purchase shares for their own accounts; or to any trust,
pension, profit sharing, 401(k) or other benefit plan for such persons.
In addition, no sales charge will apply to purchases of Fund shares by
certain large pension plans or "institutional investors" meeting
qualifications established from time to time by the Trustees. These
exemptions from sales charges have been determined by the
Trustees to be
in the best interest of the Fund.
The following illustrates the computation of the public Offering and
Redemption Prices based on the Net Asset Values as of December 31, 1995.
Value of investments $296,401,583
Receivables 632,950
297,034,533
Less Liabilities 173,200
Total Net Asset Value $296,861,333
Class A Net Asset Value and redemption price per share
(296,785,684 / 24,928,618) $ 11.90
Class A Offering Price per share
(11.90 / (1-4.75%) ) $ 12.49
Class C Net asset value, offering price and redemption price per share
($75,649 / 6,353 shares) $ 11.91
Distribution Reinvestment Plan
Shareholders may automatically reinvest the income dividends paid by
the Fund on the last Friday in January, April, July, and October.
Additionally, shareholders may automatically reinvest any capital gains
distribution. There is no sales charge for the purchase of reinvestment
shares and the cost of shares purchased is calculated on the date of
distribution. There are two options available to shareholders as follows:
Option 1. Reinvest any capital gains distribution and the
January, April,
July, and October income dividends in as many shares (to the third
decimal) as the distribution will purchase.Option 2. Reinvest only
the capital gains distribution in as many shares (to the third decimal)
as that distribution will purchase. A check for all dividends from
investment income (January, April, July, and October) will be mailed to
the shareholder.
<PAGE>
Withdrawal Plan and Retirement Plans
Shareholders interested in the Systematic Withdrawal Plan as described
in the Prospectus should know that a withdrawal plan involves the redemption
of shares on a regular basis in order to receive fixed dollar amounts at
periodic intervals. Since the value of shares redeemed may be more or less
than their cost for income tax purposes,
gains or losses may have to be recognized on such payment for income
tax purposes. There is a $50 minimum amount which must be
withdrawn
at any one time. Withdrawal payments in excess of current income dividends may
exhaust principal, particularly in a period of declining
market prices. Under terms of the Systematic Withdrawal Plan, all
distributions are automatically reinvested without charge. The Prospectus
indicates the type of retirement plans for which Penn Square Management
Corporation provides forms and explanation. These retirement plan forms
and custodial agreements are available for Individual Retirement Accounts
(IRA) including Simplified Employee Pensions, prototype Profit
Sharing and Money Purchase Plans for corporations and for
self-employed
individuals.Explanation of the eligibility requirements, annual custodial fee,
tax advantages and penalties, and forms for enrollment
are available from the Shareholder Services Department. You may also
consult your financial planner or tax advisor if you are
interested
in any of these plans.
Redemptions
The correct procedure for redemption of shares, and the
calculation
of effective redemption price, is contained in the Prospectus under
the heading "How to Redeem Shares." Shareholders may request that redemption
proceeds be wired directly to a bank account. The Fund's
custodian bank will deduct a wire charge from the proceeds of the redemption
which, as of the date of the current Prospectus, is $10.00.
This charge is subject to change without notice.Any shareholder who
made an initial purchase after May 1, 1965, will not be permitted to
redeem less than all shares held in an account if, after the redemption,
the balance in that account is less than $500, with the exception of
certain accounts introduced by registered representatives.
Exchange Privilege
As a shareholder of the William Penn family of funds, you may exchange
shares of the Fund with shares of the Scottish Widows
International Fund
or of the Portfolios of The William Penn Interest Income Fund. These
separate Portfolios are: (1) U.S. Government Securities Income Portfolio,
(2) Quality Income Portfolio, (3) Pennsylvania Tax-Free Income Portfolio,
(4) New York Tax-Free Income Portfolio, (5) Money Market Income Portfolio.
Exchanges involve the redemption of shares and a tax liability may be
incurred. For more complete information, including a telephone authorization
form and a Prospectus of The Scottish Widows International
Fund or The William Penn Interest Income Fund, call our
Shareholder
Services Department.
Independent Auditors and Financial Statements
Ernst & Young LLP, 815 Berkshire Blvd., Reading, Pennsylvania, is the
Fund's independent auditor providing audit and tax return
preparation
services and assistance and consultation in connection with the review
of various SEC filings. The financial statements incorporated by reference
herein have been so incorporated, and the financial highlights
included in the Prospectus have been so included, in reliance upon the
report of Ernst & Young given on the authority of said firm as experts
in accounting and auditing.The financial statements of the Fund and the
report of the independent auditors are included in the Fund's Annual
Report for the period ended December 31, 1995. The following financial
statements appearing in the Annual Report are incorporated herein by
reference:
Statement of Investments, as of December 31, 1995
Statement of Assets and Liabilities, as of December 31, 1995 Statement of
Operations, for the Year Ended December 31, 1995 Statements of Changes in Net
Assets, for the Years Ended December 31, 1995
andDecember 31, 1994
Notes to Financial Statements, as of December 31, 1995
Growth and Income
Penn Square Mutual Fund
International
Scottish Widows International Fund
Stability
Money Market Portfolio
Income
Quality Income Portfolio
U.S. Government Securities Portfolio
Tax-Free Income
New York Tax-Free Portfolio
Pennsylvania Tax-Free Portfolio
PART C
OTHER INFORMATION
Item 24 Financial Statements and Exhibits
(a) Financial Statements
(1) The Prospectus contains the Condensed
Financial Information as of December
31, 1995 under Financial Highlights.
(2) The following financial statements,
each as of December 31, 1995, are
Incorporated by reference into the
Statement of Additional Information
From the Registrant's 1995 Annual
Report:
Statement of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
(b) Exhibits:
(1) Consent of Independent Accountants
(2) All other exhibits are incorporated
By reference to previous N1-A; and
Form S-5 and all amendments thereto
As files since the Fund's initial
Effective registration on June 25, 1958.
Item 25 Persons Controlled by or Under Control with Registrant
Inapplicable
Item 26 Number of Holders of Securities
Title of Class Number of Record Holders
Shares of beneficial 13,485 as of 2/29/96
Interest
Item 27 Each Trustee (and his heirs, executors, and admini-
strators) may be indemnified by the Fund against
reasonable costs and expenses incurred by him in
connection with any action, suit or proceeding
to which he may be made a party by reason of his
being or having been a Trustee of the Fund, except
in relation to any actions, suits, or proceedings,
in which he has been adjudged liable because of
willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office. In the absence of an adjudi-
cation which expressly absolves the Trustee of
liability to the Fund, or its shareholders for
willful misfeasance, bad faith, gross negligence
and reckless disregard of the duties involved in
the conduct of his office, or in the event of a
settlement, each Trustee (and his heirs, executors
and administrators) may be indemnified by the Fund
against payments made, including reasonable costs
and expenses, provided that such indemnity shall be
conditioned upon the prior determination by a
resolution of two-thirds of the Trustees of the
Fund who are not involved in this action, suit or
proceeding that the Trustee has no liability by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office, and provided
further that if a majority of the Trustees of the
Fund are involved in the action, suit or proceeding,
such determination shall not exceed costs and
expenses which would have been reasonably incurred
if the action, suit or proceeding would have been
litigated and included. Such a determination by
the Trustees, or by independent legal counsel, and
the basis thereof shall not prevent a shareholder
from challenging such indemnification by appropriate
legal proceedings. The foregoing rights and indemni-
fication provisions shall not be exclusive of any
other rights to which the Trustees may be entitled
according to law.
Item 28 Business and Other Connections of Investment Advisor
To Registrant's knowledge, none of the directors or
officers of Penn Square Management Corporation,
except those set forth below, is, or has been at any
time during the past two calendar years, engaged in
any other business, profession, vocation or employ-
ment of a substantial nature. Set forth below are
the names and principal businesses of the directors
and certain of the senior executive officers of Penn
Square Management Corporation who are or have been
engaged in any other business, profession, location
or employment of a substantial nature.
Name Position with
Penn Square Management
Corporation
James E. Jordan President and Director
John W. Jordan, II Director
David W. Zalaznick Director
Mr. James Jordan is an executive with, and Messrs.
John Jordan and David Zalaznick are partners of The
Jordan Company, New York, NY. The Jordan Company is
a private investment banking partnership.
Item 29 Principal Underwriter
(a) Penn Square Management Corporation acts as
distributor for and investment advisor to the
William Penn Interest Income Fund and the
Scottish Widows International Fund.
(b) The Directors and executive officers of Penn Square
Management Corporation are as follows:
Name and Principal Positions and Offices Positions and Offices
Business Address with Penn Square with Registrant
Management Corporation
James E. Jordan President & Director Chairman, President
And Trustee
Dennis J. Westley Sr. V.P. Vice President &
Finance & Administration Treasurer
Sandra J. Houck Secretary Secretary
Kevin J. Mailey Sr. V.P. for Marketing None
John W. Jordan II Director None
David W. Zalaznick Director None
The principal business address for each of the above is 2650
Westview Drive, Wyomissing, PA 19610
(C) Inapplicable
Item 30 Location of Accounts and Records
(1) Penn Square Management Corporation, 2650 Westview
Drive, Wyomissing, PA 19610 (records relating to
Its functions as distributor, transfer agent,
dividend paying agent, investment advisor, and
Registrant's Declaration of Trust).
(2) CoreStates Bank, P. O. Box 7618, Philadelphia,
PA 19101 (records relating to its function as
custodian)
Item 31 Management Services
None
Item 32 Undertakings
The Registrant undertakes to furnish to any person to
whom a prospectus is delivered a copy of Registrant's
latest annual report upon request and without charge.
THE WILLIAM PENN FUNDS
THE WILLIAM PENN FUNDS
SHAREHOLDER SERVICES:
610-670-103
1800-523-8440
P.O. Box 1419
Reading, Pennsylvania 19603
Overnight Mail:
2650 Westview Drive
Wyomissing, PA 19610
PENN SQUARE
MUTUAL FUND
December 31,1995
ANNUAL REPORT
Growth and Income
Penn Square Mutual Fund
International
Scottish Widows International Fund
Stability
Money Market Portfolio
Income
Quality Income Portfolio
U.S. Government Securities Portfolio
Tax-Free Income
Pennsylvania Tax-Free Portfolio
Penn Square Mutual Fund
Annual Report 1995
January 10, 1996
Dear Shareholders:
Last year was an incredible - and incredibly profitable - one for
equity
investors, as the Dow Jones Industrial Average broke through two
1,000
point milestones to finish the year just above the 5,000 mark,
marking 1995
as one of the five best years in the stock market's history since
the end
of World War II. The stock market had to discount a lot of grim
news in 1995,
including the deadly bombing of a federal office building in
downtown Oklahoma
City and disastrous hurricanes and floods that wreaked havoc in
many parts of
the country. But the market stayed focused on a few all-important
facts of
American economic life: inflation seems firmly in check, as
evidenced by
still-declining interest rates; employment is up; corporations
are making
healthy profits; and slowly but surely, Congress and the
Administration are
working their way toward a balanced federal budget and possibly
tax reform.
All of this was and is music to the ears of investors, who were
and are
willing to bid up the prices of securities because in this
environment,
there are no alternative investments that provide similarly
attractive
returns.Penn Square Mutual Fund was pleased to participate in the
1995
advance. For the year ended December 31, 1995, and on a total
rate of
return basis, which incorporates the reinvestment of dividends,
and net of
all expenses, the Fund rose by a healthy +29.2%, which compares
well with
30.8% for the Lipper Growth & Income Fund Average, and tolerably
well with
36.9% for the Dow Jones Industrial Average and 37.5% for the S&P
500 Stock
Index. Additional performance information for the Fund is
provided on pages
4 and 5 of this Report. The Fund ended 1995 with $296.9 million
in net assets,
and some 24.9 million shares outstanding, and during the year
paid out 24
cents per share in dividends and 76 cents per share in capital
gains - which
were increases over 1994 figures. With this Report is included
your dividend
check of reinvestment statement for 6 cents per share
representing the first
dividend of 1996.
Looking ahead, we believe that 1996 will be another good year in
the stock
market, and we would not rule out significant returns. Again, the
economy
appears to be growing at a good, non-inflationary pace, and
projections for
corporate earnings are generally showing increases. Assuming
there is no
major external event to shake investor confidence, domestic
markets can
continue to expand and reward investors. You will be pleased to
know that
one of your current Trustees, Mr. Emmett M. Murphy, an
experienced and
skilled asset manager and a long-time member of the investment
committee,
will be taking an active role in the day-to-day management of the
Fund.
We are confident that his greater participation will be of
benefit to
shareholders.In closing, we have the sad duty to report the
passing of
our beloved friend and Trustee, June Roedel. To all who came in
contact
with her, but in particular to those in our Pennsylvania
hometown, June
brought her special combination of grace and intelligence. She
never flinched
from often tough involvement on behalf of others, never tiring or
complaining,
always willing to lend a helping hand. Her accomplishments were
enormous,
and in an often selfish and greedy world, June Roedel reminded us
all of
what caring for others is really about.
With best regards,
Sincerely yours,
James E. Jordan
Chairman
Portfolio Highlights: December 31, 1995
Total Net Assets $296,861,333
Class A:
Shares Outstanding 24,928,618
Net Asset Value Per Share $ 11.90
Offering Price Per Share $ 12.49
Class C:Shares Outstanding 6,353
Net Asset Value & Offering Price Per Share $ 11.91
Ten Largest Holdings:
General Electric Co. $ 7,200,000
Royal Dutch Petroleum Company 7,056,250
Bristol-Myers Squibb Co. 6,440,625
Travelers Inc. (The) 6,287,500
Walt Disney Company (The) 5,900,000
Mobil Corp. 5,600,000
Schering-Plough Corporation 5,475,000
Avon Products, Inc. 4.899,375
American Telephone & Telegraph Co. 4,856,250
American Home Products Corp. 4,850,000
Five Largest Industry Categories:
Energy 9.9%
Pharmaceuticals & Health Care 9.1%
Electronics and Telecommunications 9.0%
Computers & Office Equipment 8.6%
Consumer Goods 6.9%
Income Dividends:
Payable DateJanuary 27, 1995 $0.06
April 28, 1995 0.06
July 28, 1995 0.06
October 27, 1995 0.06
Total 1995 Income Dividends 0.24
Capital Gain Distribution:
December 29, 1995 Long-Term 0.62
December 29, 1995 Short-Term 0.14
Total 1995 Capital Gain Distributions 0.76
Total 1995 Dividends and Distributions $1.00
Total Investment Return:
The lifetime returns for Penn Square Mutual Fund are illustrated
in this
table. During this period, stock prices fluctuated and were
higher at the
end than at the beginning. These results should not be considered
as a
representation of the dividend income or capital gain or loss
which may
be realized from an investment made in the Fund today.
Period PERSHARE DATA* Year-End Value Return Annual Capital
Percentage Change** Year Ended Net Asset Income Gain
Penn Square S&P 500 Penn Square S&P
500December 31Value Dividends Distributions Mutual Fund Index
Mutual Fund
Index
Initial (6/58)$ 4.63 $ 10,000 $
10,000
1958 6.60 $.229 $.171 12,503 10,900 +49.1%
+42.4%
1959 7.50 .23 .31 15,310 12,186 +21.8% +11.8%
1960 6.48 .235 .485 14,677 12,246 - 4.0% + 0.5%
1961 8.01 .195 .815 20,725 15,541 +39.2% +31.7%
1962 6.78 .195 .405 19,041 14,188 - 8.7%- 8.8%
1963 9.32 .135 .205 27,279 17,420 +39.2% +22.5%
1964 9.89 .19 .895 32,308 20,290 +17.8% +16.3%
1965 11.60 .22 .89 42,005 22,818 +28.5% +12.3%
1966 8.67 .26 1.34 36,807 20,520 - 11.5% - 10.0%
1967 8.90 .32 .375 40,739 25,435 +10.7% +23.7%
1968 10.21 .295 .402 50,563 28,248 +22.5% +10.8%
1969 7.86 .291 .494 42,236 25,865 -15.3% - 8.3%
1970 7.82 .303 .172 44,882 26,885 + 5.5% + 3.9%
1971 7.96 .286 .134 48,131 30,729 + 7.2% +14.3%
1972 8.07 .23 .255 51,962 36,567 + 7.5% +19.0%
1973 6.78 .245 .35 47,324 31,195 - 8.6% - 14.7%
1974 4.96 .285 .36 38,301 22,939 - 17.3% - 26.5%
1975 7.05 .33 - 57,316 31,479 + 48.9% + 37.2%
1976 8.79 .30 .28 76,804 39,001 + 32.9% +23.9%
1977 7.56 .32 .37 71,936 36,229 - 6.3% - 7.1%
1978 7.17 .36 .31 74,913 38,613 + 3.7% + 6.6%
1979 7.90 .39 .35 91,101 45,793 +20.5% +18.6%
1980 8.92 .44 .41 114,361 60,658 +23.7% +32.5%
1981 8.00 .49 .53 115,667 57,671 +1.1% - 4.9%
1982 8.38 .49 .56 139,662 70,098 +17.9% +21.5%
1983 9.60 .43 .605 180,549 85,908 +26.9% +22.6%
1984 8.50 .42 .70 181,495 91,298 + 0.2% + 6.3%
1985 9.70 .37 .53 229,805 120,264 +24.7% +31.7%
1986 9.21 .39 1.25 259,307 142,710 +12.8% +18.7%
1987 8.57 .35 .78 272,179 150,203 + 5.0% + 5.2%
1988 8.74 .355 .67 310,962 175,465 +14.4% +16.8%
1989 10.00 .36 .58 390,499 230,937 +25.7% +31.6%
1990 8.76 .37 .35 370,294 223,781 - 5.3% - 3.1%
1991 10.40 .29 .41 470,790 291,811 +27.7% +30.4%
1992 10.44 .25 .60 511,638 313,930 + 8.8% + 7.6%
1993 10.81 .19 .76 577,083 345,668 +12.9% +10.1%
1994 10.01 .22 .60 577,917 350,127 + 0.2% + 1.3%
1995 11.90 .24 .76 746,702 481,670 +29.2% +37.6%
Lifetime $11.499 $19.463 +7,367.0% +4,716.7% +12.2%
+10.9%
*Adjusted for a 2-for-1 stock split effective April 15, 1968
**Adjusted to include reinvestment of income dividends and any
capital
gain distributions both for the Fund and the Index.
Illustration of an AssumedInvestment of $10,000
DID NOT PUT IN BOTTOM GRAPH
Annual Total ReturnsFor the years ended December 31, 1958 through
1995
Average Annual Total Returns
Years Ended December 31, 1995 One Year 5 Years 10
YearsReflects 4.75% initial sales charge 23.1%
14.1% 12.1%Without sales charge 29.2%
15.2% 12.6%
Cumulative Total Returns
Years Ended December 31, 1995 5 Years 10 Years 20 Years
Reflects 4.75% initial sales charge 93.5% 212.1% 1172.7%
%Without sales charge 103.2% 227.7% 1236.2%
Standard & Poor's 500 Stock Index 115.2% 299.6% 1426.5%
The above information is compiled by Lipper Analytical Services.
The S&P
500 is an unmanaged index of stock prices.
Fund Industry Weighting Changes
For positions held on 12/31/95 12/31/94
Change
Aerospace and Airlines -0- 1.2% -1.2%
Automotive 5.0% 3.4% 1.6%
Building, construction & engineering 1.8% 1.4% 0.4%
Capital goods 2.9% 2.9% 0
Chemicals 3.8% 4.5% -0.7%
Computers and office equipment 8.6% 6.2% 2.4%
Consumer goods 6.9% 8.5% -1.6%
Diversified 1.1% 3.2% -2.1%
Electronics and telecommunications 9.0% 7.6% 1.4%
Energy 9.9% 9.5% 0.4%
Entertainment 5.2% 4.3% 0.9%
Environmental services 2.6% 3.0% -0.4%
Financial services 4.7% 6.1% -1.4%
Food and beverages 3.9% 3.0% 0.9%
Information services 2.1% 2.7% -0.6%
Insurance 6.2% 3.1% 3.1%
Metals 3.3% 3.7% -0.4%
Paper and forest products 3.7% 2.9% 0.8%
Pharmaceuticals and health care 9.1% 8.0% 1.1%
Printing and publishing 3.1% 3.2% -0.1%
Railroads 3.1% 4.0% -0.9%
Total stocks 96.0% 92.4% 3.6%
Short-term investments 3.8% 7.5% -3.7%
Other assets and liabilities 0.2% 0.1% 0.1%
Net Assets 100.0% 100.0%
Investments: December 31, 1995
Shares Stocks 96.0% Market Value
AUTOMOTIVE 5.0%
50,000 Chrysler Corporation $ 2,768,750
100,000 Fleetwood Enterprises Inc. 2,575,000
120,000 Ford Motor Corp. 3,480,000
100,000 Hayes Wheels International 2,562,500
50,000 Johnson Controls, Inc. 3,437,500
14,823,750
BUILDING, CONSTRUCTION & ENGINEERING 1.8%
50,000 Fluor Corp. 3,300,000
100,000 Lafarge Corporation 1,875,000
5,175,000
CAPITAL GOODS 2.9%
105,000 Deere & Company 3,701,250
75,000 Ingersoll-Rand Company 2,634,375
75,000 Trinity Industries, Inc. 2,362,500
8,698,125
CHEMICALS 3.8%
75,000 Air Products and Chemicals, Inc. 3,956,250
75,000 ARCO Chemical Company 3,646,875
100,000 Morton International 3,587,500
11,190,625
COMPUTERS AND OFFICE EQUIPMENT 8.6%
50,000 AMP Incorporated 1,918,750
75,000 Apple Computers 2,390,625
50,000 Hewlett-Packard 4,187,500
50,000 Intel Corporation 2,837,500
50,000 International Business Machines 4,587,500
30,000 Microsoft Corp. ELKS 3,120,000
75,000 Motorola, Inc. 4,275,000
50,000 Pitney Bowes 2,350,000
25,666,875
CONSUMER GOODS 6.9%
65,000 Avon Products, Inc. 4,899,375
50,000 Colgate-Palmolive Company 3,512,500
75,000 Hasbro Inc. 2,325,000
100,000 Home Depot 4,787,500
50,000 J.C. Penney 2,381,250
50,000 Whirlpool Corporation 2,662,500
20,568,125
DIVERSIFIED 1.1%
100,000 National Service Industries 3,237,500
3,237,500
ELECTRONICS AND TELECOMMUNICATIONS 9.0%
75,000 American Telephone & Telegraph Co. 4,856,250
100,000 BCE, Inc. 3,450,000
100,000 BellSouth Corp. 4,350,000
100,000 General Electric Co. 7,200,000
100,000 Pacific Telesis Group 3,362,500
100,000 Philips Electric N.V. 3,587,500
26,806,250
Investments: December 31, 1995 (continued)
Shares Stocks 96.0% Market Value
ENERGY 9.9%
60,000 Amoco Corp. $ 4,312.500
100,000 Baker Hughes 2,437,500
50,000 Chevron Corporation 2,625,000
70,000 Halliburton Company 3,543,750
50,000 Mobil Corp. 5,600,000
50,000 Royal Dutch Petroleum Company 7,056,250
50,000 Texaco, Inc. 3,925,000
29,500,000
ENTERTAINMENT 5.2%
50,000 Polygram N.V. 2,625,000
100,000 Seagrams Company 3,462,500
75,000 Viacom Inc. Class B 3,553,125
100,000 Walt Disney Company (The) 5,900,000
15,540,625
ENVIRONMENTAL SERVICES 2.6%
100,000 Browning-Ferris Industries, Inc. 2,950,000
100,000 Donaldson Company, Inc. 2,512,500
75,000 WMX Technologies, Inc. 2,240,625
7,703,125
FINANCIAL SERVICES 4.7%
75,000 Bank of New York Company, Inc. 3,656,250
25,000 Federal National Mortgage Association 3,103,125
150,000 Great Western Financial Corporation 3,825,000
100,000 PNC Corp. 3,225,000
13,809,375
FOOD AND BEVERAGE 3.9%
75,000 ConAgra, Inc. 3,093,750
125,000 H.J. Heinz Company 4,140,625
75,000 Pepsico Inc. 4,190,625
11,425,000
INFORMATIONAL SERVICES 2.1%
75,000 Block (H.R.), Inc. 3,037,500
50,000 Dun & Bradstreet Corporation 3,237,500
6,275,000
INSURANCE 6.2%
50,000 Chubb 4,837,500
100,000 Liberty Corp. 3,375,000
75,000 Lincoln National Corporation 4,031,250
100,000 Travelers Inc. (The) 6,287,500
18,531,250
METALS 3.3%
100,000 Allegheny Ludlum 1,850,000
75,000 Cleveland Cliffs, Inc. 3,075,000
75,000 Cyprus Amax Minerals 1,959,375
100,000 Freeport-McMoRan Copper & Gold Inc. 2,800,000
9,684,375
Investments: December 31, 1995 (continued)
Shares Stocks 96.0% Market Value
PAPER AND FOREST PRODUCTS 3.7%
125,000 Longview Fibre $2,031,250
100,000 Louisiana-Pacific Corporation 2,425,000
75,000 Temple-Inland Inc. 3,309,375
75,000 Weyerhaeuser Co. 3,243,750
11,009,375
PHARMACEUTICALS AND HEALTH CARE 9.1%
50,000 Abbott Laboratories 2,087,500
50,000 American Home Products Corp. 4,850,000
75,000 Bristol-Myers Squibb Co. 6,440,625
75,000 Columbia/HCA Healthcare Corporation 3,806,250
50,000 Johnson & Johnson 4,281,250
100,000 Schering-Plough Corporation 5,475,000
26,940,625
PRINTING AND PUBLISHING 3.1%
100,000 John H. Harland Company 2,087,500
50,000 Knight Ridder, Inc. 3,125,000
75,000 Readers Digest Association, Inc. 3,843,750
9,056,250
RAILROADS 3.1%
200,000 Canadian Pacific Limited 3,625,000
75,000 Illinois Central Corporation 2,878,125
35,000 Norfolk Southern Corp. 2,778.125
9,281,250
TOTAL STOCKS (Cost $209,980,221) 284,922,500
SHORT-TERM INVESTMENT 3.8%
Commercial Paper:
4,000,000 Sears Roebuck Acceptance Corp., 5.81%, due 01/04/96
3,986,443
3,000,000 Ford Motor Credit Corp., 5.81%, due 01/10/96
2,989,348
3,000,000 Sears Roebuck Acceptance Corp., 5.68%, due 1/16/96
2,988,167
1,500,000 General Electric Credit Corp., 5.70%, due 01/19/96
1,495,013
Other
20,112 CoreFund Cash Reserve, 5.23%, due 01/02/96 20,112
TOTAL SHORT-TERM INVESTMENTS (at cost) 11,479,083
TOTAL INVESTMENTS - 99.8% (cost $221,459,304) 296,401,583
Receivables, less liabilities and outstanding options - 0.2%
459,750
TOTAL NET ASSETS 100% $ 296,861,333
See notes to financial statements.
Statement of Assets and Liabilities:December 31, 1995
AssetsInvestments at market value (cost $221,459,304)
$296,401,583Receivables:Fund shares sold $ 28,149Dividends
575,161
Interest 29,640
632,950
Total Assets 297,034,533
Liabilities
Accrued expenses 173,200
Total Liabilities 173,200
Net Assets $ 296,861,333
Class A:Net asset value per share
($296,785,684 / 24,928,618 shares) $ 11.90
Class C:
Net asset value per share
($75,649 / 6,353 shares) $ 11.91
Statement of Operations:
Year ended December 31, 1995Investment Income
Dividends $ 6,977,440
Interest 1,194,902
8,172,342
Expenses
Investment advisor fees 1,760,748
Distributor fees: (Class A and Class C) 341,894
Transfer agent fees 318,990
Printing, postage, and mailing expenses 75,564
Custodian fees 48,698
Trustees' fees and expenses 30,159
Legal and auditing fees 22,848
Insurance and miscellaneous expenses 9,279
2,608,180
Net Investment Income 5,564,162
Realized and Unrealized Gain (Loss) on Investments
Net realized gain from investment transactions 18,260,902
Net realized (loss) from option transactions
(217,019)
Net unrealized appreciation of investments 45,738,552
Net Gain on Investments 63,782,435
Net Increase in Net Assets Resulting from Operations $
69,346,597
See notes to financial statements.
Statements of Changes in Net Assets:
Year Ended December 31
1995 1994
Changes Resulting from Operations
Net investment income $ 5,564,162 $ 5,121,393
Net realized gain from
investment transactions 18,043,883 14,052,918
Net unrealized appreciation
(depreciation) of investments 45,738,552 (18,754,422)
Net Increase in Net Assets
Resulting from Operations 69,346,597 419,889
Distributions to Shareholders
Dividends from net investment income (5,753,021) (5,116,374)
Distributions from net realized gains (18,133,003) (13,995,170)
Total distributions to shareholders (23,886,024) (19,111,544)
Capital Share Transactions
Class A
Shares sold 12,940,555 11,729,595
Reinvested dividends 16,389,748 12,669,453
Shares redeemed (19,827,243) (15,917,567)
Net increase from Class A 9,503,060 8,481,481
Class C
Shares sold 74,335
Reinvested dividends 1,798
Shares redeemed -0-
Net increase from Class C 76,133 -0-
Total Increase (Decrease) in Net Assets 55,039,766 (10,210,174)
Net Assets
Beginning of year 241,821,567 252.031,741
End of year
(including undistributed net investment
income of ($20,828) and $168,031 respectively) $296,861,333
$241,821,567
Fund Share Transactions
Class A
Shares sold 1,125,534 1,096,135
Reinvested dividends 1,395,735 1,240,286
Shares redeemed (1,747,355) (1,492,696)
Net increase from Class A 773,914 843,725
Class C
Shares sold 6,202 -0-
Reinvested dividends 151
Shares redeemed -0-
Net share increase from Class C 6,353 -0-
Net capital share increase 780,267 843,725
Financial Highlights:
PER SHARE INCOME AND CAPITAL CHANGES:
(for a share outstanding throughout the indicated period)
Class C
* Effective November 15, 1995, the Fund commenced offering Class
C shares.
All capital shares issued and outstanding as of November
15,1995 were
reclassified as Class A shares.
(a) Portfolio turnover and average commission rate paid are
calculated on
the basis of the Fund as a whole without distinguishing between
the
classes of shares issued.
(b) Ratios not meaningful due to short period of operation of
Class C
shares
See notes to financial statements.
Notes to Financial Statements:
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940,
as
amended, as a diversified, open-end management investment
company.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial
statements.
Objective: The principal objective of the Fund is long-term
capital
growth, with realization of current income a secondary
consideration.
Valuation of Investments: Investments in securities traded on a
national
securities exchange are valued at the closing prices; securities
traded
in the over-the-counter market are valued at the mean between the
last
reported bid and asked prices. Short-term investments are valued
at cost,
which approximates market value.
Investment Transactions and Related Investment Income: Investment
transactions are accounted for on the date the investments are
purchased
or sold. Realized gains and losses from investment transactions
are
reported on the basis of identified cost for both financial
reporting
and federal income tax reporting. Dividends in kind are recorded
on the
ex-dividend date at fair market value.
Option Contracts: The Fund may write (sell) covered call option
contracts on securities owned by the Fund. When the Fund writes
(sells)
a covered call option, the premium received is recorded as a
liability
with subsequent daily adjustments to the current market value.
When
the Fund enters into a closing transaction or the option expires
or
is exercised, the Fund realizes a capital gain or loss, and the
liability
is eliminated. All securities covering outstanding options are
held
in a segregated account by the custodian bank.
Transactions With Shareholders: Fund shares sold and redeemed are
recorded
at the net asset value on the trade date. Distributions to
shareholders
are recorded by the Fund on the ex-dividend date.
Federal Income Taxes: It is the policy of the Trustees to
distribute
substantially all of the Fund's taxable net investment income and
net
realized gain from investment transactions for each year as
taxable
dividends and distributions, and to qualify as a "Regulated
Investment
Company" under the applicable sections of the Internal Revenue
Code.
Accordingly, no provision has been made for federal income taxes.
In
addition, by distributing during each calendar year substantially
all
of its net investment income and realized capital gains, the Fund
will
not be subject to a federal excise tax.
NOTE B DIVIDENDS
On January 2, 1996, the Trustees declared a cash dividend from
net
investment income of $.06 a share payable January 26, 1996, to
shareholders of record on December 31, 1995.
NOTE C INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
The Investment Advisory Contract with Penn Square Management
Corporation
provides that the Fund will pay to the Investment Advisor, as
compensa
tion for investment advisory services provided, a sum per annum
equal
to the aggregate of .65% on the first $250,000,000 of average
daily
net assets, .60% on the next $250,000,000 of average daily net
assets,
and .55% on average daily net assets exceeding $500,000,000.Penn
Square Management Corporation is the Transfer and Dividend
Disbursing
Agent for the Fund and provides these services at cost.The
Declaration
of the Trust provides that each Trustee affiliated with the
Fund's
Investment Advisor or the Fund's legal counsel or who shall be an
officer or employee of the Fund shall serve without compensation,
and
each Trustee who is not so affiliated shall receive compensation
from the income of the Fund to be fixed by the Trustees at a rate
per
annum not exceeding $5,200. In 1995 these Trustees received
$4,000
each plus out of pocket traveling expenses.Penn Square Management
Corporation, the general distributor of the Fund, received sales
charges and underwriting fees aggregating approximately $46,000
on
sales of shares of the Fund and was reimbursed $341,894 for
expenses
incurred pursuant to the Distribution Plan with the Fund for the
year
ended December 31, 1995.Penn Square Management Corporation shall
reimburse the Fund for any expenses, excluding taxes and
brokerage
commissions, that exceed the maximum expense limitation imposed
by
the applicable law of any jurisdiction where the Fund's shares
are
offered for sale.
Notes to Financial Statements (Continued):
NOTE D COST, PURCHASES, AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities other
than
short-term investments aggregated $95,960,207and $98,472,862,
respectively during the year ended December 31, 1995.At December
31, 1995,
the cost of investments owned is the same for financial reporting
and
federal income tax purposes. Net unrealized appreciation of
investments
is $74,942,299 (aggregate gross unrealized appreciation of
$78,233,001
less aggregate gross unrealized depreciation of $3,290,722).
Transactions in options during the year ended December 31, 1995,
are
summarized as follows: Shares
Premiums
Outstanding at January 1, 1995 30,000 $
46,610
Options opened 197,500
486,452
Options closed (125,000)
(390,455)
Options exercised -0-
-0-
Options expired (102,500)
(142,607)
Outstanding at December 31, 1995 -0- $
-0-
NOTE F COMPONENTS OF NET ASSETS
The components of net assets at December 31, 1995 are as follows:
Capital paid-in 24,934,971 shares outstanding: 30,000,000 shares
authorized:
Class A 221,873,585
Class C 76,133
221,949,718
Over distributed net
investment income (20,828)
Over distributed
net realized gain from
investment transactions (9,836)
Net unrealized appreciation
of investments 74,942,279
NET ASSETS $296,861,333
Report of Independent Auditors:
Trustees and ShareholdersPenn Square Mutual Fund
Wyomissing, Pennsylvania
We have audited the accompanying statement of assets and
liabilities
of Penn Square Mutual Fund, including the schedule of
investments, as
of December 31, 1995, and the related statement of operations for
the
year then ended, the statements of changes in net assets for each
of
the two years in the period then ended, and the financial
highlights
for each of the ten years in the period then ended. These
financial
statements and financial highlights are the responsibility of the
Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan and perform the
audit
to obtain reasonable material misstatement. An audit includes
examining,
on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with
the
custodian and brokers. An audit also includes assessing the
accounting
principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We
believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred
to above present fairly, in all material respects, the financial
position
of Penn Square Mutual Fund as of December 31, 1995, The results
of its
operations for the year then ended, the changes in its net assets
for each
of the two years in the period then ended and the financial
highlights for
each of the ten years in the period then ended, in conformity
with
generally accepted accounting principles.
ERNST & YOUNG
Reading, Pennsylvania
January 12, 1996
Performance data herein represents past performance. Investment
return and principal value of an investment will fluctuate so
that
an investor's shares, when redeemed, may be worth more or less
than their original cost.This report is for the information of
shareholders of Penn Square Mutual Fund. It must not be
distributed to other than such shareholders unless it has been
preceded by,
or is accompanied by, a Prospectus by which all offerings of the
Fund's shares are made. The offering price of Class A shares
includes
a maximum sales charge of 4.75%.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993 and
the investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, on the 13th day of February, 1996.
PENN SQUARE MUTUAL FUND
By: [sig]
James E. Jordan, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration has been signed below by the following
persons in the capacities and on the date indicated. Each of the
persons whose signature appears below hereby authorizes James E.
Jordan, President of the Registrant, to execute in the name of each
person and to file all amendments to this Registration Statement as
the Registrant deems appropriate and appoints such person as his
attorney-in-fact to sign on his behalf individually and in each
capacity stated below and to file all amendments and post-effective
amendments to this Registration Statement.
SIGNATURE TITLE DATE
[sig]
James E. Jordan President, February 13, 1996
principal
executive
officer and
Trustee
[sig]
Dennis J. Westley V.President February 13, 1996
and Treasurer
[sig]
Lee D. Arning Trustee February 13, 1996
[sig]
Gail M. Harrity Trustee February 13, 1996
[sig]
Paul J. Lawler Trustee February 13, 1996
[sig]
Emmett M. Murphy Trustee February 13, 1996
John D. Tenhula Trustee February 13, 1996
[sig]
Ferdinand Thun Trustee February 13, 1996
Consent of Independent Accountants
We consent to the references to our firm under the captions "General
Information" and "Legal Counsel, Auditors and Custodian," and to the
use of our report dates January 12, 1996, in the Post-Effective
Amendment No. 54 to the Registration Statement (Form N-1A No. 2-13943)
and related Prospectus and Statement of Additional Information of Penn
Square Mutual Fund dated March 15, 1996.
ERNST & YOUNG
Reading, Pennsylvania
March 15, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
12/31/95 N-SAR and is qualified in its entirety by reference to such
N-SAR.
</LEGEND>
<CIK> 0000077151
<NAME> PENN SQUARE MUTUAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 221,459,304
<INVESTMENTS-AT-VALUE> 296,401,583
<RECEIVABLES> 632,950
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 297,034,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173,200
<TOTAL-LIABILITIES> 173,200
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,949,718
<SHARES-COMMON-STOCK> 24,934,971
<SHARES-COMMON-PRIOR> 24,154,704
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (20,828)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (9,836)
<ACCUM-APPREC-OR-DEPREC> 74,942,279
<NET-ASSETS> 296,861,333
<DIVIDEND-INCOME> 6,977,440
<INTEREST-INCOME> 1,194,902
<OTHER-INCOME> 0
<EXPENSES-NET> 2,608,180
<NET-INVESTMENT-INCOME> 5,564,162
<REALIZED-GAINS-CURRENT> 18,043,883
<APPREC-INCREASE-CURRENT> 45,738,552
<NET-CHANGE-FROM-OPS> 69,346,597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,753,021
<DISTRIBUTIONS-OF-GAINS> 18,133,003
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,131,736
<NUMBER-OF-SHARES-REDEEMED> 1,747,735
<SHARES-REINVESTED> 1,395,886
<NET-CHANGE-IN-ASSETS> 55,039,766
<ACCUMULATED-NII-PRIOR> 168,031
<ACCUMULATED-GAINS-PRIOR> 79,284
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,760,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,608,180
<AVERAGE-NET-ASSETS> 272,842,794
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 2.66
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0.76
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.90
<EXPENSE-RATIO> .009
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
