<PAGE>
As filed with the Securities and Exchange Commission on May 5, 1995.
Registration No. 2-19995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
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Pre-Effective Amendment No. ______ / /
----
Post-Effective Amendment No. 62 /X/
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
--
Amendment No. 22 /X /
---
(Check appropriate box or boxes)
PENNSYLVANIA MUTUAL FUND
(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 355-7311
------------------
Charles M. Royce, President
Pennsylvania Mutual Fund
1414 Avenue of the Americas, New York, New York 10019
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pennsylvania Mutual Fund has registered an indefinite number of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Its 24f-2 Notice for its most recent fiscal year was filed on
February 28, 1995.
Total number of pages: 53
Index to Exhibits is located on page: 49
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
<TABLE>
<CAPTION>
Item of Form N-1A CAPTION or Location in Prospectus
- ----------------- ---------------------------------
Part A
- ------
<S> <C> <C>
I. Cover Page....................................... Cover Page
II. Synopsis..........................................FUND EXPENSES
III. Condensed Financial Information ..................FINANCIAL HIGHLIGHTS
IV. General Description of Registrant ................INVESTMENT OBJECTIVE,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
GENERAL INFORMATION
V. Management of the Fund ...........................MANAGEMENT OF THE FUND,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance ...............................*
VI. Capital Stock and Other Securities ...............GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
IMPORTANT ACCOUNT INFORMATION,
REDEEMING YOUR SHARES,
TRANSFERRING OWNERSHIP,
OTHER SERVICES
VII. Purchase of Securities Being
Offered .......................................NET ASSET VALUE PER SHARE,
OPENING AN ACCOUNT AND
PURCHASING SHARES,
EXCHANGE PRIVILEGE,
OTHER SERVICES
VIII. Redemption or Repurchase .........................REDEEMING YOUR SHARES
IX. Pending Legal Proceedings ........................*
</TABLE>
<PAGE>
<TABLE>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
- ----------------- --------------------------------
Part B
- ------
<S> <C> <C>
X. Cover Page....................................... Cover Page
XI. Table of Contents ................................TABLE OF CONTENTS
XII. General Information and History ..................*
XIII. Investment Objectives and Policies ...............INVESTMENT POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund ...........................MANAGEMENT OF THE FUND
XV. Control Persons and Principal
Holders of Securities ..........................MANAGEMENT OF THE FUND,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services .......................................MANAGEMENT OF THE FUND,
INVESTMENT ADVISORY SERVICES
XVII. Brokerage Allocation and Other
Practices.......................................PORTFOLIO TRANSACTIONS
XVIII. Capital Stock and Other Securities. DESCRIPTION OF THE FUND
XIX. Purchase, Redemption and Pricing
of Securities Being Offered ....................PRICING OF SHARES BEING OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status........................................TAXATION
XXI. Underwriters .....................................*
XXII. Calculation of Performance Data ..................PERFORMANCE DATA
XXIII. Financial Statements .............................**
</TABLE>
* Not applicable or item omitted.
** Incorporated by reference.
<PAGE>
THE ROYCE FUNDS
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PENNSYLVANIA MUTUAL FUND
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PROSPECTUS -- MAY 5, 1995
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NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-221-4268
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR
SERVICES -- 1-800-33-ROYCE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND Pennsylvania Mutual Fund (the 'Fund') is a no-load, open-end diversified management
POLICIES investment company. Its investment objective is long-term capital appreciation. The Fund
seeks to achieve this objective primarily through investments in common stocks and securities
convertible into common stocks of small companies selected on a value basis. There can be no
assurance that the Fund will achieve its objective.
- -----------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT Please complete, sign and return the Account Application Form. If you have any questions
regarding the Fund or if you need help in completing the Application Form, please call
Investor Information. The minimum initial investment is $2,000, except for IRA's and accounts
establishing an Automatic Investment Plan, which have $500 minimums. The Fund is offered on a
no-load basis.
- -----------------------------------------------------------------------------------------------------------------------
ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information that you should know about the Fund
before you invest. It should be retained for future reference. A 'Statement of Additional
Information' containing further information about the Fund has been filed with the Securities
and Exchange Commission. The Statement is dated May 5, 1995 and has been incorporated by
reference into this Prospectus. A copy may be obtained without charge by writing to the Fund
or calling Investor Information.
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 3
Fund Performance and Volatility................... 4
Investment Objective.............................. 5
Investment Policies............................... 5
Investment Risks.................................. 5
Investment Limitations............................ 6
Management of the Fund............................ 7
General Information............................... 7
<CAPTION>
Page
<S> <C>
Dividends, Distributions and Taxes................ 8
Net Asset Value Per Share......................... 9
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.......... 9
Choosing a Distribution Option.................... 12
Important Account Information..................... 12
Redeeming Your Shares............................. 13
Exchange Privilege................................ 15
Transferring Ownership............................ 15
Other Services.................................... 15
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<S> <C> <C>
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FUND EXPENSES The following table illustrates all expenses and fees that you would incur as a shareholder
of the Fund.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...................................................... None
Sales Load Imposed on Reinvested Dividends........................................... None
Deferred Sales Load.................................................................. None
Redemption Fee -- 1 Year or More After Initial Purchase.............................. None
Early Redemption Fee -- Less Than 1 Year After Initial Purchase...................... 1%
</TABLE>
The Fund is no-load
and has no 12b-1
fees
<TABLE>
<S> <C> <C>
Annual Fund Operating Expenses
Management Fees...................................................................... .77%
Other Expenses....................................................................... .21%
Total Operating Expenses............................................................. .98%
</TABLE>
Fund expenses in
1994 were .98% of
average net assets
<TABLE>
<S> <C> <C>
The purpose of the above table is to assist you in understanding the various costs and
expenses that you would bear directly or indirectly as an investor in the Fund.
The following examples illustrate the expenses that you would incur on a $1,000 investment
over various periods, assuming a 5% annual rate of return and redemption at the end of each
period.
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
$10 $31 $54 $120
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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FINANCIAL The following financial highlights are part of the Fund's financial statements and have been
HIGHLIGHTS audited by Coopers & Lybrand L.L.P., independent accountants. The Fund's financial statements
and Coopers & Lybrand L.L.P.'s report on them are included in the Fund's Annual Reports to
(For a share out- Shareholders and are incorporated by reference into the Statement of Additional Information
standing through- and this Prospectus. Further information about the Fund's performance is contained elsewhere
out each year) in this Prospectus and in the Fund's Annual Report to Shareholders for 1994, which may be
obtained without charge by calling Investor Information.
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR.............................. $ 8.31 $ 8.00 $ 7.29 $ 5.78 $ 6.85 $ 6.41 $ 5.47 $ 6.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income........... 0.12 0.11 0.11 0.12 0.17 0.21 0.14 0.14
Net gains (losses) on
securities (both
realized and unrealized)...... (0.18) 0.79 1.07 1.72 (0.96) 0.86 1.20 (0.02)
-------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations................ (0.06) 0.90 1.18 1.84 (0.79) 1.07 1.34 0.12
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income)............ (0.11) (0.11) (0.10) (0.12) (0.16) (0.22) (0.12) (0.33)
Distributions (from capital
gains)........................ (0.73) (0.48) (0.37) (0.21) (0.12) (0.41) (0.28) (1.30)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions......... (0.84) (0.59) (0.47) (0.33) (0.28) (0.63) (0.40) (1.63)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR........ $ 7.41 $ 8.31 $ 8.00 $ 7.29 $ 5.78 $ 6.85 $ 6.41 $ 5.47
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
TOTAL RETURN........................ -0.7% 11.3% 16.2% 31.8% -11.5% 16.7% 24.6% 1.4%
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(millions).................... $ 771 $1,022 $1,102 $ 789 $ 549 $ 551 $ 444 $ 276
Ratio of Expenses to
Average Net Assets............ 0.98% .98% .91% .95% .96% .97% 1.01% .99%
Ratio of Net Investment Income
to Average Net Assets......... 1.33% 1.23% 1.48% 1.73% 2.62% 2.93% 2.35% 2.02%
Portfolio Turnover Rate......... 17% 24% 22% 29% 15% 23% 24% 23%
<CAPTION>
1986 1985
-------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR.............................. $ 7.43 $6.09
INCOME FROM INVESTMENT OPERATIONS
Net investment income........... 0.14 0.13
Net gains (losses) on
securities (both
realized and unrealized)...... 0.65 1.46
-------- -------
Total from Investment
Operations................ 0.79 1.59
-------- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income)............ (0.13) (0.09)
Distributions (from capital
gains)........................ (1.11) (0.16)
-------- -------
Total Distributions......... (1.24) (0.25)
-------- -------
NET ASSET VALUE, END OF YEAR........ $ 6.98 $7.43
TOTAL RETURN........................ 11.2% 26.8%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(millions).................... $ 333 $ 354
Ratio of Expenses to
Average Net Assets............ .98% 1.03%
Ratio of Net Investment Income
to Average Net Assets......... 1.85% 2.17%
Portfolio Turnover Rate......... 19% 15%
</TABLE>
3
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<TABLE>
<S> <C>
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FUND From time to time, the Fund may include in communications to current or prospective
PERFORMANCE shareholders figures reflecting total return over various time periods. 'Total return' is the
AND VOLATILITY rate of return on an amount invested in the Fund from the beginning to the end of the stated
period. 'Average annual total return' is the annual compounded percentage change in the value
Total return is the of an amount invested in the Fund from the beginning until the end of the stated period.
change in value over a
given time period, Total returns are historical measures of past performance and are not intended to indicate
assuming reinvestment of future performance. Total returns assume the reinvestment of all dividends and capital gains
dividends and capital distributions. The figures do not reflect the Fund's early redemption fee because it applies
gains distributions only to redemptions in accounts open for less than one year.
The S&P 500 is a widely recognized, unmanaged index of large company stocks. The S&P 500
figures below, which are presented for comparison to the Fund's performance, also assume the
reinvestment of all dividends paid by the stocks in the index.
The Fund's average annual total returns (%) for the periods ended December 31, were:
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
(0.7) 11.3 16.2 31.8 (11.5)
PMF annual total return...............................
1.3 10.0 7.7 30.5 (3.2)
S&P 500 Index annual total return.....................
8.4 12.0 14.5 11.4 7.7
PMF 5 year average annual total return................
12.0 12.4 15.1 16.7 13.6
PMF 10 year average annual total return...............
21.5 -- -- -- --
PMF 20 year average annual total return...............
</TABLE>
<TABLE>
<CAPTION>
RESULTS OF A $10,000 INITIAL INVESTMENT IN
PENNSYLVANIA MUTUAL FUND
VALUATION AT DECEMBER 31, 1994
$10,000 INITIAL PERIOD -----------------------------------
INVESTMENT IN SHARES INVESTMENT S&P 500 3-MONTH
PMF ON HELD IN PMF INDEX T-BILLS
--------------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
12/31/89 5 Years $ 14,965 $ 15,166 $12,697
12/31/84 10 Years 31,083 37,997 17,833
12/31/74 20 Years 489,263 150,436 42,343
</TABLE>
<TABLE>
<CAPTION>
RESULTS OF $2,000 INVESTED ANNUALLY IN PMF
USING A CONTINUOUS INVESTMENT PROGRAM
VALUATION AT DECEMBER 31, 1994
$2,000 ANNUAL TOTAL ------------------------------------------
INVESTMENT IN AMOUNT PMF S&P 500 3 MONTH
PMF BEGINNING ON INVESTED INVESTMENT INDEX TREASURY BILLS
---------------- -------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C>
12/31/89 $ 10,000 $ 13,137 $ 12,822 $ 11,351
12/31/84 20,000 36,511 39,713 27,054
12/31/74 40,000 307,701 202,882 89,760
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
'Risk' defined as the The relative risk of investing in a particular fund should be considered in addition to the
volatility of a fund's total returns of the fund. Risk, in terms of how volatile an investor's returns have been,
total returns over time can be measured in a number of ways, including standard deviation and beta.
Standard deviation measures the range of performance within which a fund's total returns
have fallen. The lower the standard deviation of the fund, the less volatile and more
consistent the fund's monthly total returns have been over that period. When the standard
deviation of a fund is lower than the standard deviation of an index such as the S&P 500,
the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If the fund has a beta greater than 1.00, it
has been more volatile than the index; if its beta is less than 1.00, it has been less
volatile than the index.
These measures of risk, which are historical in nature and not necessarily predictive of
future volatility, are more fully described in the Statement of Additional Information. For
the three year period ended December 31, 1994, standard deviation and beta for the Fund and
for the S&P 500 (Source: Morningstar, Inc.) were:
</TABLE>
<TABLE>
<CAPTION>
Standard
Deviation Beta
--------- ----
<S> <C> <C> <C>
S&P 500............................. 7.94 1.00
Pennsylvania Mutual Fund............ 6.57 .52
</TABLE>
<TABLE>
<S> <C>
The investment risks associated with the types of securities in which the Fund may invest are
described below -- see 'Investment Risks.'
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT PENNSYLVANIA MUTUAL FUND'S investment objective is long-term capital appreciation, primarily
OBJECTIVE through investments in securities of small companies. Production of income is incidental to
this objective. Since certain risks are inherent in owning any security, there can be no
assurance that the Fund will achieve its objective.
This investment objective of long-term capital appreciation is fundamental and may not be
changed without the approval of a majority of the Fund's outstanding voting shares.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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INVESTMENT Quest Advisory Corp. ('Quest'), the Fund's investment adviser, uses a 'value' method in
POLICIES managing the Fund's assets. In its selection process, Quest puts primary emphasis on various
internal returns indicative of profitability, balance sheet quality, cash flows and the
The Fund invests on a relationships that these factors have to the current price of a given security. This is in
'value' basis contrast to other methods that primarily focus on the future prospects of a company and
concentrate on high growth or emerging growth companies.
The Fund invests Quest's value method is based on its belief that the securities of certain small companies
primarily in small may sell at a discount from its estimate of such companies' 'business worth'. Quest attempts
companies to identify and invest in these securities for the Fund, with the expectation that this
'value discount' will narrow over time and thus provide capital appreciation for the Fund.
Normally, the Fund will invest at least 65% of its assets in common stocks, convertible
preferred stocks and convertible bonds of small companies with stock market capitalizations
under $750,000,000 at the time of investment. The remainder of its assets may be invested in
securities of companies with higher stock market capitalizations and non-convertible
preferred stocks and debt securities. The securities in which the Fund invests may be traded
on securities exchanges or in the over-the-counter market.
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT As a mutual fund investing primarily in common stocks and/or securities convertible into
RISKS common stocks, the Fund is subject to market risk, that is, the possibility that common stock
prices will decline over short or even extended periods. The Fund may invest in securities of
The Fund is subject to companies that are not well-known to the investing public, may not have significant
certain investment risks institutional ownership and may have cyclical, static or only moderate growth prospects. The
stocks of such companies may be more volatile in price and have lower trading volumes than
the larger capitalization stocks included in the S&P 500 Index. Accordingly, Quest's
investment method requires a long-term investment horizon. The Fund should not be used to
play short-term swings in the market.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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INVESTMENT The Fund has adopted certain fundamental limitations, designed to reduce its exposure to
LIMITATIONS specific situations, which may not be changed without the approval of a majority of its
outstanding voting shares, as that term is defined in the Investment Company Act of 1940 (the
The Fund has '1940 Act'). These limitations are set forth in the Statement of Additional Information and
adopted certain provide, among other things, that the Fund will not:
fundamental (a) own more than 10% of the voting securities of any one issuer;
limitations (b) invest more than 25% of its assets in any one industry;
(c) invest in companies for the purpose of exercising control of management; or
(d) borrow money, except under certain circumstances.
OTHER INVESTMENT In addition to investing primarily in the equity and fixed income securities described above,
PRACTICES: the Fund may follow a number of additional investment practices.
Short-term fixed The Fund may invest in short-term fixed income securities for temporary defensive purposes,
income securities to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions.
These securities consist of United States Treasury bills, domestic bank certificates of
deposit, high-quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security to the Fund at one
price and agrees to repurchase it at the Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a value equal to or in excess of the
value of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should the Fund implement a temporary investment policy, its investment
objective may not be achieved.
Securities lending The Fund may lend up to 25% of its assets to qualified institutional investors for the
purpose of realizing additional income. Loans of securities of the Fund will be
collateralized by cash or securities issued or guaranteed by the United States Government or
its agencies or instrumentalities. The collateral will equal at least 100% of the current
market value of the loaned securities. The risks of securities lending include possible
delays in receiving additional collateral or in recovery of loaned securities or loss of
rights in the collateral if the borrower defaults or becomes insolvent.
Foreign securities The Fund may invest up to 10% of its assets in debt and/or equity securities of foreign
issuers. Foreign investments involve certain risks, such as political or economic instability
of the issuer or of the country of issue, fluctuating exchange rates and the possibility of
imposition of exchange controls. These securities may also be subject to greater fluctuations
in price than the securities of U.S. corporations, and there may be less publicly available
information about their operations. Foreign companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies, and foreign markets may
be less liquid or more volatile than U.S. markets and may offer less protection to investors
such as the Fund.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Lower-rated The Fund may invest up to 35% of its assets in debt securities in the lowest category of
debt securities investment grade debt. These bonds may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case with higher grade bonds. The Fund may
also invest no more than 5% of its net assets in lower-rated (high-risk) non-convertible debt
securities, which are below investment grade.
Portfolio turnover Although the Fund generally seeks to invest for the long term, it retains the right to sell
securities regardless of how long they have been held. The Fund's annual portfolio turnover
rates are shown in the 'Financial Highlights'. Portfolio turnover rates for the Fund have
averaged 22% over the past 10 years. A 25% turnover rate occurs, for example, if one-fourth
of the Fund's portfolio securities are replaced in one year.
- -----------------------------------------------------------------------------------------------------------------------
MANAGEMENT OF THE FUND The Fund's business and affairs are managed under the direction of its Board of Trustees.
Quest, the Fund's investment adviser, is responsible for the management of the Fund's
Quest Advisory Corp. is portfolio, subject to the authority of the Board of Trustees. Quest was organized in 1967 and
responsible for the has been the Fund's adviser since June 1967. Charles M. Royce, Quest's President, Chief
management of the Fund's Investment Officer and sole voting shareholder since 1972, is primarily responsible for
portfolio supervising Quest's investment management activities. Mr. Royce is assisted by Thomas R.
Ebright, Jack E. Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, all of whom
participate in the investment management activities, with their specific responsibilities
varying from time to time. Quest is also the investment adviser to Royce Value, Royce Equity
Income, Royce Premier, Royce Micro-Cap, Royce Low-Priced Stock, Royce Total Return and Royce
Global Services Funds, which are series of The Royce Fund, and to other investment and
non-investment company accounts.
As compensation for its services to the Fund, Quest is entitled to receive annual advisory
fees of 1% of the first $50 million of the Fund's average net assets; .875% of the next $50
million of average net assets; and .75% of average net assets in excess of $100 million.
These fees are payable monthly from the assets of the Fund and are higher than those paid by
other funds with similar investment objectives. For 1994, the fees paid to Quest by the Fund
were .77% of its average net assets.
Quest selects the brokers who execute purchases and sales of the Fund's portfolio securities
and may place orders with brokers who provide brokerage and research services to Quest. Quest
is authorized, in recognition of the value of brokerage and research services provided, to
pay commissions to a broker in excess of the amount which another broker might have charged
for the same transaction.
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GENERAL Pennsylvania Mutual Fund, one of the group of funds comprising The Royce Funds, is a Delaware
INFORMATION business trust registered with the Securities and Exchange Commission as a diversified,
open-end management investment company. The Trustees of the Fund have the authority to issue
an unlimited number of shares of beneficial interest, without shareholder approval, and these
shares may be divided into an unlimited number of series and/or classes (only one series and
class is currently outstanding). Shareholders are entitled to one vote per share.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
The Fund is the successor to Pennsylvania Mutual Fund, Inc. ('PMFI'). Each of the Trustees
currently in office was elected by the then stockholders of PMFI. Meetings of shareholders
will not be held except as required by the 1940 Act or other applicable law. A meeting will
be held to vote on the removal of a Trustee or Trustees of the Fund if requested in writing
by the holders of not less than 10% of the outstanding shares of the Fund.
The custodian for securities and cash of the Fund is State Street Bank and Trust Company.
State Street, through its agent, National Financial Data Services ('NFDS'), also serves as
the Fund's Transfer Agent. Coopers & Lybrand L.L.P. serves as independent accountants for the
Fund.
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DIVIDENDS, The Fund pays dividends from net investment income and distributes its net realized capital
DISTRIBUTIONS gains annually in December. Dividends and distributions will be automatically reinvested in
AND TAXES additional shares of the Fund unless the shareholder chooses otherwise.
Dividends and Shareholders will receive information annually as to the tax status of distributions made by
capital gains the Fund for the calendar year. For Federal income tax purposes, all distributions by the
distributions are Fund are taxable to shareholders when declared, whether received in cash or reinvested in
made in December shares. Distributions paid from the Fund's net investment income and short-term capital gains
are taxable to shareholders as ordinary income dividends. A portion of the Fund's dividends
may qualify for the corporate dividends-received deduction, subject to certain limitations.
The portion of the Fund's dividends qualifying for such deduction is generally limited to the
aggregate taxable dividends received by the Fund from domestic corporations.
Distributions paid from long-term capital gains of the Fund are treated by a shareholder for
Federal income tax purposes as long-term capital gains, regardless of how long the
shareholder has held Fund shares. If a shareholder disposes of shares held for six months or
less at a loss, such loss will be treated as a long-term capital loss to the extent of any
long-term capital gains reported by the shareholder with respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize a capital gain or
capital loss. The Fund will report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a redemption.
At the time of a shareholder's purchase, the Fund's net asset value may reflect undistributed
income or capital gains. A subsequent distribution of these amounts by the Fund will be
taxable to the shareholder even though the distribution economically is a return of part of
the shareholder's investment.
</TABLE>
9
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<TABLE>
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The Fund is required to withhold 31% of taxable dividends, capital gain distributions and
redemptions paid to non-corporate shareholders who have not complied with Internal Revenue
Service taxpayer identification regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to backup
withholding.
The discussion of Federal income taxes above is for general information only. The Statement
of Additional Information includes an additional description of Federal income tax aspects
that may be relevant to a shareholder. Shareholders may also be subject to state and local
taxes on their investment. Investors should consult their own tax advisers concerning the tax
consequences of an investment in the Fund.
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Fund shares are purchased and redeemed at their net asset value per share next determined
PER SHARE after an order is received by the Fund's transfer agent. Net asset value per share is
determined by dividing the total value of the Fund's investments and other assets, less any
Net asset value liabilities, by the number of outstanding shares of the Fund. Net asset value per share is
per share (NAV) is calculated at the close of regular trading on the New York Stock Exchange on each day the
determined each Exchange is open for business.
day the New York In determining net asset value, securities listed on an exchange or the Nasdaq National
Stock Exchange is Market System are valued on the basis of the last reported sale price prior to the time the
open valuation is made or, if no sale is reported for that day, at their bid price for
exchange-listed securities and at the average of their bid and ask prices for Nasdaq
securities. Quotations are taken from the market where the security is primarily traded.
Other over-the counter securities for which market quotations are readily available are
valued at their bid price. Securities for which market quotations are not readily available
are valued at their fair value under procedures established and supervised by the Fund's
Board of Trustees. Bonds and other fixed income securities may be valued by reference to
other securities with comparable ratings, interest rates and maturities, using established
independent pricing services.
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND The Fund's shares are offered on a no-load basis. New accounts (other than IRA or 403(b)(7)
PURCHASING SHARES accounts) can be opened either by mail, by telephone or by wire. An Account Application Form
must be completed and returned, regardless of the method selected. If you need assistance
with the Account Application Form or have any questions about the Fund, please call Investor
Information at 1-800-221-4268. NOTE: For certain types of account registrations (e.g.,
corporations, partnerships, foundations, associations, other organizations, trusts or powers
of attorney), please call Investor Information to determine if you need to provide additional
forms with your application.
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Minimum Initial TYPE OF ACCOUNT MINIMUM
Investments
Regular accounts $2,000
IRAs* $500
Accounts established with Automatic Investment Plan or $500
Direct Deposit Plan
403(b)(7) accounts* None
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Additional Subsequent investments may be made by mail ($50 minimum), telephone ($500 minimum), wire or
Investments Express Service (a system of electronic funds transfer from your bank account).
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PURCHASING BY MAIL NEW ACCOUNT ADDITIONAL INVESTMENTS
Complete and sign Please include the amount of your initial TO EXISTING ACCOUNT
the enclosed investment on the Application Form, make your Additional investments should include the
Account Application check payable to Pennsylvania Mutual Fund, Invest-by-Mail remittance form attached to
Form and mail to: your Fund account confirmation statements.
The Royce Funds Please make your check payable to
c/o NFDS Pennsylvania Mutual Fund, write your account
P.O. Box 419012 number on your check and, using the return
Kansas City, MO 64141-6012 envelope provided, mail to the address
indicated on the Invest-by-Mail form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
--------------------------------------------- ---------------------------------------------
PURCHASING BY To open an account by telephone, you should Subsequent telephone purchases ($500 minimum)
TELEPHONE: call Investor Information (1-800-221-4268) may also be made by calling Investor
before 4:00 p.m., Eastern time. You will be Information. For all telephone purchases,
given a confirming order number for your payment is due within three business days and
purchase. This number must be placed on your may be made by wire or personal, business or
completed application before mailing. If an bank check, subject to collection.
application is not received on an account,
the account may be subject to backup
withholding of Federal income taxes.
</TABLE>
- ------------
* Separate forms must be used for opening IRA's or 403(b)(7) accounts; please
call Investor Information at 1-800-221-4268 if you need these forms.
11
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PURCHASING BY WIRE: Money should be wired to:
State Street Bank and Trust Company
BEFORE WIRING: ABA 011000028 DDA 9904-712-8
For a new account, Ref: Pennsylvania Mutual Fund
please contact Investor Order Number or Account Number
Information at Account Name
1-800-221-4268
To ensure proper receipt, please be sure your bank includes the name of the Fund and your
order number (for telephone purchases) or account number. If you are opening a new account,
you must call Investor Information to obtain an order number, and complete the Account
Application Form and mail it to the 'New Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
---------------------------------------------------------------------------------------------
PURCHASING BY You can purchase shares automatically or at your discretion through the following options:
EXPRESS SERVICE EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds ($100 minimum
and $200,000 maximum) from your bank account to purchase shares in your Fund account by
telephone.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or Automatic Investment Plan, please provide
the appropriate information on the Account Application Form and ATTACH A VOIDED CHECK. We
will send you a confirmation of Express Service activation. Please wait three weeks before
using the service.
To make an Expedited Purchase, please call Shareholder Services at 1-800-841-1180 before 4:00
p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have investments ($50
minimum) made from your net payroll or government check into your existing Fund account each
pay period. Your employer must have direct deposit capabilities through ACH (Automated
Clearing House) available to its employees. You may terminate participation in these programs
by giving written notice to your employer or government agency, as appropriate. The Fund is
not responsible for the efficiency of the employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct Deposit
form, which may be obtained from Investor Information by calling 1-800-221-4268.
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12
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CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option -- Both dividends and capital gain distributions will be
reinvested in additional Fund shares. This option will be selected for you automatically
unless you specify one of the other options.
2. Cash Dividend Option -- Your dividends will be paid in cash and your capital gain
distributions will be reinvested in additional Fund shares.
3. All Cash Option -- Both dividends and capital gain distributions will be paid in cash.
You may change your option by calling Shareholder Services at 1-800-841-1180.
- -----------------------------------------------------------------------------------------------------------------------
IMPORTANT The easiest way to establish optional services on your account is to select the options you
ACCOUNT INFORMATION desire when you complete your Account Application Form. If you want to add or change
shareholder options later, you may need to provide additional information and a signature
guarantee. Please call Shareholder Services at 1-800-841-1180 for further assistance.
Signature For our mutual protection, we may require a signature guarantee on certain written
Guarantees transaction requests. A signature guarantee verifies the authenticity of your signature and
may be obtained from banks, brokerage firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon request. If a certificate is lost, stolen
or destroyed, you may incur an expense to replace it.
Purchases Through If you purchase shares of the Fund through a program of services offered or administered by a
Service Providers broker-dealer, financial institution or other service provider, you should read the program
materials provided by the service provider, including information regarding fees which may be
charged, in conjunction with this prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of services
offered. When shares of a Fund are purchased in this way, the service provider, rather than
the customer, may be the shareholder of record of the shares. Certain service providers may
receive compensation from the Fund and/or Quest for providing such services.
Telephone Neither the Fund nor its transfer agent will be liable for following instructions
Transactions communicated by telephone that are reasonably believed to be genuine. The transfer agent uses
certain procedures designed to confirm that telephone instructions are genuine, which may
include requiring some form of personal identification prior to acting on the instructions,
providing written confirmation of the transaction and/or recording incoming calls, and if it
does not follow such procedures, the Fund or the Transfer Agent may be liable for any losses
due to unauthorized or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment is not received for any telephone
purchase, the transaction will be cancelled and you will be responsible for any loss the Fund
incurs. If you are already a shareholder, the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for any loss incurred.
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13
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Trade date for purchases Your TRADE DATE is the date on which your account is credited. If your purchase is made by
telephone, check, Federal Funds wire or exchange and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time), your trade date
is the date of receipt. If your purchase is received after the close of regular trading on
the Exchange, your trade date is the next business day. Your shares are purchased at the net
asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign checks, the
Fund will accept only a foreign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a United States correspondent bank.
The Fund reserves the right to suspend the offering of Fund shares to new investors. The Fund
also reserves the right to reject any specific purchase request.
- -----------------------------------------------------------------------------------------------------------------------
REDEEMING You may redeem any portion of your account at any time. You may request a redemption in
YOUR SHARES writing or by telephone. Redemption proceeds normally will be sent within two business days
after the receipt of the request in Good Order.
REDEEMING BY Redemption requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas
MAIL City, MO 64141-6012. (For express or registered mail, send your request to The Royce Funds,
c/o National Financial Data Services, 1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset value next determined after NFDS has
received all required documents in Good Order.
Definition of Good GOOD ORDER means that the request includes the following:
Order 1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if the value of the shares being redeemed exceeds $50,000 or if the
payment is to be sent to an address other than the address of record or is to be made to a
payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the case of retirement
plans, corporations, trusts, estates and certain other accounts.
If you have any questions about what is required as it pertains to your request, please call
Shareholder Services at 1-800-841-1180.
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14
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REDEEMING BY TELEPHONE Shareholders who have not established Express Service may redeem up to $50,000 of their Fund
shares by telephone, provided the proceeds are mailed to their address of record. If
preapproved, higher maximums may apply to institutional shares. To redeem shares by
telephone, you or your pre-authorized representative may call Shareholder Services at
1-800-841-1180. Redemption requests received by telephone prior to the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time) are processed on
the day of receipt; redemption requests received by telephone after the close of regular
trading on the Exchange are processed on the business day following receipt. Telephone
redemption service is not available for Fund-sponsored retirement plan accounts or if
certificates are held. TELEPHONE REDEMPTIONS WILL NOT BE PERMITTED FOR A PERIOD OF SIXTY DAYS
AFTER A CHANGE IN THE ADDRESS OF RECORD. See also 'Important Account Information -- Telephone
Transactions'.
---------------------------------------------------------------------------------------------
REDEEMING BY EXPRESS If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be automatically
SERVICE redeemed from your Fund account and the proceeds transferred to your bank account according
to the schedule you have selected. You must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from your Fund
account by telephone and transfer the proceeds directly to your bank account. You may elect
Express Service on the Account Application Form or call Shareholder Services at
1-800-841-1180 for an Express Service application.
IMPORTANT If you are redeeming shares recently purchased by check, Express Service Expedited Purchase
REDEMPTION or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment
INFORMATION for the purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined after your request has been
received by the Transfer Agent in Good Order. The Fund reserves the right to revise or
terminate the telephone redemption privilege at any time.
The Fund may suspend the redemption right or postpone payment at times when the New York
Stock Exchange is closed or under any emergency circumstances as determined by the Securities
and Exchange Commission.
Although redemptions have always been made in cash, the Fund may redeem in kind under certain
circumstances.
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15
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EARLY REDEMPTION In order to discourage short-term trading, an early redemption fee of 1% of the net asset
FEE value of the shares being redeemed is imposed if a shareholder redeems shares of the Fund
less than one year after becoming a shareholder. The fee is payable to the Fund out of the
redemption proceeds otherwise payable to the shareholder. No redemption fee will be payable
on an exchange into another Royce Fund or by shareholders who are (a) employees of the Fund
or Quest or members of their immediate families or employee benefit plans for them, (b)
participants in the Automatic Withdrawal Plan, (c) certain Fund-approved Group Investment
Plans and charitable organizations, (d) profit-sharing trusts, corporations or other
institutional investors who are investment advisory clients of Quest or (e) omnibus and other
similar account customers of certain Fund-approved broker-dealers and other institutions.
MINIMUM ACCOUNT BALANCE Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right
REQUIREMENT to involuntarily redeem shares in any Fund account that falls below the minimum initial
investment due to redemptions by the shareholder. If at any time the balance in an account
does not have a value at least equal to the minimum initial investment, or if an Automatic
Investment Plan is discontinued before an account reaches the minimum initial investment that
would otherwise be required, you may be notified that the value of your account is below the
Fund's minimum account balance requirement. You would then have sixty days to increase your
account balance before the account is liquidated. Proceeds would be promptly paid to the
shareholder.
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE Exchanges with other open-end Royce funds are permitted by telephone or by mail. An exchange
is treated as a redemption and purchase; therefore, you could realize a taxable gain or loss
on the transaction. Exchanges are accepted only if the registrations and the tax
identification numbers of the two accounts are identical. Minimum investment requirements
must be met when opening a new account by exchange and exchanges may be made only for shares
of a fund then offering its shares for sale in your state of residence. The Fund reserves the
right to revise or terminate the exchange privilege at any time.
- -----------------------------------------------------------------------------------------------------------------------
TRANSFERRING OWNERSHIP You may transfer the ownership of any of your Fund shares to another person by writing to:
The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO 64141-6012. The request must be
in Good Order (see 'Redeeming Your Shares -- Definition of Good Order'). Before mailing your
request, please contact Shareholder Services at 1-800-841-1180 for full instructions.
- -----------------------------------------------------------------------------------------------------------------------
OTHER SERVICES For more information about any of these services, please call Investor Information at 1-800-
221-4268.
Statements and A confirmation statement will be sent to you each time you have a transaction in your account
Reports and semi-annually. Financial reports will be mailed semi-annually. To reduce expenses, only
one copy of most shareholder reports may be mailed to a household. Please call Investor
Information if you need additional copies.
Tax-sheltered Shares of the Fund are available for purchase in connection with certain types of tax-
Retirement Plans sheltered retirement plans, including Individual Retirement Accounts (IRA's) for individuals
and 403(b)(7) Plans for employees of certain tax-exempt organizations.
These plans should be established with the Fund only after an investor has consulted with a
tax adviser or attorney. Information about the plans and the appropriate forms may be
obtained from Investor Information at 1-800-221-4268.
- -----------------------------------------------------------------------------------------------------------------------
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16
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- -------------------------------------------------------------------------------
THE ROYCE FUNDS -- PENNSYLVANIA MUTUAL FUND
ACCOUNT APPLICATION FORM
- ---------------------------------------------
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Mail to: The Royce Funds c/o NFDS For help with this application, PLEASE READ THE INSTRUCTIONS ON THE REVERSE
PO Box 419012, or for more information, SIDE BEFORE YOU COMPLETE THIS FORM.
Kansas City, MO 64141-6012 call us at (800) 221-4268 PLEASE DO NOT USE THIS APPLICATION TO OPEN
A ROYCE FUND SPONSORED IRA OR
403(b)(7) RETIREMENT PLAN ACCOUNT.
</TABLE>
- ---------------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
[ ] INDIVIDUAL OR JOINT ACCOUNT
- ---------------------------------------------
Owner's Name: First, Initial, Last
- ---------------------------------------------
Owner's Social Security Number
- ---------------------------------------------
Joint Owner's Name: First, Initial, Last
JOINT ACCOUNTS WILL BE REGISTERED AS JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP UNLESS OTHERWISE INDICATED.
[ ] GIFT OR TRANSFER TO MINOR
- ---------------------------------------------
Custodian's Name (One name only: First, Initial, Last)
- ---------------------------------------------
Name (One name only: First, Initial, Last)
- ---------------------------------------------
Minor's Social Security Number
under the __________________________ Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] TRUST (Including Corporate Retirement Plans)
- ---------------------------------------------
Trustee Name(s)
- ---------------------------------------------
Name of Trust or Retirement Plan
- ---------------------------------------------
Date of Trust Agreement
- ---------------------------------------------
For Benefit Of (Name, if applicable)
- ---------------------------------------------
Social Security Number or Taxpayer ID Number
[ ] OTHER ENTITIES
Type: [ ] Corporation [ ] Partnership [ ] Nominee
[ ] Foundation [ ] Charitable Organization
[ ] Other (------------------------)
- ----------------------------------------------
Name of Entity
- ----- ------------- [ ] Tax-Exempt Entity Under
Taxpayer ID Number IRS Sec. 501(c)3)
- -----------------------------------------------------------
2 MAILING ADDRESS
- -----------------------------------------------
Street or PO Box Number
- -----------------------------------------------
City State Zip
- ------------------- --------------------
Daytime Phone Evening Phone
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
- -----------------------------------------------
Representative Name Rep. Number
- -----------------------------------------------
Firm Phone
- -----------------------------------------------
Address State Zip
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
$______________________________
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) _______________________________________________________
Telephone order number _______________________________________
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
If no box is checked, all income dividends and capital gain
distributions will be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- ---------------------------------------------------------------
7 EXPRESS SERVICE
To arrange for Express Service, please provide the information
below. Passbook savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] AUTOMATIC INVESTMENT PLAN: On the ____ day each [ ] month
[ ] quarter, transfer $___________ from my bank account to purchase
shares in my Royce Fund account ($50 minimum). I wish to begin my
plan in __________ (select month).
[ ] AUTOMATIC WITHDRAWAL PLAN: On the ____ day each month, redeem and
transfer $___________ from my Royce Fund account to my bank account
($100 minimum).
[ ] EXPEDITED PURCHASES AND REDEMPTIONS: To purchase or redeem shares
at any time, using a bank account to clear the transaction ($100 minimum).
[ ] WIRE REDEMPTIONS: To have redemption proceeds wired to my commercial
bank ($1,000 minimum).
(APPLICATION MUST BE SIGNED ON REVERSE SIDE)
<PAGE>
- ---------------------------------------------------------------
8 SIGNATURE (Please be sure to sign below)
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written or telephone instructions reasonably believed to be genuine and in
accordance with the procedures described in the Prospectus.
As required by Federal law, I (we) certify under penalties of perjury (1) that
the Social Security or Taxpayer Identification Number provided above is correct
and (2) that the IRS has never notified me (us) that I am (we are) subject to
31% backup withholding, or has notified me (us) that I am (we are) no longer
subject to such backup withholding. (Note: if part (2) of this sentence is not
true in your case, please strike out that part before signing.
CHECK ONE:
[ ] U.S. Citizen [ ] Resident Alien [ ] Non-Resident Alien __________________
(Country of Citizenship)
_____________________________________________________
Signature of Owner, Trustee or Custodian Date
_____________________________________________________
Signature of Joint Owner or Co-trustee (if any) Date
- ---------------------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION
Please provide the information exactly as you wish it to appear on your account
(e.g., as your name appears on your other legal/financial records such as your
bank account, will, etc.). Please provide your Taxpayer Identification Number to
avoid withholding of taxes. For most individuals, this is your Social Security
Number.
- ---------------------------------------------------------------
2 MAILING ADDRESS
Please provide your complete mailing address.
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
This section should be completed by your financial adviser or dealer if
applicable.
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
Please indicate the dollar amount you wish to invest. Minimum initial investment
s $2,000 ($500 minimum for accounts opened with an Automatic Investment Plan).
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Checks should be made payable to Pennsylvania Mutual Fund. If you have placed a
telephone order to open your account and purchase shares, please include the
order number on the application. Payment is due within 3 business days after
placing the order.
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
All distributions will be reinvested if a box is not checked.
- ---------------------------------------------------------------
7 EXPRESS SERVICE
Express Service is a convenient way to purchase or sell shares automatically or
at your discretion. You may choose from the following Express Service options:
AUTOMATIC INVESTMENT PLAN -- automatically purchases shares in your Royce Fund
account by transferring money from your bank account on a monthly or quarterly
basis.
AUTOMATIC WITHDRAWAL PLAN -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
EXPEDITED PURCHASES AND REDEMPTIONS -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
WIRE REDEMPTIONS -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions in
lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and ATTACH A
VOIDED CHECK. Passbook accounts are not eligible for Express Service, and your
bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/ withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and an
Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- ---------------------------------------------------------------
8 SIGNATURE
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
<PAGE>
__________________________________
THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Assistant Secretary
Susan I. Grant, Secretary
__________________________________
[Logo]
__________________________________
THE ROYCE FUNDS
------------------------------------------------------
PENNSYLVANIA
MUTUAL FUND
A NO-LOAD MUTUAL FUND
PROSPECTUS
MAY 5, 1995
<PAGE>
PENNSYLVANIA MUTUAL FUND
STATEMENT OF ADDITIONAL INFORMATION
PENNSYLVANIA MUTUAL FUND (the "Fund"), a Delaware business trust, is a
professionally managed, no-load open-end registered investment company. The Fund
is designed for long-term investors, including those who wish to use its shares
as a funding vehicle for certain tax-deferred retirement plans (including
Individual Retirement Account (IRA) plans), and not for investors who intend to
liquidate their investments after a short period of time.
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Fund's current Prospectus dated May 5,
1995. Please retain this document for future reference. The audited financial
statements included in the Annual Report to the Fund's Shareholders for the
fiscal year ended December 31, 1994 are incorporated herein by reference. To
obtain an additional copy of the Prospectus or Annual Report, please call
Investor Information at 1-800-221-4268.
Investment Adviser
Quest Advisory Corp. ("Quest")
Transfer Agent Custodian
State Street Bank and Trust Company State Street Bank and Trust Company
c/o National Financial Data Services
May 5, 1995
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
INVESTMENT POLICIES AND LIMITATIONS.................................................. 2
RISK FACTORS AND SPECIAL CONSIDERATIONS.............................................. 3
MANAGEMENT OF THE FUND............................................................... 7
PRINCIPAL HOLDERS OF SHARES.......................................................... 9
INVESTMENT ADVISORY SERVICES.......................................................... 9
CUSTODIAN ........................................................................... 10
INDEPENDENT ACCOUNTANTS.............................................................. 11
PORTFOLIO TRANSACTIONS............................................................... 11
CODE OF ETHICS AND RELATED MATTERS................................................... 12
PRICING OF SHARES BEING OFFERED...................................................... 12
REDEMPTIONS IN KIND.................................................................. 12
TAXATION ............................................................................ 13
DESCRIPTION OF THE FUND.............................................................. 16
PERFORMANCE DATA..................................................................... 17
</TABLE>
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement those set
forth in the Fund's Prospectus. Unless otherwise noted, whenever an investment
policy or limitation states a maximum percentage of the Fund's assets that may
be invested in any security or other asset, or sets forth a policy regarding
quality standards, the percentage limitation or standard will be determined
immediately after giving effect to the Fund's acquisition of the security or
other asset. Accordingly, any subsequent change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the Fund's investment policies and limitations.
The Fund's fundamental investment policies cannot be changed without
the approval of a "majority of the outstanding voting securities" (as defined in
the Investment Company Act of 1940 [the "1940 Act"]) of the Fund. Except for the
fundamental investment restrictions set forth below, the investment policies and
limitations described in this Statement of Additional Information are operating
policies and may be changed by the Board of Trustees without shareholder
approval. However, shareholders will be notified prior to a material change in
an operating policy affecting the Fund.
The Fund may not, as a matter of fundamental policy:
1. Issue any senior securities;
2 Purchase securities on margin or write call options on
its portfolio securities;
3. Sell securities short;
4. Borrow money, except for a privately arranged loan for
temporary purposes in an amount not exceeding 5% of its
total assets;
5. Underwrite the securities of other issuers, or invest in
restricted securities;
6. Invest more than 25% of its assets in any one industry;
7. Own more than 10% of the voting securities of any one
issuer;
8. Purchase or sell real estate or real estate mortgage
loans or invest in the securities of real estate
companies unless such securities are publicly-traded;
9. Purchase or sell commodities or commodity contracts;
10. Make loans, except for purchases of portions of issues
of publicly-distributed bonds, debentures and other
securities, whether or not such purchases are made upon
the original issuance of such securities, and except
that the Fund may loan up to 25% of its assets to
qualified brokers, dealers or institutions for their use
relating to short sales or other security transactions
(provided that such loans are secured by collateral
equal at all times to at least 100% of the value of the
securities loaned);
11. Invest in companies for the purpose of exercising
control of management;
2
<PAGE>
12. Purchase portfolio securities from or sell such
securities directly to any of its officers, trustees,
employees or investment adviser, as principal for their
own accounts;
13. Invest more than 25% of its total assets in the
securities of other investment companies (open or
closed-end) or more than 5% of its total assets in the
securities of any one other investment company; and
14. Purchase any warrants, rights or options.
The Fund may not, as a matter of operating policy:
1. Invest more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, which
have been in operation for less than three years;
2. Invest in oil, gas or other mineral leases or
development programs;
3. Invest more than 5% of its net assets in lower-rated
(high-risk) non- convertible debt securities;
4. Invest more than 10% of its total assets in the
securities of foreign issuers; or
5. Enter into repurchase agreements with any party other
than the custodian of its assets or having a term of
more than seven days.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Other Investment Companies
The Fund may invest up to 25% of the value of its total assets in the
securities of other investment companies (open or closed-end) and up to 5% of
its total assets in the securities of any one other investment company. All such
securities must be acquired by the Fund in the open market, in transactions
involving no commissions or discounts to a sponsor or dealer (other than
customary brokerage commissions). The issuers of such securities acquired by the
Fund are not required to redeem them in an amount exceeding 1% of such issuers'
total outstanding securities during any period of less than 30 days, and the
Fund will vote all proxies with respect to such securities in the same
proportion as the vote of all other holders of such securities. The Fund has
not, during the past 5 years, invested in the securities of any open-end
investment companies and has no intention of doing so in the future.
Fund's Rights as Stockholder
As noted above, the Fund may not invest in a company for the purpose of
exercising control of management. However, the Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to
management, the board of directors and/or stockholders if Quest or the Board of
Trustees determine that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that the Fund may
engage in, either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a
3
<PAGE>
company's corporate structure or business activities; seeking changes in a
company's board of directors or management; seeking changes in a company's
direction or policies; seeking the sale or reorganization of a company or a
portion of its assets; or supporting or opposing third party takeover attempts.
This area of corporate activity is increasingly prone to litigation, and it is
possible that the Fund could be involved in lawsuits related to such activities.
Quest will monitor such activities with a view to mitigating, to the extent
possible, the risk of litigation against the Fund and the risk of actual
liability if the Fund is involved in litigation. However, no guarantee can be
made that litigation against the Fund will not be undertaken or liabilities
incurred.
The Fund may, at its expense or in conjunction with others, pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if Quest and the Fund's Board of
Trustees determine this to be in the best interests of the Fund's shareholders.
Securities Lending
The Fund may lend up to 25% of its assets to brokers, dealers and other
financial institutions. Securities lending allows the Fund to retain ownership
of the securities loaned and, at the same time, to earn additional income. Since
there may be delays in the recovery of loaned securities or even a loss of
rights in collateral supplied should the borrower fail financially, loans will
be made only to parties that participate in a Global Securities Lending Program
monitored by the Fund's custodian and who are deemed by it to be of good
standing. Furthermore, such loans will be made only if, in Quest's judgment, the
consideration to be earned from such loans would justify the risk.
Quest understands that it is the current view of the staff of the
Securities and Exchange Commission that investment companies such as the Fund
may engage in such loan transactions only under the following conditions: (1)
the Fund must receive 100% collateral in the form of cash or cash equivalents
(e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower must
increase the collateral whenever the market value of the securities loaned
(determined on a daily basis) rises above the value of the collateral; (3) after
giving notice, the Fund must be able to terminate the loan at any time; (4) the
Fund must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned and to any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) the Fund must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower.
Lower-Rated (High-Risk) Debt Securities
The Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated from Ba to Ca by
Moody's Investors Service, Inc. or from BB to D by Standard & Poor's Corporation
or may be unrated. These securities have poor protection with respect to the
payment of interest and repayment of principal and may be in default as to the
payment of principal or interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to changes in
the issuer's capacity to pay. The market prices of lower-rated (high-risk) debt
securities may fluctuate more than those of higher-rated debt securities and may
decline significantly in periods of general economic difficulty, which may
follow periods of rising interest rates.
While the market for lower-rated (high-risk) corporate debt securities
has been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such securities
to fund highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance of
the high-yield/high-risk
4
<PAGE>
bond market, especially during periods of economic recession. In fact, from 1989
to 1991, the percentage of lower-rated (high-risk) debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may be thinner
and less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations cease to be
readily available for a lower-rated (high-risk) debt security in which the Fund
has invested, the security will then be valued in accordance with procedures
established by the Board of Trustees. Judgment plays a greater role in valuing
lower-rated (high-risk) debt securities than is the case for securities for
which more external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect the
Fund's ability to dispose of lower- rated (high-risk) debt securities.
Since the risk of default is higher for lower-rated (high-risk) debt
securities, Quest's research and credit analysis may play an important part in
managing securities of this type for the Fund. In considering such investments
for the Fund, Quest will attempt to identify those issuers of lower-rated
(high-risk) debt securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future. Quest's
analysis may focus on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
Foreign Investments
The Fund may invest up to 10% of its total assets in the securities of
foreign issuers. Foreign investments can involve significant risks in addition
to the risks inherent in U.S. investments. The value of securities denominated
in or indexed to foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies strengthen or weaken
relative to the U.S. dollar. Foreign securities markets generally have less
trading volume and less liquidity than U.S. markets, and prices on some foreign
markets can be highly volatile. Many foreign countries lack uniform accounting
and disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays.
It may also be difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government- sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest or adverse diplomatic
developments. There is no assurance that Quest will be able to anticipate these
potential events or counter their effects.
5
<PAGE>
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
American Depositary Receipts (ADRs) are certificates held in trust by a
bank or similar financial institution evidencing ownership of shares of a
foreign-based issuer. Designed for use in U.S. securities markets, ADRs are
alternatives to the purchase of the underlying foreign securities in their
national markets and currencies.
ADR facilities may be established as either unsponsored or sponsored.
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
Repurchase Agreements
In a repurchase agreement, the Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell that security to
the seller at an agreed upon price on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked to market daily) of the underlying
security.
The Fund may engage in repurchase agreements with respect to any U.S.
Government security. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delays and costs to
the Fund in connection with bankruptcy proceedings), it is the Fund's policy to
enter into repurchase agreements only with its custodian, State Street Bank and
Trust Company, and having a term of seven days or less.
* * *
Quest believes that the Fund is suitable for investment only by persons
who can invest without concern for current income and who are in a financial
position to assume above-average investment risks in search for long-term
capital appreciation.
6
<PAGE>
MANAGEMENT OF THE FUND
The following table sets forth certain information as to each Trustee and
officer of the Fund:
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Fund Principal Occupations During the Past Five Years
- --------------------- ------------- ------------------------------------------------
<S> <C> <C>
Charles M. Royce* (55) Trustee, President, Secretary, Treasurer and sole director and sole
1414 Avenue of the President and voting shareholder of Quest Advisory Corp. ("Quest"), the
Americas Treasurer Fund's investment adviser; Trustee, President and New York, NY 10019
Treasurer of The Royce Fund ("TRF"), an open-end
diversified management investment company of which Quest is the
principal investment adviser; Director, President and Treasurer Royce
Value Trust, Inc. ("RVT") and, once September 1993, Royce OTC
Micro- Cap Fund, Inc. ("OTCM"), closed-end diversified
management investment companies of which Quest is the investment
adviser; Secretary and sole director and shareholder of Quest
Distributors, Inc. ("QDI"), the distributor of TRF's shares; and
managing general partner of Quest Management Company ("QMC"), a
registered investment adviser, and its predecessor.
Thomas R. Ebright* (50) Trustee Vice President and member of the senior investment staff 8 Sound
Shore Drive, of Quest; Trustee of the Fund; Director of RVT and,
Greenwich, CT 06830 since September 1993, OTCM; general partner of
QMC and its predecessor until June 1994 President and Treasurer of
QDI; President, Treasurer and a director and principal shareholder
of Royce, Ebright & Associates, Inc., a registered investment
adviser, since June 1994; director of Atlantic Pro Sports, Inc. and
of the Strasburg Rail Road Co. since March 1993; and President
and principal owner of Baltimore Professional Hockey, Inc.
until May 1993.
Hubert L. Cafritz (71) Trustee Financial consultant.
9421 Crosby Road
Silver Spring, MD 20910
Richard M. Galkin (56) Trustee Private investor and President of Richard M. Galkin
5284 Boca Marina Circle Associates, Inc., tele-communications consultants.
South
Boca Raton, FL 33487
Stephen L. Isaacs (55) Trustee Attorney; Director of Columbia University Development
60 Haven Avenue, Floor B-2 Law and Policy Program; Professor at Columbia
New York, NY 10032 University; President of Stephen L. Isaacs Associates,
Consultants; and counsel to Kaplan & Kilsheimer from
January 1988 to February 1991.
7
<PAGE>
Position Held
Name, Address and Age with the Fund Principal Occupations During the Past Five Years
- --------------------- ------------- ------------------------------------------------
William L. Koke (60) Registered investment adviser and financial planner with 73
Pointina Road Shoreline Financial Consultants.
Westbrook, CT 06498
David L. Meister (55) Trustee Consultant to the communications industry since January
111 Marquez Place 1993; Executive officer of Digital Planet Inc. from April
Pacific Palisades, CA 90272 1991 to December 1992; consultant to the
communications and television industry from August
1990 to April 1991; and Executive Vice President of
Infotechnology, Inc. from December 1986 to July 1990.
Jack E. Fockler, Jr.* (36) Vice President Vice President (since August 1993) and senior associate
1414 Avenue of the of Quest, having been employed by Quest since October
Americas 1989; Vice President of the Fund, TRF, RVT and OTCM New York, NY
10019 since April 1995; and general partner of QMC since July
1993.
W. Whitney George* (36) Vice President Vice President (since August 1993) and senior analyst of
1414 Avenue of the Quest, having been employed by Quest since October
Americas 1991; Vice President of the Fund, TRF, RVT and OTCM
New York, NY 10019 since April 1995; and general partner of QMC
and its predecessor since January 1992.
Daniel A. O'Byrne* (33) Vice President Vice President of Quest since May 1994, having been
1414 Avenue of the and Assistant employed by Quest since October 1986; and Vice
Americas Secretary President of the Fund, TRF, RVT and OTCM since July
New York, NY 10019 1994.
Susan I. Grant* (42) Secretary Senior Counsel and Chief Compliance Officer of Quest
1414 Avenue of the and Secretary of the Fund, TRF, RVT and OTCM since
Americas August 1994; and Assistant Counsel of First Investors
New York, NY 10019 Corporation from July 1989 to August 1994.
</TABLE>
- --------------
*An interested person of the Fund and/or Quest within the meaning of
Section 2(a)(19) of the 1940 Act.
Messrs. Royce, Galkin, Isaacs and Meister are also directors of RVT and
OTCM and trustees of TRF, and Mr. Ebright is also a director of RVT and OTCM.
The Board of Trustees has an Audit Committee, comprised of Hubert L.
Cafritz, Richard M. Galkin, Stephen L. Isaacs, William L. Koke and David L.
Meister. The Audit Committee is responsible for the selection and nomination of
independent auditors for the Fund and for conducting post-audit reviews of the
Fund's financial condition with such auditors.
For the year ended December 31, 1994, the following trustees and
employee of the Fund received compensation from the Fund and/or the three other
funds in the group of registered investment companies comprising The Royce
Funds:
8
<PAGE>
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Total Compensation
Compensation Benefits Accrued As from The Royce Funds
Name and Position from Fund Part of Fund Expenses Paid to Trustees/Directors
- ----------------- ------------ --------------------- --------------------------
<S> <C> <C>
Hubert L. Cafritz, $ 17,500 N/A $17,500
Trustee
Richard M. Galkin, 17,500 N/A 60,000
Trustee
Stephen L. Isaacs, 17,500 N/A 60,000
Trustee
William L. Koke, 17,500 N/A 17,500
Trustee
David L. Meister, 17,500 N/A 60,000
Trustee
John D. Diederich, 120,146 $8,015 N/A
Director of Operations
</TABLE>
PRINCIPAL HOLDERS OF SHARES
As of March 31, 1995, the only person known to the Fund to be the
record or beneficial owner of 5% or more of its outstanding shares was as
follows:
<TABLE>
<CAPTION>
Number of Type of Percentage of
Name and Address Shares Ownership Outstanding Shares
<S> <C> <C> <C>
Charles Schwab & Co. Inc. 14,618,878 Record 15.7%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
As of March 31, 1995, all trustees and officers of the Fund as a group
beneficially owned less than 1% of its outstanding shares. While Mr. Royce, as
the sole director and voting shareholder and principal officer of Quest, may be
deemed to beneficially own shares of the Fund in which funds of certain of its
clients have been invested by it, for purposes of such computation, shares of
the Fund beneficially owned by Quest for such clients are not considered as
beneficially owned by Mr. Royce.
INVESTMENT ADVISORY SERVICES
Services Provided by Quest
As compensation for its services under the Investment Advisory
Agreement with the Fund, Quest receives a monthly fee equal to 1% per annum of
the first $50,000,000 of the Fund's average net assets, 7/8% per annum of the
next $50,000,000 of the Fund's average net assets and 3/4% per annum of average
net assets in excess of $100,000,000. These rates are higher than those paid by
other mutual funds with similar investment objectives.
For each of the three fiscal years ended December 31, 1992, 1993 and
1994, the Fund paid advisory fees to Quest of $7,152,622, $8,172,494 and
$6,831,793, respectively.
9
<PAGE>
Under the Investment Advisory Agreement, Quest (i) determines the
composition of the Fund's portfolio, the nature and timing of the changes in it
and the manner of implementing such changes, subject to any directions it may
receive from the Fund's Board of Trustees; (ii) provides the Fund with
investment advisory, research and related services for the investment of its
funds; (iii) furnishes, without expense to the Fund, the services of such of its
executive officers and full-time employees as may be duly elected executive
officers or trustees of the Fund; and (iv) pays any additional expenses incurred
by the Fund in connection with promoting the sale of its shares and all expenses
incurred in performing its investment advisory duties under the Investment
Advisory Agreement.
The Fund pays all administrative and other costs and expenses
attributable to its operations and transactions, including, without limitation,
transfer agent and custodian fees; legal, administrative and clerical services;
rent for its office space and facilities; auditing; preparation, printing and
distribution of its prospectuses, proxy statements, shareholders reports and
notices; supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non-affiliated trustees' fees; and brokerage commissions.
Portfolio Management
The Fund's portfolio is managed by Quest's senior investment staff,
including Charles M. Royce, Quest's Chief Investment Officer, who is primarily
responsible for supervising its investment management activities. Mr. Royce is
assisted by Thomas R. Ebright, Jack E. Fockler, Jr. and W. Whitney George, Vice
Presidents of Quest, all of whom participate in such activities, with their
specific responsibilities varying from time to time. In the event of any
significant change in Quest's senior investment staff, the members of the Fund's
Board of Trustees who are not interested persons of the Fund will consider what
action, if any, should be taken in connection with the Fund's management
arrangements.
Certain information concerning Messrs. Royce, Ebright, Fockler and
George is set forth above under "MANAGEMENT OF THE FUND".
Limitation on Fund Expenses
Quest has agreed, in connection with the Fund's qualification of its
shares for sale in California, to reduce its investment advisory fee monthly to
the extent that the Fund's "aggregate annual expenses" (as defined) exceed
2-1/2% of the first $30 million, 2% of the next $70 million and 1-1/2% of any
remaining average net assets of the Fund for any fiscal year.
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the custodian
for the Fund's securities, cash and other assets and the transfer agent and
dividend disbursing agent for shares of the Fund, but it does not participate in
the Fund's investment decisions. The Fund has authorized State Street to deposit
certain domestic and foreign portfolio securities in several central depository
systems and to use foreign sub-custodians for certain foreign portfolio
securities, as allowed by Federal law. State Street's main office is at 225
Franklin Street, Boston, Massachusetts 02107. All mutual fund transfer agent,
dividend disbursing and shareholder service activities are performed by State
Street's agent, National Financial Data Services, at 1004 Baltimore, Kansas
City, Missouri 64105.
State Street is responsible for the calculation of the Fund's
daily net asset value per share and for the maintenance of its portfolio and
general accounting records and also provides certain shareholder services.
10
<PAGE>
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post Office
Square, Boston, Massachusetts 02109, are the independent accountants of the
Fund.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect the
purchases and sales of the Fund's portfolio securities. No broker is selected to
effect a securities transaction for the Fund unless such broker is believed by
Quest to be capable of obtaining the best price and execution for the security
involved in the transaction. In addition to considering a broker's execution
capability, Quest generally considers the brokerage and research services which
the broker has provided to it, including any research relating to the security
involved in the transaction and/or to other securities. Such services may
include general economic research, market and statistical information, industry
and technical research, strategy and company research, and may be written or
oral. Quest determines the overall reasonableness of brokerage commissions paid,
after considering the amount another broker might have charged for effecting the
transaction and the value placed by Quest upon the brokerage and/or research
services provided by such broker, viewed in terms of either that particular
transaction or Quest's overall responsibilities with respect to its accounts.
Quest is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement with the Fund,
to pay a brokerage commission in excess of that which another broker might have
charged for effecting the same transaction, in recognition of the value of
brokerage and research services provided by the broker.
Brokerage and research services furnished by brokers through
whom the Fund effects securities transactions may be used by Quest in servicing
all of its accounts and those of QMC, and not all of such services may be used
by Quest in connection with the Fund.
Even though investment decisions for the Fund are made
independently from those for the other accounts managed by Quest and its
affiliate, the same security is frequently purchased, held or sold by the Fund
and the other accounts because such security may be suitable for all of them.
When the Fund and such other accounts are simultaneously engaged in the purchase
or sale of the same security, Quest seeks to average the transactions as to
price and allocate them as to amount in a manner believed to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for the Fund.
During each of the three years ended December 31, 1992, 1993
and 1994, the Fund paid brokerage commissions of $910,812, $594,831 and
$797,686, respectively.
For the year ended December 31, 1994, the aggregate amount of
the Fund's brokerage transactions having a research component was $215,146,723,
and the amount of commissions for such transactions was $684,449.
During the year ended December 31, 1994, the Fund acquired
securities of its "regular brokers" (as such term is defined in Rule 10b-1 under
the 1940 Act) or of the parent of its "regular brokers", and its holdings of
such securities had market values at December 31, 1994, as follows: Lehman
Brothers Holdings Inc. -- $2,500,125; and PaineWebber Group Inc. -- $2,275,125.
11
<PAGE>
CODE OF ETHICS AND RELATED MATTERS
The Quest Companies and the Royce Funds have adopted a Code
of Ethics under which directors, officers, employees and partners of Quest, QDI
and QMC (collectively, "Quest-related persons") and interested
trustees/directors, officers and employees of The Royce Funds are prohibited
from personal trading in any security which is then being purchased or sold or
considered for purchase or sale by a Royce Fund or any other Quest or QMC
account. Such persons are permitted to engage in other personal securities
transactions if (i) the securities involved are issued by the Government of the
United States, certain short-term debt securities, money market instruments,
shares of affiliated or non-affiliated registered open-end investment companies
or shares acquired from an issuer in a rights offering or under an automatic
dividend reinvestment plan or (ii) they first obtain permission to trade from
Quest's Compliance Officer and an executive officer of Quest. The Code contains
standards for the granting of such permission, and it is expected that
permission to trade will be granted only in a limited number of instances.
Quest's and QMC's clients include several private investment
companies in which Quest or QMC has (and, therefore, Charles M. Royce, Jack E.
Fockler, Jr. and/or W. Whitney George may be deemed to beneficially own) a share
of up to 15% of the company's realized and unrealized net capital gains from
securities transactions, but less than 5% of the company's equity interests. The
Code of Ethics does not restrict transactions effected by Quest or QMC for such
private investment company accounts. Transactions for such private investment
company accounts are subject to Quest's and QMC's allocation policies and
procedures. See "Portfolio Transactions".
As of March 31, 1995, Quest-related persons and members of
their immediate families beneficially owned shares of The Royce Funds having a
total value of approximately $14.6 million, and Quest's and QMC's equity
interests in such private investment companies totalled approximately $3.6
million.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of the Fund's shares is
based on its current net asset value per share. See "Net Asset Value Per Share"
in the Fund's Prospectus.
As set forth under "Net Asset Value Per Share", the Fund's
custodian determines the net asset value per share of the Fund at the close of
regular trading on the New York Stock Exchange on each day that the Exchange is
open. The Exchange is open on all weekdays which are not holidays. Thus, it is
closed on Saturdays and Sundays and on New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which
would, in the judgment of the Fund's Board of Trustees or management, make it
undesirable for the Fund to pay for all redemptions in cash. In such cases,
payment may be made in portfolio securities or other property of the Fund.
However, the Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption by any one shareholder up to $250,000 (or 1% of
the Fund's net assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions would be valued at the same value
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assigned to them in computing the net asset value per share for purposes of such
redemption. Shareholders receiving such securities would incur brokerage costs
when these securities are sold.
TAXATION
The Fund has qualified and intends to remain qualified each
year for the tax treatment applicable to a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To
so qualify, the Fund must comply with certain requirements of the Code relating
to, among other things, the source of its income and the diversification of its
assets.
By so qualifying, the Fund will not be subject to Federal
income taxes to the extent that its net investment income and capital gain net
income are distributed, so long as the Fund distributes, as ordinary income
dividends, at least 90% of its investment company taxable income.
A non-deductible 4% excise tax will be imposed on the Fund to
the extent that it does not distribute (including by declaration of certain
dividends), during each calendar year, (i) 98% of its ordinary income for such
calendar year, (ii) 98% of its capital gain net income for the one-year period
ending October 31 of such calendar year (or the Fund's actual taxable year
ending December 31, if elected) and (iii) certain other amounts not distributed
in previous years. To avoid the application of this tax, the Fund intends to
distribute substantially all of its net investment income and capital gain net
income at least annually to its shareholders.
The Fund will maintain accounts and calculate income by
reference to the U.S. dollar for U.S. Federal income tax purposes. Investments
calculated by reference to foreign currencies will not necessarily correspond to
the Fund's distributable income and capital gains for U.S. Federal income tax
purposes as a result of fluctuations in foreign currency exchange rates.
Furthermore, if any exchange control regulations were to apply to the Fund's
investments in foreign securities, such regulations could restrict the Fund's
ability to repatriate investment income or the proceeds of sales of securities,
which may limit the Fund's ability to make sufficient distributions to satisfy
the 90% distribution requirement and avoid the 4% excise tax.
Income earned or received by the Fund from investments in
foreign securities may be subject to foreign withholding taxes unless a
withholding exemption is provided under an applicable treaty. Any such taxes
would reduce the Fund's cash available for distribution to shareholders. It is
currently anticipated that the Fund will not be eligible to elect to "pass
through" such taxes to its shareholders for purposes of enabling them to claim
foreign tax credits or other U.S. income tax benefits with respect to such
taxes.
If the Fund invests in stock of a so-called passive foreign
investment company ("PFIC"), the Fund may be subject to Federal income tax on a
portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the Fund's holding period for the
stock. The amount so allocated to any taxable year of the Fund prior to the
taxable year in which the excess distribution or disposition occurs would be
taxed to the Fund at the highest marginal income tax rate in effect for such
years, and the tax would be further increased by an interest charge. The amount
allocated to the taxable year of the distribution or disposition would be
included in the Fund's investment company taxable income and, accordingly, would
not be taxable to the Fund to the extent distributed by the Fund as a dividend
to shareholders. In lieu of being taxable in the manner described above, the
Fund may be able to elect to include annually in income its pro rata share of
the ordinary earnings and net capital gain (whether or not
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distributed) of the PFIC. In order to make this election, the Fund would be
required to obtain annual information from the PFICs in which it invests, which
in many cases may be difficult to obtain. Alternatively, if eligible, the Fund
may be able to elect to mark to market its PFIC stock, resulting in the stock
being treated as sold at fair market value on the last business day of each
taxable year. Any resulting gain would be reported as ordinary income, and any
resulting loss would not be recognized.
Investments of the Fund in securities issued at a discount or
providing for deferred interest payments or payments of interest in kind (which
investment are subject to special tax rules under the Code) will affect the
amount, timing and character of distributions to shareholders. For example, with
respect to securities issued at a discount, the Fund will be required to accrue
as ordinary income each year a portion of the discount (even though the Fund may
not have received cash interest payments equal to the amount included in income)
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
Distributions
For Federal income tax purposes, distributions by the Fund
from net investment income and from any net realized short-term capital gain are
taxable to shareholders as ordinary income, whether received in cash or
reinvested in additional shares. Ordinary income generally cannot be offset by
capital losses. For corporate shareholders, distributions of net investment
income (but not distributions of short-term capital gains) may qualify in part
for the 70% dividends received deduction for purposes of determining their
regular taxable income. (However, the 70% dividends received deduction is not
allowable in determining a corporate shareholder's alternative minimum taxable
income.) The amount qualifying for the dividends received deduction generally
will be limited to the aggregate dividends received by the Fund from domestic
corporations. The dividends received deduction for corporate shareholders may be
further reduced or eliminated if the shares with respect to which dividends are
received by the Fund are treated as debt-financed or are deemed to have been
held for fewer than 46 days, or under other generally applicable statutory
limitations.
So long as the Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement, distributions by the
Fund from its net capital gains will be taxable as long-term capital gains,
whether received in cash or reinvested in shares and regardless of how long a
shareholder has held his or its Fund shares. Such distributions are not eligible
for the dividends received deduction. Long-term capital gains of non-corporate
shareholders, although fully includible in income, currently are taxed at a
lower maximum marginal Federal income tax rate than ordinary income.
Distributions by the Fund in excess of its current and
accumulated earnings and profits will reduce a shareholder's basis in Fund
shares (but, to that extent, will not be taxable) and, to the extent such
distributions exceed the shareholder's basis, will be taxable as capital gain
assuming the shareholder holds Fund shares as capital assets.
A distribution will be treated as paid during a calendar year
if it is declared in October, November or December of the year to shareholders
of record in such month and paid by January 31 of the following year. Such
distributions will be taxable to such shareholders as if received by them on
December 31, even if not paid to them until January. In addition, certain other
distributions made after the close of a taxable year of the Fund may be "spilled
back" and treated as paid by the Fund (other than
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for purposes of avoiding the 4% excise tax) during such year. Such dividends
would be taxable to the shareholders in the taxable year in which the
distribution was actually made by the Fund.
The Fund will send written notices to shareholders regarding
the amount and Federal income tax status as ordinary income or capital gain of
all distributions made during each calendar year.
Back-up Withholding/Withholding Tax
Under the Code, certain non-corporate shareholders may be
subject to 31% withholding on reportable dividends, capital gains distributions
and redemption payments ("back-up withholding"). Generally, shareholders subject
to back-up withholding will be those for whom a taxpayer identification number
and certain required certifications are not on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number. In addition, the Fund is
required to withhold from distributions to any shareholder who does not certify
to the Fund that such shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such shareholder has
under-reported interest or dividend income. When establishing an account, an
investor must certify under penalties of perjury that such investor's taxpayer
identification number is correct and that such investor is not subject to or is
exempt from back-up withholding.
Ordinary income distributions paid to shareholders who are
non-resident aliens or which are foreign entities will be subject to 30% United
States withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under an applicable treaty. Non-U.S. shareholders are
urged to consult their own tax advisers concerning the United States tax
consequences to them of investing in the Fund.
Timing of Purchases and Distributions
At the time of an investor's purchase, the Fund's net asset
value may reflect undistributed income or capital gains or net unrealized
appreciation of securities held by the Fund. A subsequent distribution to the
investor of such amounts, although it may in effect constitute a return of his
or its investment in an economic sense, would be taxable to the shareholder as
ordinary income or capital gain as described above. Investors should carefully
consider the tax consequences of purchasing Fund shares just prior to a
distribution, as they will receive a distribution that is taxable to them.
Sales or Redemptions of Shares
Gain or loss recognized by a shareholder upon the sale,
redemption or other taxable disposition of shares in the Fund (provided that
such shares are held by the shareholder as a capital asset) will be treated as
capital gain or loss, measured by the difference between the adjusted basis of
the shares and the amount realized on the sale, redemption or other taxable
disposition. Such gain or loss will be long-term capital gain or loss if the
shares disposed of were held for more than one year. A loss will be disallowed
to the extent that the shares disposed of are replaced (including by receiving
shares upon the reinvestment of distributions) within a period of 61 days,
beginning 30 days before and ending 30 days after the sale of the shares. In
such a case, the basis of the shares acquired will be increased to reflect the
disallowed loss. A loss recognized upon the sale, redemption or other taxable
disposition of shares held for 6 months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions received
with respect to such shares.
* * *
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<PAGE>
The foregoing relates to Federal income taxation.
Distributions, as well as any gains from a sale, redemption or other taxable
disposition of Fund shares, also may be subject to state and local taxes. Under
current law, so long as the Fund qualifies for the Federal income tax treatment
described above, it is believed that the Fund will not be liable for any income
or franchise tax imposed by Delaware.
Investors are urged to consult their own tax advisers
regarding the application to them of Federal, state and local tax laws.
DESCRIPTION OF THE FUND
Fund Organization
The Fund was established as a Delaware business trust under
Delaware law by a Certificate of Trust, effective May 21, 1993. A copy of the
Certificate of Trust is on file with the Secretary of State of Delaware, and a
copy of the Trust Instrument of the Fund, its principal governing document, is
available for inspection by shareholders at the Fund's office in New York.
The Fund is the successor to Pennsylvania Mutual Fund, Inc.
("PMFI"), a diversified open-end investment company, organized as a corporation
under the laws of the State of Delaware in 1962. PMFI had the same investment
objective, policies and limitations as the Fund. The succession was effected on
June 30, 1993, when the Fund acquired all of PMFI's assets and assumed all of
PMFI's liabilities in exchange for a number of its shares equal to the number of
shares of capital stock of PMFI then outstanding, and such shares of the Fund
were then distributed to PMFI's stockholders in complete liquidation of PMFI.
Upon the completion of such transaction, each stockholder of PMFI became the
owner of full and fractional shares of the Fund equal in number and aggregate
net asset value to the shares such stockholder held in PMFI. Unless the context
otherwise requires, all references in the Prospectus and in this Statement of
Additional Information to the Fund include PMFI for the period prior to such
succession.
The Fund has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited number of series
and/or classes without shareholder approval. (The Fund presently has only one
class of shares and has not established any additional series.) These shares are
entitled to one vote per share (with proportional voting for fractional shares)
on such matters as shareholders are entitled to vote.
Each of the Trustees currently in office was elected by the
then stockholders of PMFI. There will normally be no meeting of shareholders for
the purpose of electing Trustees unless and until such time as less than a
majority of such Trustees remain in office, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. In
addition, Trustees may be removed from office by written consents signed by the
holders of 66 2/3% of the outstanding shares of the Fund and filed with the
Fund's custodian or by a vote of the holders of 66 2/3% of the outstanding
shares of the Fund at a meeting duly called for the purpose, which meeting will
be held upon the written request of the holders of at least 10% of the Fund's
outstanding shares. Upon the written request by 10 or more shareholders of the
Fund, who have been shareholders for at least 6 months and who hold shares
constituting at least 1% of the Fund's outstanding shares, stating that such
shareholders wish to communicate with the Fund's other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
the removal of a Trustee, the Fund is required to provide a list of its
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as provided above, the Trustees may continue to
hold office and appoint their successors.
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<PAGE>
Shares are freely transferable, are entitled to distributions
as declared by the Trustees and, in liquidation of the Fund, are entitled to
receive its net assets. Shareholders have no preemptive rights.
The Fund's fiscal year ends on December 31.
Shareholder Liability
Generally, Fund shareholders will not be personally liable
for the obligations of the Fund under Delaware law. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust is entitled to the
same limited liability extended to stockholders of private corporations for
profit organized under the Delaware General Corporation Law. No similar
statutory or other authority limiting business trust shareholder liability
exists in many other states. As a result, to the extent that the Fund or a
shareholder of the Fund is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law and may thereby subject Fund
shareholders to liability. To guard against this possibility, the Trust
Instrument (i) requires that every written obligation of the Fund contain a
statement that such obligation may be enforced only against the Fund's assets
(however, the omission of this disclaimer will not operate to create personal
liability for any shareholder); and (ii) provides for indemnification out of
Fund property of any Fund shareholder held personally liable for the Fund's
obligations. Thus, the risk of a Fund shareholder incurring financial loss
beyond his investment because of shareholder liability is limited to
circumstances in which: (i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Fund itself
would be unable to meet its obligations. In light of Delaware law, the nature of
the Fund's business and the nature of its assets, management believes that the
risk of personal liability to a Fund shareholder is extremely remote.
PERFORMANCE DATA
The Fund's performance may be quoted in various ways. All
performance information supplied for the Fund is historical and is not intended
to indicate future returns. The Fund's share price and total returns fluctuate
in response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
Total Return Calculations
Total returns quoted reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share (NAV) over
the period. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in the Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual total return of 7.18%, which
is the steady annual rate of return that would equal 100% growth on a compounded
basis in ten years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that the Fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
In addition to average annual total returns, the Fund's
unaveraged or cumulative total returns, reflecting the simple change in value of
an investment over a stated period, may be quoted. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into their
components of income and capital (including
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<PAGE>
capital gains and changes in share prices) in order to illustrate the
relationship of these factors and their contributions to total return. Total
returns and other performance information may be quoted numerically or in a
table, graph or similar illustration.
Historical Fund Results
The following table shows the Fund's total returns for the
periods indicated. Such total returns reflect all income earned by the Fund, any
appreciation or depreciation of its assets and all expenses incurred by the Fund
for the stated periods. The table compares the Fund's total returns to the
record of the Russell 2000 Index (Russell 2000) and Standard & Poor's 500
Composite Stock Price Index (S&P 500) over the same periods. The comparison to
the Russell 2000 shows how the Fund's total return compared to the record of a
broad index of small capitalization stocks. The S&P 500 comparison is provided
to show how the Fund's total returns compared to the record of a broad average
of common stock prices over the same period. The Fund has the ability to invest
in securities not included in the indices, and its investment portfolio may or
may not be similar in composition to the indices. Figures for the indices are
based on the prices of unmanaged groups of stocks, and, unlike the Fund, their
returns do not include the effect of paying brokerage commissions and other
costs and expenses of investing in a mutual fund.
During the ten year period from January 1, 1985 to December
31, 1994, a hypothetical $10,000 investment in the Fund would have grown to
$31,083, assuming all distributions were reinvested.
<TABLE>
<CAPTION>
Pennsylvania
Period ended December 31, 1994 Mutual Fund Russell 2000 S&P 500
- ------------------------------ ----------- ------------ -------
<S> <C> <C> <C>
1 Year Total Return -0.72% -1.81% +1.32%
5 Year Average Annual Total Return +8.40% +10.20% +8.69%
10 Year Average Annual Total Return +12.01% +11.54% +14.28%
</TABLE>
The Fund's performance may be compared in advertisements to
the performance of other mutual funds in general or to the performance of
particular types of mutual funds, especially those with similar investment
objectives. Such comparisons may be expressed as mutual fund rankings prepared
by Lipper Analytical Services, Inc. ("Lipper"), an independent service that
monitors the performance of registered investment companies. The Fund's rankings
by Lipper for the one-year period ended December 31, 1994 was 109 out of 283
small company growth funds. Money market funds and municipal funds are not
included in the Lipper survey. The Lipper performance analysis ranks funds on
the basis of total return, assuming reinvestment of distributions, but does not
take sales charges or redemption fees payable by shareholders into consideration
and is prepared without regard to tax consequences.
The Lipper General Equity Funds Average can be used to show
how the Fund's performance compares to a broad-based set of equity funds. The
Lipper General Equity Funds Average is an average of the total returns of all
equity funds (excluding international funds and funds that specialize in
particular industries or types of investments) tracked by Lipper. As of December
31, 1994, the average included 155 capital appreciation funds, 564 growth funds,
283 small company growth funds, 412 growth and income funds and 120 equity
income funds. Capital appreciation, growth and small company growth funds
usually invest principally in common stocks, with long-term growth as a primary
goal. Growth and income and equity income funds tend to be more conservative in
nature and usually
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<PAGE>
invest in a combination of common stocks, bonds, preferred stocks and other
income-producing securities. Growth and income and equity income funds generally
seek to provide their shareholders with current income as well as growth of
capital, unlike growth funds which may not produce income.
Ibbotson Associates (Ibbotson) provides historical returns of
the capital markets in the United States. The Fund's performance may be compared
to the long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or U.S. Treasury securities. Ibbotson calculates total
returns in the same manner as the Fund.
The capital markets tracked by Ibbotson are common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, U.S. Treasury bills and the U.S.
rate of inflation. These capital markets are based on the returns of several
different indices. For common stocks, the S&P 500 is used. For small
capitalization stocks, return is based on the return achieved by Dimensional
Fund Advisors (DFA) Small Company Fund. This fund is a market-value-weighted
index of the ninth and tenth deciles of the New York Stock Exchange (NYSE), plus
stocks listed on the American Stock Exchange (AMEX) and over-the-counter (OTC)
with the same or less capitalization as the upper bound of the NYSE ninth
decile. As of December 31, 1994, DFA contained approximately 2,000 stocks, with
a median market capitalization of about $80 million.
The S&P 500 Composite Stock Price Index is an unmanaged index
of common stocks frequently used as a general measure of stock market
performance. The Index's performance figures reflect changes of market prices
and quarterly reinvestment of all distributions.
The S&P SmallCap 600 Index is an unmanaged market-weighted
index consisting of 600 domestic stocks chosen for market size, liquidity and
industry group representation. As of September 30, 1994, the weighted mean
market value of a company in this Index was approximately $400 million.
The Russell 2000, prepared by the Frank Russell Company,
tracks the return of the common stock of the 2,000 smallest out of the 3,000
largest publicly traded U.S.-domiciled companies by market capitalization. The
Russell 2000 tracks the return on these stocks based on price appreciation or
depreciation and includes dividends.
U.S. Treasury bonds are securities backed by the credit and
taxing power of the U.S. government and, therefore, present virtually no risk of
default. Although such government securities fluctuate in price, they are highly
liquid and may be purchased and sold with relatively small transaction costs
(direct purchase of U.S. Treasury securities can be made with no transaction
costs). Returns on intermediate-term government bonds are based on a one-bond
portfolio constructed each year, containing a bond that is the shortest
non-callable bond available with a maturity of not less than five years. This
bond is held for the calendar year and returns are recorded. Returns on
long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on US Treasury bills are based on a one-bill portfolio
constructed each month, containing the shortest term bill having not less than
one month to maturity. The total return on the bill is the month-end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the Consumer Price Index.
Quest may, from time to time, compare the performance of
common stocks -- especially small capitalization stocks -- to the performance of
other forms of investment over periods of time.
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<PAGE>
From time to time, in reports and promotional literature, the
Fund's performance also may be compared to other mutual funds tracked by
financial or business publications and periodicals, such as KIPLINGER's,
INDIVIDUAL INVESTOR, MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL TIMES,
FORTUNE, MUTUAL FUND MAGAZINE and THE WALL STREET JOURNAL. In addition,
financial or business publications and periodicals as they relate to fund
management, investment philosophy and investment techniques may be quoted.
Morningstar, Inc. may be quoted in advertising materials. For
the three years ended December 31, 1994, the average risk score for the 1,132
equity funds rated by Morningstar with a three-year history was 1.00, and the
average risk score for the 119 small company funds rated by Morningstar with a
three-year history was 1.09. The Fund's risk score was 0.50, placing it within
the 10% of all small company funds in the categories for the three-year period.
The Fund's performance may also be compared to those of other
compilations or indices.
Advertising for the Fund may contain examples of the effects
of periodic investment plans, including the principle of dollar cost averaging.
In such a program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are high and
more shares when prices are low. While such a strategy does not assure a profit
or guard against loss in a declining market, the investor's average cost per
share can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their ability to
continue purchasing shares during periods of low price levels.
The Fund may be available for purchase through retirement
plans or other programs offering deferral of or exemption from income taxes,
which may produce superior after-tax returns over time. For example, a $1,000
investment earning a taxable return of 10% annually would have an after-tax
value of $2,004 after ten years, assuming tax was deducted from the return each
year at a 28% rate. An equivalent tax-deferred investment would have an
after-tax value of $2,147 after ten years, assuming tax was deducted at a 28%
rate from the tax-deferred earnings at the end of the ten-year period.
Risk Measurements
Quantitative measures of "total risk," which quantify the total variability of a
portfolio's returns around, or below, its average return, may be used in
advertisements and in communications with current and prospective shareholders.
These measures include standard deviation of total return and the Morningstar
risk statistic. Such communications may also include market risk measures, such
as beta, and risk-adjusted measures of performance such as the Sharpe Ratio,
Treynor Ratio, Jensen's Alpha and Morningstar's star rating system.
Standard Deviation. The risk associated with a fund or
portfolio can be viewed as the volatility of its returns, measured by the
standard deviation of those returns. For example, a fund's historical risk could
be measured by computing the standard deviation of its monthly total returns
over some prior period, such as three years. The larger the standard deviation
of monthly returns, the more volatile, i.e., spread out around the fund's
average monthly total return, the fund's monthly total returns have been over
the prior period. Standard deviation of total return can be calculated for funds
of different objectives, ranging from equity funds to fixed income funds, and
can be measured over different time frames. The standard deviation figures
presented are annualized statistics based on 36 monthly returns. Approximately
68% of the time, the monthly total return of a fund will differ from its average
monthly total return by no more than plus or minus the standard deviation
figure. 95% of the time, a fund's
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<PAGE>
monthly total return will be within a range of plus or minus 2x the standard
deviation from its average monthly total return.
Beta. Beta measures the sensitivity of a security's, or
portfolio's, returns to the market's returns. It measures the relationship
between a fund's excess return (over 3-month T-bills) and the excess return of
the benchmark index (S&P 500 for domestic equity funds). The market's beta is by
definition equal to 1. Portfolios with betas greater than 1 are more volatile
than the market, and portfolios with betas less than 1 are less volatile than
the market. For example, if a portfolio has a beta of 2, a 10% market return
would result in a 20% portfolio return, and a 10% market loss would result in a
20% portfolio loss (excluding the effects of any firm-specific risk that has not
been eliminated through diversification).
Morningstar Risk. The Morningstar proprietary risk statistic
evaluates a fund's downside volatility relative to that of other funds in its
class based on the underperformances of the fund relative to the riskless T-bill
return. It then compares this statistic to those of other funds in the same
broad investment class.
Sharpe Ratio. Also known as the Reward-to-Variability Ratio,
this is the ratio of a fund's average return in excess of the risk-free rate of
return ("average excess return") to the standard deviation of the fund's excess
returns. It measures the returns earned in excess of those that could have been
earned on a riskless investment per unit of total risk assumed.
Treynor Ratio. Also known as the Reward-to-Volatility Ratio,
this is the ratio of a fund's average excess return to the fund's beta. It
measures the returns earned in excess of those that could have been earned on a
riskless investment per unit of market risk assumed. Unlike the Sharpe Ratio,
the Treynor Ratio uses market risk (beta), rather than total risk (standard
deviation), as the measure of risk.
Jensen's Alpha. This is the difference between a fund's
actual returns and those that could have been earned on a benchmark portfolio
with the same amount of risk, i.e., the same beta, as the portfolio. Jensen's
Alpha measures the ability of active management to increase returns above those
that are purely a reward for bearing market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual fund
rating service that rates mutual funds on the basis of risk-adjusted
performance. Ratings may change monthly. Funds with at least three years of
performance history are assigned ratings from one star (lowest) to five stars
(highest). Morningstar ratings are calculated from the funds' three-, five- and
ten-year average annual returns (when available). Funds' returns are adjusted
for fees and sales loads. Ten percent of the funds in an investment category
receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5%
receive two stars, and the bottom 10% receive one star.
None of the quantitative risk measures taken alone can be used for a complete
analysis and, when taken individually, can be misleading at times. However, when
considered in some combination and with the total returns of a fund, they can
provide the investor with additional information regarding the volatility of a
fund's performance. Such risk measures will change over time and are not
necessarily predictive of future performance or risk.
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PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements Included in Prospectus (Part A):
Financial Highlights or Selected Per Share Data and Ratios for the
Ten Years Ended December 31, 1993.
The following audited financial statements of the Registrant are
included in the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1994, filed with the Securities and Exchange Commission under
Section 30(b)(1) of the Investment Company Act of 1940, and have been
incorporated in Part B hereof by reference:
Schedule of Investments at December 31, 1994;
Statement of Assets and Liabilities at December 31,
1994; Statement of Changes in Net Assets for the
years ended December 31, 1994 and December 31, 1993;
Statement of Operations for the year ended December
31, 1994; Financial Highlights for the years ended
December 31, 1990, 1991, 1992, 1993 and 1994; Notes
to Financial Statements; and Report of Independent
Accountants dated February 1, 1995.
Financial statements, schedules and historical information other than
those listed above have been omitted since they are either inapplicable or are
not required.
b. Exhibits:
The exhibits required by Items (1) through (16), to the extent
applicable to Registrant, have been filed with Registrant's
predecessor's initial Registration Statement (No. 2-19995) and
Post-Effective Amendments Nos. 43, 45, 46, 47, 48, 49, 51, 52, 53, 54,
55, 56, 57, 58 and 60 thereto and are incorporated by reference herein.
(11) Consent of Coopers & Lybrand L.L.P., Independent
Public Accountants, dated April 25, 1995.
(16) Schedule for Computation of Performance Quotations
Provided in Item 22.
Item 25. Persons Controlled by or Under Common Control With Registrant
There are no persons directly or indirectly controlled by or
under common control with the Registrant.
<PAGE>
Item 26. Number of Holders of Securities
As of March 31, 1995, the number of record holders of shares
of the Registrant was 28,153.
Item 27. Indemnification
The Trust Instrument of the Registrant provides that any
person who is or has been a trustee, officer, employee or agent of the Trust (a
"Covered Person") shall be indemnified by the Trust or the appropriate Series to
the fullest extent permitted by law against liability and all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Covered Person and against amounts paid or incurred by
him in the settlement thereof. However, no indemnification shall be provided to
a Covered Person (i) who shall, in respect of the matter involved, have been
adjudicated by a court or body before which the proceeding was brought to be
liable to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office or (ii) in the event of a settlement, unless there has
been a determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (A) by the court or other body approving
the settlement, (B) by at least a majority of those trustees who are neither
interested persons of the Trust nor are parties to the matter, based upon a
review of readily available facts or (C) by written opinion of independent legal
counsel based upon a review of readily available facts.
The Trust Instrument also provides that the rights of
indemnification provided therein may be insured against by policies maintained
by the Trust, shall be severable, shall not be exclusive of or affect any other
rights to which any Covered Person is entitled and shall inure to the benefit of
the heirs, executors and administrators of a Covered Person. Additionally, the
Trust may, to the maximum extent permitted by law, advance money for expenses,
provided that Covered Person undertakes to repay the Trust if his conduct is
later determined not entitled to indemnification under the Trust Instrument, and
one of the following conditions are met: (i) such Covered Person shall have
provided appropriate security for such undertaking, (ii) the Trust is insured
against losses arising out of any such advance payments or (iii) either a
majority of a quorum of the trustees who are neither interested persons of the
Trust nor parties to the matter, or independent legal counsel in a written
opinion shall have determined, based upon a review of readily available facts
(as opposed to a full trial type inquiry) that there is reason to believe that
such Covered Person will not be disqualified from indemnification under the
Trust. Finally, the Trust Instrument requires any shareholder amendment which
would have the effect of reducing the indemnification protection for such
Covered Person be approved by an affirmative vote of two-thirds of the
outstanding shares of the Trust entitled to vote on the matter.
The Investment Advisory Agreement by and between the
Registrant and Quest Advisory Corp. obligates the Registrant to indemnify Quest
Advisory Corp. and hold it harmless from and against all damages, liabilities,
costs and expenses (including reasonable attorneys' fees)
2
<PAGE>
incurred by Quest Advisory Corp. in or by reason of any action, suit,
investigation or other proceeding arising out of or otherwise based upon any
action actually or allegedly taken or omitted to be taken by Quest Advisory
Corp. in connection with the performance of any of its duties or obligations
under the Agreement or otherwise as an investment adviser of the Registrant.
Quest Advisory Corp. is not entitled to indemnification in respect of any
liability to the Registrant or its security holders to which it would otherwise
be subject by reason of its willful misfeasance, bad faith or gross negligence.
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the filings on Schedule D to the
Application on Form ADV, as amended, of Quest Advisory Corp. for Registration as
an Investment Adviser under the Investment Advisers Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any principal
underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company Act of 1940, are
maintained at the following locations:
Pennsylvania Mutual Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts trust
company ("State Street"), provides certain management-related services to the
Registrant pursuant to a Custodian Contract made as of June 29, 1973 between the
Registrant's predecessor and State Street. Under such Custodian Contract, State
Street, among other things, has contracted to keep books of accounts and render
such statements, including interim monthly financial statements, as agreed to in
the then current mutually-executed Fee Schedule or copies thereof from time to
time as
3
<PAGE>
requested by the Treasurer or any executive of the Registrant's predecessor, and
to assist generally in the preparation of reports to holders of shares of the
Registrant's predecessor to the Securities and Exchange Commission, to State
"Blue Sky" authorities and to others, in the auditing of accounts and in other
ministerial matters of like nature as agreed to between the Registrant and State
Street. All of these services are rendered pursuant to instructions received by
State Street from the Registrant in the ordinary course of business.
Registrant or its predecessor paid the following fees to State
Street for services rendered pursuant to the Custodian Contract for each of the
three (3) fiscal years ended December 31, 1994:
1994: $184,709
1993: $261,182
1992: $212,000
Item 32. Undertakings
Registrant hereby undertakes to call a special meeting of the
Registrant's shareholders upon the written request of shareholders owning at
least 10% of the outstanding shares of the Registrant for the purpose of voting
upon the question of the removal of a trustee or trustees and, upon the written
request of 10 or more shareholders of the Registrant who have been such for at
least 6 months and who own at least 1% of the outstanding shares of the
Registrant, to provide a list of shareholders or to disseminate appropriate
materials at the expense of the requesting shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus for any series of the Registrant is delivered with a copy of the
latest annual report to shareholders of such series upon request and without
charge.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 27th day of April, 1995.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of Rule 485
under the Securities Act of 1933 and that no material event requiring disclosure
in the prospectus, other than one listed in paragraph (b)(1) of such Rule or one
for which the Commission has approved a filing under paragraph (b)(1)(ix) of the
Rule, has occurred since the latest of the following three dates: (i) the
effective date of the Registrant's Registration Statement; (ii) the effective
date of the Registrant's most recent Post-Effective Amendment to its
Registration Statement which included a prospectus; or (iii) the filing date of
a post-effective amendment filed under paragraph (a) of Rule 485 which has not
become effective.
PENNSYLVANIA MUTUAL FUND
By: /s/Charles M. Royce
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-Effective Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Charles M. Royce President, Treasurer 4/27/95
Charles M. Royce and Trustee (Principal
Executive, Accounting
and Financial Officer)
/s/ Hubert L. Cafritz Trustee 4/27/95
Hubert L. Cafritz
/s/ Thomas R. Ebright Trustee 4/27/95
Thomas R. Ebright
/s/ Richard M. Galkin Trustee 4/27/95
Richard M. Galkin
/s/ Stephen L. Isaacs Trustee 4/27/95
Stephen L. Isaacs
/s/ William L. Koke Trustee 4/27/95
William L. Koke
/s/David L. Meister Trustee 4/27/95
David L. Meister
</TABLE>
NOTICE
A copy of the Trust Instrument of Pennsylvania Mutual Fund is
available for inspection at the office of the Registrant, and notice is hereby
given that this instrument is executed on behalf of the Registrant by an officer
of the Registrant as an officer and not individually and that the obligations of
or arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Registrant.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
<S> <C> <C>
(11) Consent of Coopers & Lybrand L.L.P., 50
Independent Public Accountants, dated
April 25, 1995.
(16) Schedule for Computation of Performance 52
Quotations Provided in Item 22
</TABLE>
Exhibit (11)
CONSENT OF COOPERS & LYBRAND L.L.P.,
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
To the Board of Trustees of Pennsylvania Mutual Fund:
We consent to the incorporation by reference in Post-Effective Amendment No. 62
to the Registration Statement of Pennsylvania Mutual Fund on Form N-1A (File No.
2-19995), of our report dated February 1, 1995 on our audit of the financial
statements and financial highlights of the Fund, which report is included in the
Annual Report to Shareholders for the year ended December 31, 1994, which is
incorporated by reference in the Registration Statement.
We further consent to the reference to our Firm under the captions 'Financial
Highlights' and 'General Information' in the Prospectus and 'Independent
Accountants' in the Statement of Additional Information.
COOPER & LYBRAND L.L.P
COOPER & LYBRAND L.L.P
Boston, Massachusetts
April 25, 1995
Exhibit (16)
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN
ITEM 22
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial
investment in the Fund by applying the "Annual Total Return" and the "Average
Annual Total Return" percentages set forth in this Registration Statement in
response to Item 22 to the following total return formula:
P(1+T)n=ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods at the end of the 1,
5 or 10 year periods
1) 1 Year Ending Redeemable Value ("ERV") of a $1,000 investment in the
Fund for the period ended December 31, 1994
$1,000 (1+[-.0072])1 = $992.80 ERV
2) 5 Year ERV of a $1,000 investment in the Fund for the period ended
December 31, 1994:
$1,000 (1+.084)5 = $1,496.50 ERV
3) 10 Year ERV of a $1,000 investment in the Fund for the period ended
December 31, 1994:
$1,000 (1+.1201)10 = $3,108.30 ERV
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 8.31
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.73
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.41
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
