SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 55 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 55 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
The Board of Trustees of Penn Square Mutual Fund has approved an
Agreement and Plan of Reorganization for the Fund pursuant to which the
Fund's assets will be acquired by a similar Federated Fund, and the Penn
Square shareholders will receive the equivalent value of their Penn
Square shares in Federated American Leaders Fund shares. The
Reorganization will be a tax-free exchange whereby Penn Square
shareholders will become Federated shareholders, and after which Penn
Square Mutual Fund will terminate. Penn Square shareholders will be
asked to approve the Reorganization at a shareholders' meeting scheduled
to be held on May 29, 1997. Shareholders have received a complete proxy
statement describing the transaction. The Board of Trustees has
recommended that Penn Square shareholders vote in favor of the
Reorganization.
Federated Investors is a mutual fund group formed in 1955 and based in
Pittsburgh, Pennsylvania. Federated serves as manager or administrator
for mutual funds with an aggregate $110 billion in portfolio assets.
Federated has a reputation for excellent customer service, and has
invested in state-of-the-art technology to provide fund shareholders
with comprehensive information. Penn Square shareholders who become
Federated shareholders through the Reorganization will have access to
all funds in the Federated Family of Funds.
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
April 30, 1997.
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
12/31 December 31
1996 1995 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net Asset Value:
Beginning of period
11.91 12.18 11.90 10.01 10.81 10.44 10.40 8.76 10.00 8.74 8.57 9.21
Investment Operations:
Net investment income
0.09 0.00 0.20 0.23 0.22 0.20 0.23 0.26 0.34 0.37 0.34 0.34
Net realized and unrealized gain (loss) on investments
1.97 0.49 1.97 2.66 (0.20) 1.12 0.66 2.08 (0.86) 1.83 0.855 0.15
Total from Investment Operations
2.06 0.49 2.17 2.89 0.02 1.32 0.89 2.34 (0.52) 2.20 1.195 0.49
Distributions:
Dividends from net investment income
(0.14)0.00 (0.20)(0.24)(0.22)(0.19)(0.25)(0.29)(0.37)(0.36)(0.355)(0.35)
Distributions from realized capital gains
(1.72)(0.76)(1.72)(0.76)(0.60)(0.76)(0.60)(0.41)(0.35)(0.58)(0.67)(0.78)
Total Distributions
(1.86)(0.76)(1.92)(1.00)(0.82)(0.95)(0.85)(0.70)(0.72)(0.94)(1.03)(1.13)
Net Asset Value:
End of period
12.11 11.91 12.15 11.90 10.01 10.81 10.44 10.40 8.76 10.00 8.74 8.57
Total Return (excluding sales charge)
17.0)%n/a(b) 18.7% 29.2% 0.2% 12.9% 8.8% 27.7%-5.3% 25.7%14.4% 5.0%
Net assets, end of year ($millions)
2.0 0.01 328 297 242 252 234 228 190 213 189 189
Ratio of expenses to average net assets
1.91% n/a(b) 0.93% 0.96% 0.99% 0.97% 0.96% 0.95% 0.93% 0.91%0.92%0.81%
Ratio of net investment income to average net assets
0.6%n/a(b) 1.6% 2.0% 2.1% 1.9% 2.2% 2.6% 3.7% 4.0% 4.0% 3.2%
Portfolio turnover rate(a)
93.0% 37.9% 83.0% 37.9% 27.7% 34.3% 27.9% 23.3% 44.5% 41.8%24.4% 15.0%
Average commission per share (a)
$0.06 n/a $0.06 n/a n/a n/a n/a n/a n/a n/a n/a n/a
*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 Expenses
The 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, 1996 for Class A and C
shares.
Percentage of
Average Net
Assets
Shareholder Transaction Expenses Annual Fund Operating
Expenses
Class Class 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) 0.11 1.09
Deferred Sales Load None None Other Expenses 0.17 0.17
Redemption Fee None 1.0%(1)
Exchange Fee None None Total Fund
Operating
Expenses 0.93 1.91
(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 76 60
5 years 97 103
10 years 156 223
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
23 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 22 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,
1996, 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 .93% for Class A and
1.91% for Class C in 1996.
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 or 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, 1996, $10,000 invested in Penn Square Mutual Fund
would have grown to $883,129, 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,
1996. 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, 1996 One Year 5 Years 10 Years
Class A, with 4.75% sales charge 13.0% 12.5% 12.6%
Class A, without sales charge 18.7% 13.6% 13.2%
Class C 17.0% n/a n/a
Cumulative Total Returns:
Years Ended December 31, 1996 One Year 5 Years 10 Years
Class A, with 4.75% sales charge 13.0% 79.9% 228.4%
Class A, without sales charge* 18.7% 88.8% 244.8%
Standard & Poor's 500 Stock Index* 23.0% 103.0% 314.8%
* This information is compiled by Lipper Analytical Services.
Past performance is not predictive of future performance.
Investment return and principal value may differ significantly from the
securities in the index. The index is unmanaged and therefore does not
reflect the cost of portfolio management or trading.
Illustration of an Assumed Investment of $10,000
CHART
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, 1996. 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 advisor 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 initial 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 Bank
Philadelphia, 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 preceding 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 CommissionedInvestments:
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
Withdrawal 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 and Dividend 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 Additional Information
April 30, 1997
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 April 30, 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
30%-70% annually. The portfolio turnover rates for 1994, 1995, and 1996
were 27.7%, 37.9%, and 83.0% 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.
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
Chief Operating Officer of the Philadelphia Museum of Art, 1996 to
present. Deputy Director for Finance and Administration of the Solomon
R. Guggenheim Museum, 1989 to 1996. 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
1996, the disinterested trustees of Penn Square Mutual Fund as a group
received $23,471. The Trustees who received this compensation were: Lee
D. Arning, Paul J. Lawler, Gail M. Harrity, John D. Tenhula and
Ferdinand Thun. As of December 31, 1996, 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>
INVESTMENT ADVISOR
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, 1996, total net assets were $329,746,021.
The advisory fees received in 1996, 1995 and 1994 were respectively,
$2,038,874, $1,760,748, and $1,616,347. 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 21, 1996 and
will remain in effect until May 31, 1997, 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 LLP 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 1996, the Investment
Advisor allocated approximately $135,000 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 1996. During the fiscal years ending December 31, 1996, 1995,
and 1994, total brokerage commissions were $723,444, $303,180, and
$210,068 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, 1996.
Value of investments $330,738,576
Receivables 787,093
Less Liabilities 1,779,648
Total Net Asset Value $329,746,021
Class A Net Asset Value and redemption price per share
($328,196,900 / 27,012,372 shares) $ 12.15
Class A Offering Price per share (12.15 / (1-4.75%)) $ 12.76
Class C Net asset value, offering price and redemption price per share
($1,549,121 / 127,886 shares) $ 12.11
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.
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, 1996. The following financial
statements appearing in the Annual Report are incorporated herein by
reference:
Statement of Investments, as of December 31, 1996
Statement of Assets and Liabilities, as of December 31, 1996
Statement of Operations, for the Year Ended December 31, 1996
Statements of Changes in Net Assets,
for the Years Ended December 31, 1996 and December 31, 1995
Notes to Financial Statements, as of December 31, 1996
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, 1996 under Financial Highlights.
(2) The following financial statements,
each as of December 31, 1996, are
Incorporated by reference into the
Statement of Additional Information
From the Registrant's 1996 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) Financial Data Schedule (EX-27)
(3) 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 as of 2/21/97
Interest Class A 13,428
Class C 148
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
PENN SQUARE MUTUAL FUND
December 31, 1996
ANNUAL REPORT
Penn Square Mutual Fund
Annual Report 1996
January 14, 1997
Dear Shareholders:
As one year ends and another begins, it is appropriate to assess what
happened in the prior year, and make plans for the next one. Following a
strong 1995, we were positive but cautious at the start of 1996, and we
remained so throughout the year. If anything, we were too cautious, and
the Fund's performance as compared to its peer fund group and to the
general market averages reflected that caution.
For the year ended December 31, 1996, and on a total rate of return
basis, which incorporates the reinvestment of dividends, and net of all
expenses, the Fund rose by +18.66%, as compared with +20.78% for the
Lipper Growth & Income Fund Average, +22.96% for the S&P 500 Stock
Index, and +26.01% for the Dow Jones Industrial Average. Additional
performance information for the Fund is provided on pages 3 through 5 of
this report.
At Penn Square, we are believers that there is a time to sow and a time
to reap, and 1996 was the latter kind of year. Accordingly, the Fund
paid out $1.72 per share in capital gains, the largest in its history,
as well as a dividend of 20 cents per A share, for a total of $1.92 per
A share in distributions. At year-end 1996, the Fund had net assets of
$329.7 million, with 27.1 million shares outstanding. With this Report
is included your dividend check or reinvestment statement for 5 cents
per A share (1.4 cents per C share) representing the first dividend of
1997.
Looking ahead, we are guardedly optimistic. Many of the fundamental
economic forces that have propelled the securities markets to new highs
are still in place. Economic growth and inflation both continue at a
modest pace. The Federal deficit continues to fall, and several
proposals have been put forward to "fix" the Medicare, Medicaid, and
Social Security funding problems. Corporate profits remain firm, and
probably have not peaked, but the massive gains from corporate
restructuring, falling interest rates, and cheap dollar benefits are
largely behind us, so that for most industries, profit growth will
parallel sales growth. Based on historic fundamentals, stock prices are
full. Consequently, we have become more defensive in recent months -
increasing our positions in oil stocks and raising cash, for example -
and have scavenged the market for stocks in industries that have been
out of favor but where the franchise values of the companies is solid.
In this way, we hope to provide for another year of solid gain while
protecting the Fund's assets against inevitable
volatility.
With best regards,
Sincerely yours,
James E. Jordan
Chairman
Portfolio Highlights: December 31, 1996
Total Net Assets $ 329,746,021
Class A:
Shares Outstanding 27,012,372
Net Asset Value Per Share $ 12.15
Offering Price Per Share $ 12.76
Class C:
Shares Outstanding 127,886
Net Asset Value & Offering Price Per Share $ 12.11
Ten Largest Equity Holdings:
Exxon Corporation$ 9,800,000
General Electric Co. 8,898,750
Intel Corp. 7,856,250
Texaco, Inc. 6,868,750
Fluor Corp. 6,588,750
Bristol-Myers Squibb Company 6,525,000
Mobil Corporation 6,112,500
United HealthCare Corporation 6,075,000
American Home Products Corporation 5,862,500
Kimberly-Clark Corporation 5,715,000
Five Largest Industry Categories:
Pharmaceuticals & Health Care 13.7%
Energy 13.3%
Financial Services 7.8%
Consumer Goods 7.4%
Railroads 5.2%
Income Dividends:
Payable Date Class A Class C
January 26, 1996 $ 0.06 $ 0.060
April 26, 1996 0.05 0.038
July 26, 1996 0.05 0.023
October 25, 1996 0.04 0.016
Total 1996 Income Dividends 0.20 0.137
Capital Gain Distribution:
December 27, 1996 Long-Term 1.512 1.512
December 27, 1996 Short-Term 0.208 0.208
Total 1996 Capital Gain Distributions 1.720 1.720
Total 1996 Dividends and Distributions$1.920 $ 1.857
Total Investment Return
Past performance is not predictive of future performance. Investment
return and principal value may fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. The Fund's portfolio
may differ significantly from the securities in the index. The index is
unmanaged and therefore does not reflect the cost of portfolio
management or trading.
CLASS A SHARES
Total Investment
Period Per Share Data* Year-End Value Return
Annual
Capital Percentage C
hange**
Year EndedNet Asset IncomeGain Penn Square S&P 500 Penn Square S&P 500
Value Dividends DistributionsMutual 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%
1996 12.15 .20 1.72 883,129 592,454 +18.7% +23.0%
Lifetime _ $11.699 $ 21.183 +8731.3% +5824.5% +12.3% +11.2%
*Adjusted for a 2-for-1 stock split effective April 15, 1968.
**Adjusted to include reinvestment of income dividends and any capital
gain distributions for both the Fund and the Index.
Illustration of an Assumed
Investment of $10,000
$883,129 Total Value of Shares December 31, 1996
$276,461 Value of Shares Acquired through Reinvestment of Dividends
S&P 500 $592,454 (see page 3)
$584,778 Value of Shares Accepted as Capital Gains Distributions
$21,890 Value of Shares Initially Acquired
Average Annual Total Returns
Years Ended December 31, 1996 One Year 5 Years 10 Years
Class A, with 4.75% sales charge 13.0% 12.5% 12.6%
Class A, without sales charge 18.7% 13.6% 13.2%
Class C 17.0% n/a n/a
Cumulative Total Returns
Years Ended December 31, 1996 One Year 5 Years 10 Years
Class A, with 4.75% sales charge 13.0% 79.9% 228.4%
Class A, without sales charge* 18.7% 88.8% 244.8%
Standard & Poor's 500 Stock Index* 23.0% 103.0% 314.8%
*This information is compiled by Lipper Analytical Services.
Past performance is not predictive of future performance. Investment
return and principal value may fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. The Fund's portfolio
may differ significantly from the securities in the index. The index is
unmanaged and therefore does not reflect the cost of portfolio
management or trading.
Fund Industry Weighting Changes
For positions held on
12/31/96 12/31/95 Change
Utilities 4.7% 0.0% 4.7%
Pharmaceuticals and health care 13.7% 9.1% 4.6%
Consumer goods 7.4% 3.7% 3.7%
Energy 13.3% 9.9% 3.4%
Financial services 7.8% 4.7% 3.1%
Railroads 5.2% 3.1% 2.1%
Textiles 1.4% 0.0% 1.4%
Building, construction & engineering 2.0% 1.8% 0.2%
Diversified 1.2% 1.1% 0.1%
Metals 3.3% 3.3% 0.0%
Retail 2.5% 3.2% -0.7%
Other services 1.1% 2.1% -1.0%
Automotive 3.9% 5.0% -1.1%
Electronics 0.0% 1.2% -1.2%
Paper and forest products 2.4% 3.7% -1.3%
Environmental services 1.0% 2.6% -1.6%
Food and beverages 2.0% 3.9% -1.9%
Telecommunications 3.3% 5.4% -2.1%
Capital goods 2.7% 5.3% -2.6%
Entertainment 2.5% 5.2% -2.7%
Chemicals 1.1% 3.8% -2.7%
Printing and publishing 0.0% 3.1% -3.1%
Insurance 2.9% 6.2% -3.3%
Computers and office equipment 4.9% 8.6% -3.7%
Total stocks 90.3% 96.0% -5.7%
Short-term investments 10.0% 3.8% 6.2%
Other assets and liabilities -0.3% 0.2% -0.5%
Net assets 100.0% 100.0%
Investments: December 31, 1996
Shares Stocks_ 90.3% Market Value
AUTOMOTIVE _ 3.9%
155,000 Chrysler Corporation $ 5,115,000
150,000 ITT Industries, Inc. 3,675,000
50,000 Johnson Controls, Inc. 4,143,750
12,933,750
BUILDING, CONSTRUCTION & ENGINEERING _ 2.0%
105,000 Fluor Corp. 6,588,750
6,588,750
CAPITAL GOODS _ 2.7%
90,000 General Electric Company 8,898,750
8,898,750
CHEMICALS _ 1.1%
75,000 ARCO Chemical Company 3,675,000
3,675,000
COMPUTERS AND OFFICE EQUIPMENT _ 4.9 %
75,000 Computer Associates International, Inc. 3,731,250
50,000 Hewlett-Packard 2,512,500
60,000 Intel Corporation 7,856,250
40,000 Pitney Bowes 2,180,000
16,280,000
CONSUMER GOODS _ 7.4%
80,000 Avon Products, Inc. 4,570,000
50,000 Colgate-Palmolive Company 4,612,500
100,000 Corning Inc. 4,625,000
90,000 Kimberly-Clark Corporation 5,715,000
90,000 Tupperware Corporation 4,826,250
24,348,750
DIVERSIFIED _ 1.2%
70,000 Tenneco, Inc. 4,061,250
4,061,250
ENERGY _ 13.3%
65,000 Chevron Corporation 4,225,000
100,000 Exxon Corporation 9,800,000
80,000 Louisiana Land and Exploration Company (The) 4,290,000
50,000 Mobil Corporation 6,112,500
125,000 National Fuel Gas Company 5,156,250
70,000 Texaco, Inc. 6,868,750
150,000 Union Pacific Resources Group Inc. 4,387,500
73,000 Unocal Corporation 2,965,625
43,805,625
ENTERTAINMENT _ 2.5%
75,000 Viacom Inc. Class B* 2,615,625
80,000 Walt Disney Company (The) 5,570,000
8,185,625
ENVIRONMENTAL SERVICES _ 1.0%
100,000 WMX Technologies, Inc. 3,262,500
3,262,500
FINANCIAL SERVICES _ 7.8%
75,000 American Express Company 4,237,500
40,000 BankAmerica Corporation 3,990,000
120,000 Bank of New York Company, Inc. 4,050,000
40,000 Chase Manhattan 3,570,000
85,000 Federal National Mortgage Association 3,166,250
115,000 Great Western Financial Corporation 3,335,000
45,000 Mellon Bank Corporation 3,195,000
25,543,750
FOOD AND BEVERAGE _ 2.0%
75,000 ConAgra, Inc. 3,731,250
100,000 Pepsico Inc. 2,925,000
6,656,250
INSURANCE _ 2.9%
80,000 Conseco, Inc. 5,100,000
100,000 Travelers Group Incorporated 4,537,500
9,637,500
METALS _ 3.3%
55,000 Aluminum Company of America 3,506,250
150,000 Allegheny Teledyne Inc. 3,450,000
100,000 Freeport-McMoRan Copper & Gold Inc. 2,812,500
30,000 Freeport-McMoRan Copper & Gold Inc. Class B 896,250
10,665,250
PAPER AND FOREST PRODUCTS _ 2.4%
40,000 Georgia-Pacific Corporation 2,880,000
71,900 Longview Fibre 1,321,162
75,000 Weyerhaeuser Co. 3,553,125
7,754,287
PHARMACEUTICALS AND HEALTH CARE _ 13.7%
70,000 Aetna Incorporated 5,600,000
100,000 American Home Products Corporation 5,862,500
60,000 Bristol-Myers Squibb Company 6,525,500
100,000 Columbia/HCA Healthcare Corporation 4,075,000
90,000 Johnson & Johnson 4,477,500
45,000 Merck & Co. 3,566,250
65,000 Schering-Plough Corporation 4,208,750
70,000 SmithKline Beecham plc (ADR) 4,760,000
135,000 United HealthCare Corporation 6,075,000
45,150,000
*Non-income producing security.
RAILROADS _ 5.2%
50,000 Burlington Northern Santa Fe 4,318,750
180,000 Canadian Pacific Limited 4,770,000
35,000 Norfolk Southern Corporation 3,062,500
85,000 Union Pacific Corporation 5,110,625
17,261,875
RETAIL _ 2.5%
60,000 Home Depot, Inc. (The) 3,007,500
50,000 J.C. Penney Company, Inc. 2,437,500
60,000 May Department Stores 2,805,000
8,250,000
TELECOMMUNICATIONS _ 3.3%
150,000 Comcast Corporation 2,643,750
185,400 Merrill Lynch Strype (Cox Communications) 4,125,150
70,000 Nokia Corporation (ADR) 4,033,750
10,802,650
TEXTILES _ 1.4%
160,000 Warnaco Group, Inc. (The) 4,740,000
4,740,000
UTILITIES _ 4.7%
100,000 Central and South West Corporation 2,562,500
220,000 ENSERCH Corporation 5,060,000
100,000 Houston Industries Incorporated 2,262,500
150,000 Williams Companies, Inc. (The) 5,625,000
15,510,000
OTHER SERVICES - 1.1%
135,000 Pittston Brink's Group 3,645,000
3,645,000
TOTAL STOCKS_(Cost $220,003,785) 297,656,312
SHORT-TERM INVESTMENT_ 10.0%
Commercial Paper:
4,000,000 Ford Motor Credit Corp., 5.40%, due 01/03/97 3,985,000
3,000,000 Prudential Funding, 5.43%, due 01/13/97 2,987,330
5,000,000 General Electric Credit Corp., 5.45%, due 01/16/97 4,977,292
4,000,000 Sears Roebuck Acceptance Corp., 5.45%, due 01/21/973,979,411
3,000,000 Sears Roebuck Acceptance Corp., 5.50%, due 01/24/972,983,500
6,000,000 Sears Roebuck Acceptance Corp., 5.52%, due 01/29/975,963,200
4,000,000 General Electric Credit Corp., 5.42%, due 02/03/97 3,972,900
2,000,000 Prudential Funding, 5.38%, due 02/06/97 1,985,653
2,000,000 General Electric Credit Corp., 5.42%, due 02/09/97 1,985,246
Other
262,732 CoreFund Cash Reserve, 4.94%, due 01/02/97 262,732
TOTAL SHORT-TERM INVESTMENTS (at cost) 33,082,264
TOTAL INVESTMENTS - 100.3% (cost $ 253,086,049) 330,738,576
Receivables, less liabilities - 0.3% (992,555)
TOTAL NET ASSETS_100% $ 329,746,021
See notes to financial statements.
Statement of Assets and Liabilities
December 31, 1996
Assets
Investment securities at cost $ 253,086,049
Investment securities at value 330,738,576
Receivables:
Dividends 542,735
Fund shares sold 225,879
Interest 18,479
Total Assets 331,525,669
Liabilities
Accrued expenses and other liabilities 341,625
Fund shares redeemed 12,088
Investment securities purchased 1,425,935
Total Liabilities 1,779,648
Net Assets $ 329,746,021
Class A:
Shares outstanding 27,012,372
Net asset value per share $ 12.15
Offering price per share $ 12.76
Class C:
Shares outstanding 127,886
Net asset value and
offering price per share $ 12.11
Net assets consist of:
Paid-in capital: (a)
Class A 247,241,711
Class C 1,606,938
248,848,649
Undistributed net investment income 17,001
Undistributed realized gain on investments 3,227,843
Unrealized appreciation on investments 77,652,528
$ 329,746,021
(a) At December 31, 1996 there were an unlimited number of shares of
beneficial interest of $0.01 par value authorized.
See notes to financial statements.
Statement of Operations
Year ended December 31, 1996
Investment Income
Dividends $ 6,981,348
Interest 967,820
Total Income 7,949,168
Expenses
Investment advisor fees 2,038,874
Distributor fees 264,528
Class A 62,639
Class C 7,344
Transfer agent fees 371,187
Postage and mailing 59,650
Custodian fees 55,700
Trustees' fees and expenses 23,471
Legal and auditing fees 22,171
Insurance and miscellaneous 11,632
Printing 13,128
Total Expenses 2,930,324
Net Investment Income 5,018,844
Realized and Unrealized Gain on Investments
Net realized gain from investment
and option transactions 45,693,430
Net change in unrealized
appreciation of investments 2,710,249
Net Gain on Investments 48,403,679
Net increase in net assets
resulting from operations $ 53,422,523
Statements of Changes in Net Assets
Year Ended December 31
1996 1995
Changes Resulting from Operations
Net investment income $ 5,018,844 $ 5,564,162
Net realized gain from investment transactions45,693,430 18,043,883
Net unrealized appreciation of investments 2,710,249 45,738,552
Net Increase in Net Assets
Resulting from Operations 53,422,523 69,346,597
Distributions to Shareholders
Dividends from net investment income (4,981,017) (5,753,021)
Distributions from investment transactions (42,455,751) (18,133,003)
Total distributions to shareholders (47,436,768) (23,886,024)
Capital Share Transactions
Class A:
Shares sold 14,222,633 12,940,555
Reinvested dividends 32,770,385 16,389,748
Shares redeemed (21,624,889) (19,827,243)
Net increase from Class A 25,368,129 9,503,060
Class C:
Shares sold. 1,382,989 74,335
Reinvested dividends 191,248 1,798
Shares redeemed (43,433) -0-
Net increase from Class C 1,530,804 76,133
Total Increase in Net Assets 32,884,688 55,039,766
Net Assets
Beginning of year 296,861,333 241,821,567
End of year (including undistributed net investment
income of $17,001 and ($20,828) respectively)$ 329,746,021$ 296,861,333
Fund Share Transactions
Class A:
Shares sold 1,135,463 1,125,534
Reinvested dividends 2,662,041 1,395,735
Shares redeemed (1,713,750) (1,747,355)
Net share increase from Class A 2,083,754 773,914
Class C:
Shares sold 109,348 6,202
Reinvested dividends 15,569 151
Shares redeemed (3,384) -0-
Net share increase from Class C 121,533 6,353
Net capital share increase 2,205,287 780,267
See notes to financial statements.
Financial Highlights
PER SHARE INCOME AND CAPITAL CHANGES:
(for a share outstanding throughout the indicated
Class C Class A *
Year Ended December 31
1996 1995 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net Asset Value:
Beginning of period
$11.91 $12.18 $11.90 $10.01 $10.81$10.44$10.40$8.76$10.00$8.74$8.57$9.21
Investment Operations:
Net investment income
0.09 0.00 0.20 0.23 0.22 0.20 0.23 0.26 0.34 0.37 0.34 0.34
Net realized and unrealized gain (loss)on investments
1.97 0.49 1.97 2.66 (0.20) 1.12 0.66 2.08 (0.86) 1.83 0.855 0.15
Total from Investment Operations
2.06 0.49 2.17 2.89 0.02 1.32 0.89 2.34 (0.52) 2.20 1.195 0.49
Distributions:
Dividends from net investment income
(0.14)0.00(0.20)(0.24)(0.22)(0.19)(0.25)(0.29)(0.37)(0.36)(0.355)(0.35)
Distributions from realized capital gains
(1.72)(0.76)(1.72)(0.76)(0.60)(0.76)(0.60)(0.41)(0.35)(0.58)(0.67)(0.78)
Total Distributions
(1.86)(0.76)(1.92)(1.00)(0.82)(0.95)(0.85)(0.70)(0.72)(0.94)(1.03)(1.13)
Net Asset Value:
End of period
$12.11 $11.91 $12.15 $11.90$10.01$10.81$10.44$10.40$8.76$10.00$8.74$8.57
Total Return
(excluding sales charge)
17.0% n/a(b) 18.7% 29.2% 0.2% 12.9% 8.8% 27.7% -5.3% 25.7% 14.4% 5.0%
RATIOS:
Net assets, end of year (in millions)
2 0.1 328 297 242 252 234 228 190 213 189 189
Ratio of expenses to average net assets
1.91% n/a(b) 0.93% 0.96% 0.99% 0.97% 0.96% 0.95% 0.93% 0.91% 0.92% 0.81%
Ratio of net investment income to average net assets
0.6% n/a(b) 1.6% 2.0% 2.1% 1.9% 2.2% 2.6% 3.7% 4.0% 4.0% 3.2%
Portfolio turnover rate(a)
83.0% 37.9% 83.0% 37.9% 27.7% 34.3% 27.9% 23.3% 44.5% 41.8% 24.4% 15.0%
Average commission per share (a)
$0.0600 n/a $0.0600 n/a n/a n/a n/a n/a n/a n/a n/a n/a
*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 per share are calculated
on the basis of the Fund as a whole without distinguishing between the
classes of shares issued. Average commission per share disclosure
required for fiscal years beginning after 9/1/95.
(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.
Share Class Expenses: Distribution trail and service fees for Classes A
and C are accounted for as class specific expenses. All other expenses
are accounted for at the Fund level.
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.
Estimates: The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE B_DIVIDENDS
On January 2, 1997, the Trustees declared a cash dividend from net
investment income of $.05 per Class A share and $.014 per Class C share,
payable January 31, 1997, to shareholders of record on December 31,
1996.
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
compensation 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 1996 these Trustees received $4,000 each
plus out-of-pocket traveling expenses. The Fund has entered into a
Distribution Agreement with Penn Square Management Corporation and has
adopted a distribution plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Fund will pay annually up to .25% for Class A
and 1.00% for Class C of the average daily net assets to securities
dealers who are dealers of record with respect to Fund shares, for
services provided in connection with maintenance of shareholder
accounts.
Penn Square Management Corporation, the general distributor of the Fund,
received sales charges and underwriting fees aggregating approximately
$53,000 on sales of shares of the Fund and was reimbursed $334,511 for
expenses incurred pursuant to the Distribution Plan with the Fund for
theyear ended December 31, 1996.
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.
NOTE D_COST, PURCHASES, AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities other than
short-term investments aggregated $ 245,552,056 and $ 280,497,539,
respectively during the year ended December 31, 1996.
At December 31, 1996, the cost of investments owned is the same for
financial reporting and federal income tax purposes. Net unrealized
appreciation of investments is $ 77,652,528 (aggregate gross unrealized
appreciation of $ 81,385,654 less aggregate gross unrealized
depreciation of $ 3,733,126).
Transactions in options during the year ended December 31, 1996, are
summarized as follows:
Shares Premiums
Outstanding at January 1, 1996 -0- $ -0-
Options opened 225,000 841,372
Options closed (175,000) (719,626)
Options exercised (30,000) (77,547)
Options expired (20,000) (44,199)
Outstanding at December 31, 1996 -0- -0-
The net realized loss on options expired or closed was $355,673 for the
year ended December 31, 1996.
Report of Independent Auditors
Trustees and Shareholders
Penn Square Mutual Fund
We have audited the accompanying statement of assets and liabilities of
Penn Square Mutual Fund, including the schedule of investments, as of
December 31, 1996, 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 years in the ten year 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 assurance about whether the financial statements and
financial highlights are free of 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, 1996, 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,
1996, 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 years in the ten year period
then ended, in conformity with generally accepted accounting principles.
Reading, Pennsylvania
January 9, 1997
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%.
SHAREHOLDER SERVICES:
610-670-1031
800-523-8440
610-670-0620 FAX
P.O. Box 1419
Reading, Pennsylvania 19603
Overnight Mail:
2650 Westview Drive
Wyomissing, PA 19610
E-Mail: [email protected]
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
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 5th day of March, 1997.
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, March 5, 1997
principal
executive
officer and
Trustee
[sig]
Dennis J. Westley V.President March 5, 1997
and Treasurer
Lee D. Arning Trustee March 5, 1997
[sig]
Gail M. Harrity Trustee March 5, 1997
[sig]
Paul J. Lawler Trustee March 5, 1997
[sig]
Emmett M. Murphy Trustee March 5, 1997
[sig]
John D. Tenhula Trustee March 5, 1997
Ferdinand Thun Trustee March 5, 1997
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 9, 1997, in the Post-Effective
Amendment No. 55 to the Registration Statement (Form N-1A No. 2-13943)
and related Prospectus and Statement of Additional Information of Penn
Square Mutual Fund dated April 30, 1997.
ERNST & YOUNG
Reading, Pennsylvania
April 21, 1997
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 N-SAR and is qualified in its entirety by reference to such N-SAR.
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<NAME> PENN SQUARE MUTUAL FUND
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<INVESTMENTS-AT-COST> 253,086,049
<INVESTMENTS-AT-VALUE> 330,738,576
<RECEIVABLES> 787,093
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 6,981,348
<INTEREST-INCOME> 967,820
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<NET-CHANGE-FROM-OPS> 53,422,523
<EQUALIZATION> 0
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<PER-SHARE-NII> .20
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<PER-SHARE-DIVIDEND> .20
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<PER-SHARE-NAV-END> 12.15
<EXPENSE-RATIO> .009
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 N-SAR and is qualified in its entirety by reference to such N-SAR.
</LEGEND>
<CIK> 0000077151
<NAME> PENN SQUARE MUTUAL FUND
<SERIES>
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<NAME> CLASS C
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<PERIOD-END> DEC-31-1996
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<ASSETS-OTHER> 0
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<PAID-IN-CAPITAL-COMMON> 248,848,649
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<EXPENSES-NET> 2,930,324
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<NET-CHANGE-FROM-OPS> 53,422,523
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<DISTRIBUTIONS-OF-GAINS> 42,455,751
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