<PAGE>
--------------------------------------------------------------------------------
ANNUAL REPORT
PENNSYLVANIA
MUTUAL
FUND
DECEMBER 31, 1994
THE ROYCE FUNDS
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268
Dear Shareholder:
Although 1994's stock market was one of the least volatile on record, for
many investors, last year's experience was anything but calm. While the S&P 500
remained in a tight trading range, other popular investment vehicles fared
poorly. In its attempt to control renewed growth in our economy and to avoid a
resurgence of inflation, the Federal Reserve increased short-term interest rates
six times. As a result, bonds had one of their worst years ever, and stocks
suffered their first decline since 1990.
For the year, the S&P 500* finished up 1.3% but, exclusive of dividends, the
large company stock index would have been underwater. Small-cap indices, the
Russell 2000* and newly created S&P SmallCap 600*, were also in the red for the
year, down 1.8% and 4.8%, respectively. PENNSYLVANIA MUTUAL FUND ('PMF')
outperformed both small-cap benchmarks with a LOSS OF 0.7%. We believe that
PMF's relative performance advantage versus the small-cap indices was
attributable to its disciplined value approach, which allowed the Fund to better
endure 1994's more difficult first half. 1994 was only the second time in the
last 20 years (1975-1994) that PMF has failed to provide a positive return.
The principal difference in the stock market between 1994 and the prior three
years was the direction of interest rates. From late 1990 until early 1994,
short-term rates were driven lower with unparalleled persistence. The resulting
investment environment was one in which reward became synonymous with risk. It
seemed that all one needed to do to boost returns was to employ more leverage,
buy something exotic or foreign, or, better yet, invest in a hot IPO (initial
public offering). The world of Wall Street became increasingly isolated as
business fundamentals took a back seat to stock price movement and momentum.
Before interest rates reversed in 1994, many investors had purchased instruments
and obligations of which they had little or no understanding.
Once the Federal Reserve removed the 'punch bowl' from Wall Street's party by
raising interest rates, the true meaning of risk resurfaced with a vengeance.
Instantly, newspaper headlines detailed massive losses in derivative
investments. Starting with sophisticated hedge funds, and touching everything
from mutual funds to major corporations to state and local government pools,
derivative losses reached natural disaster proportions. The carnage that
resulted was not exclusive to fixed income investors. Electric utility stocks,
typically low risk equities, tumbled 18% for the year. Some emerging markets
began to submerge. Clearly, investors received a hard reminder that markets can
move in two directions, and that risk means something other than just earning
too little on cash.
<PAGE>
PMF weathered 1994 relatively well due to its continuous commitment to risk
management as opposed to risk taking. We do not invest in derivatives. We
believe that returns will come, as they have over time, from prudent investment
in selective small-cap companies. Our role as risk managers is, first, to
purchase attractively priced businesses with strong balance sheets and, second,
to manage the Fund's portfolio ever mindful of the many facets of risk. The Fund
has consistently been one of Morningstar Mutual Fund's** 'lowest risk' small-cap
funds. While the benefit for this low risk profile was not obvious during the
dynamic 1991-1993 period, this discipline has withstood the test of time. We
remain committed to a low risk and low volatility approach to this dynamic and
volatile asset class. We're equally optimistic that this technique will provide
an appropriate payoff over full market cycles.
We are generally more optimistic about 1995. The natural corrective forces of
the stock market, which usually result in periodic downdrafts of 10% or more,
appear to be functioning in a less familiar way--through an extended period of
low returns. This can be unnerving for short-term investors, but can provide
excellent opportunities for a longer-term approach. For these reasons, our
outlook for the next three years is very positive.
We appreciate your continued confidence.
Yours faithfully,
<TABLE>
<S> <C>
Thomas R. Ebright
Charles M. Royce Jack E. Fockler, Jr.
W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.
</TABLE>
February 10, 1995
---------------
* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices and
include the reinvestment of dividends.
** The Morningstar proprietary risk rating measures a fund's downside volatility
relative to other funds in its investment category and may change monthly.
The average score for the 3 years ended December 31, 1994 for all equity
funds was 1.00 and for the 119 small company funds rated by Morningstar with
a 3-year history, 1.09. PMF's risk score was 0.50, placing the Fund within
the lowest 10% of all small company funds in the category for the 3-year
period.
<PAGE>
PENNSYLVANIA MUTUAL FUND ('PMF')
INVESTMENT PHILOSOPHY
PMF CONCENTRATES ON BUYING THE SECURITIES OF SMALL COMPANIES. We believe that
they are more attractive as investments than the securities of larger,
well-known companies. Smaller companies are more flexible and have more
opportunities to grow. They are more likely to have congruent management and
shareholder interests. They are generally less well-known and, therefore, less
likely to be understood and properly priced by investors. For these reasons they
are more likely to continue generating above average returns.
PMF USES A STRICT FUNDAMENTAL APPROACH WHICH EMPHASIZES THE UNDERSTANDING OF
BALANCE SHEETS, CASH FLOW AND INTERNAL RATES OF RETURN. These characteristics
are expressed in our investment process through 'value themes' - groupings of
stocks which help us to understand companies in terms of their financial
attributes rather than industry groups. We believe that excess cash-flow is the
lead indicator of positive corporate activities with significance for investors,
such as share repurchases, debt repayment, discretionary investments and
dividend policy. Our bias is towards those companies which provide high internal
rates of return, generate excess cash-flow and have low debt, if any.
PMF CONCENTRATES ON UNDERSTANDING THE VALUE OF A BUSINESS. We believe that we
are buying a part of a real business, not just a stock. We attempt to purchase
only the securities of those firms where price is significantly under our
appraisal of worth. THE PRICE WE WILL PAY FOR A GIVEN SET OF FINANCIAL
CHARACTERISTICS FIGURES CRITICALLY IN THE PROCESS AND MUST BE SIGNIFICANTLY
UNDER OUR APPRAISAL OF PRIVATE WORTH. Ours is an updated version of similar
value work popularized by 'Graham & Dodd' in the 1930's.
PMF ATTEMPTS TO REDUCE THE RISKS ASSOCIATED WITH SMALL COMPANY OWNERSHIP. Market
risk is lowered by using non-mainstream securities and company risk by favoring
companies with low leverage and excess cash flow. Valuation risk is lowered by
using strict pricing standards and portfolio risk by achieving wide
diversification. Risk reduction should manifest itself in the form of lower
volatility and better relative performance in down markets.
THE SOURCE OF PERFORMANCE IS THE CONSISTENT USE OF STRICT VALUE DISCIPLINES
APPLIED TO LESS WELL-KNOWN SECURITIES. The Fund will apply these principles from
year-to-year and attempt to avoid the opportunistic and fashionable investment
styles of the moment. We believe that our method, emphasizing patience and
value, comes the closest to an all-weather strategy in delivering consistent,
above average long-term returns.
<PAGE>
FINANCIAL REVIEW
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PMF total return............................................... - 0.7% 11.3% 16.2% 31.8% - 11.5%
S&P 500 total return........................................... 1.3% 10.0% 7.7% 30.5% - 3.2%
Russell 2000 total return...................................... - 1.8% 18.9% 18.4% 46.1% - 19.5%
PMF 5-yr average annual total return........................... 8.4% -- -- -- --
PMF 10-yr average annual total return.......................... 12.0% -- -- -- --
PMF 20-yr average annual total return.......................... 21.5% -- -- -- --
NAV: Beginning of period....................................... $8.31 $8.00 $7.29 $5.78 $6.85
NAV: End of period............................................. $7.41 $8.31 $8.00 $7.29 $5.78
Dividends paid from net investment income...................... $0.11 $0.11 $0.10 $0.12 $0.16
Distributions paid from net realized gains..................... $0.73 $0.48 $0.37 $0.21 $0.12
</TABLE>
The above table depicts the historical returns of PMF, the S&P 500, as
representative of large company stocks, and the Russell 2000, as representative
of small company stocks. The S&P 500 and Russell 2000 are unmanaged indices. All
results presented in this Report are on a 'total return' basis, which assumes
that all dividends and distributions were reinvested. The Fund's present
investment philosophy was followed in each of the periods identified. No
redemption fees are included because they apply only to accounts open for less
than one year.
RESULTS OF A $10,000 INITIAL INVESTMENT IN PENNSYLVANIA MUTUAL FUND
<TABLE>
<CAPTION>
$10,000 YEARS VALUE OF PMF VALUE OF
INITIAL SHARES INVESTMENT VALUE OF 3-MONTH
INVESTMENT ON HELD ON 12/31/94 S&P 500 T-BILLS
------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C>
12/31/89 5 $ 14,965 $ 15,166 $12,697
12/31/84 10 31,083 37,997 17,833
12/31/74 20 489,263* 150,436* 42,343*
</TABLE>
RESULTS OF $2,000 INVESTED ANNUALLY IN PENNSYLVANIA MUTUAL FUND
USING A CONTINUOUS INVESTMENT PROGRAM
<TABLE>
<CAPTION>
$2,000 ANNUAL TOTAL VALUE OF PMF VALUE OF
INVESTMENT AMOUNT INVESTMENT VALUE OF 3-MONTH
BEGINNING ON INVESTED ON 12/31/94 S&P 500 T-BILLS
------------- -------- ------------ -------- --------
<S> <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>
THE RESULTS PRESENTED IN THIS REPORT REPRESENT PAST PERFORMANCE AND SHOULD
NOT BE CONSIDERED REPRESENTATIVE OF THE 'TOTAL RETURN' FROM AN INVESTMENT IN THE
FUND TODAY. THEY ARE PROVIDED ONLY TO GIVE AN HISTORICAL PERSPECTIVE OF THE
FUND. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF FUND SHARES WILL FLUCTUATE,
SO THAT THE SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST WHEN
REDEEMED. INVESTMENT IN A PERIODIC INVESTMENT PLAN DOES NOT GUARANTEE A PROFIT
NOR DOES IT PROTECT AGAINST A LOSS IN DECLINING MARKETS.
* See charts on the following page.
<PAGE>
20 YEARS OF WEALTH BUILDING WITH PMF
It paid to invest in PMF over the last 20 years. A one time $10,000 purchase
grew to $489,263, more than 3 times the S&P 500 and 11 times the 3-month T-bill
return.
The chart at the right shows what would have happened had you invested $10,000
on the last day of December, 1974 in each of the following investments: PMF, the
S&P 500 and a portfolio of 3-month T-bills (a proxy for a bank or a money market
mutual fund account). It shows the December 31, 1994 value of each investment 20
years later.
ONE TIME PURCHASE
(Value of $10,000 invested on 12/31/74)
[GRAPH]
<TABLE>
<CAPTION>
PENN MUTUAL S&P 500 3-MO. T-BILL
----------- ------- ------------
<S> <C> <C> <C>
December 1974................................................................. 10,000 10,000 10,000
March 1975.................................................................... 16,055 12,294 10,137
June 1975..................................................................... 23,487 14,182 10,289
September 1975................................................................ 20,734 12,628 10,443
December 1975................................................................. 22,111 13,719 10,577
March 1976.................................................................... 29,726 15,773 10,702
June 1976..................................................................... 29,726 16,166 10,843
September 1976................................................................ 29,910 16,474 10,978
December 1976................................................................. 32,937 16,992 11,095
March 1977.................................................................... 33,230 15,727 11,219
June 1977..................................................................... 35,719 16,250 11,356
September 1977................................................................ 36,916 15,793 11,522
December 1977................................................................. 40,781 15,772 11,694
March 1978.................................................................... 43,929 14,995 11,878
June 1978..................................................................... 50,923 16,269 12,072
September 1978................................................................ 57,451 17,678 12,281
December 1978................................................................. 47,472 16,807 12,530
March 1979.................................................................... 55,400 17,997 12,821
June 1979..................................................................... 58,048 18,486 13,129
September 1979................................................................ 64,497 19,880 13,437
December 1979................................................................. 64,310 19,906 13,795
March 1980.................................................................... 52,072 19,096 14,218
June 1980..................................................................... 62,220 21,656 14,662
September 1980................................................................ 76,718 24,082 14,974
December 1980................................................................. 80,845 26,360 15,408
March 1981.................................................................... 85,866 26,708 15,966
June 1981..................................................................... 94,358 26,091 16,530
September 1981................................................................ 71,929 23,425 17,154
December 1981................................................................. 81,380 25,067 17,760
March 1982.................................................................... 74,398 23,237 18,284
June 1982..................................................................... 75,633 23,109 18,871
September 1982................................................................ 84,497 25,771 19,422
December 1982................................................................. 108,613 30,480 19,828
March 1983.................................................................... 129,303 33,521 20,230
June 1983..................................................................... 150,276 37,215 20,655
September 1983................................................................ 148,413 37,125 21,116
December 1983................................................................. 152,613 37,316 21,591
March 1984.................................................................... 147,333 36,416 22,077
June 1984..................................................................... 146,036 35,470 22,606
September 1984................................................................ 155,339 38,896 23,181
December 1984................................................................. 157,405 39,592 23,744
March 1985.................................................................... 174,294 43,235 24,233
June 1985..................................................................... 179,941 46,378 24,696
September 1985................................................................ 179,401 44,462 25,135
December 1985................................................................. 199,548 52,097 25,565
March 1986.................................................................... 220,820 59,421 25,990
June 1986..................................................................... 233,252 62,808 26,400
September 1986................................................................ 216,808 58,443 26,778
December 1986................................................................. 221,859 61,587 27,145
March 1987.................................................................... 254,118 74,712 27,527
June 1987..................................................................... 257,396 78,567 27,916
September 1987................................................................ 269,519 83,760 28,343
December 1987................................................................. 224,914 64,780 28,754
March 1988.................................................................... 257,391 68,505 29,162
June 1988..................................................................... 274,251 72,985 29,608
September 1988................................................................ 277,953 73,255 30,126
December 1988................................................................. 280,177 75,468 30,699
March 1989.................................................................... 299,845 80,765 31,346
June 1989..................................................................... 317,326 87,873 32,042
September 1989................................................................ 330,876 97,231 32,696
December 1989................................................................. 326,938 99,195 33,350
March 1990.................................................................... 324,061 96,160 33,997
June 1990..................................................................... 334,561 102,218 34,673
September 1990................................................................ 279,191 88,112 35,343
December 1990................................................................. 289,214 96,024 35,982
March 1991.................................................................... 347,751 110,005 36,554
June 1991..................................................................... 351,263 109,774 37,077
September 1991................................................................ 365,279 115,680 37,596
December 1991................................................................. 381,278 125,351 38,051
March 1992.................................................................... 410,026 122,155 38,432
June 1992..................................................................... 399,570 124,561 38,798
September 1992................................................................ 409,000 128,423 39,121
December 1992................................................................. 442,988 134,985 39,423
March 1993.................................................................... 465,669 140,803 39,718
June 1993..................................................................... 460,687 141,493 40,012
September 1993................................................................ 478,976 145,129 40,320
December 1993................................................................. 492,818 148,482 40,631
March 1994.................................................................... 487,496 142,824 40,948
June 1994..................................................................... 476,820 143,381 41,345
September 1994................................................................ 494,605 150,421 41,800
December 1994................................................................. 489,263 150,436 42,343
</TABLE>
It also paid to be a regular saver in PMF. A regular investment of $2,000 a year
for 20 years became a nestegg of $307,701, nearly 1 1/2 times greater
than the S&P 500 and more than 3 times the 3-month T-bill return.
The chart at the right shows what would have happened had you been able to
invest $2,000 a year for 20 years from the end of December, 1974 to the end of
December, 1993 in each of the following investments: PMF, the S&P 500 and a
portfolio of 3-month T-bills. It shows the December 31, 1994 value of each
series of $2,000 investments.
DOLLAR COST AVERAGING
($2,000 per year starting on 12/31/74)
[GRAPH]
<TABLE>
<CAPTION>
3-MONTH
PENN MUTUAL S&P 500 T-BILL
----------- ------- --------------
<S> <C> <C> <C>
December 1974........................................................... 2,000 2,000 2,000
March 1975.............................................................. 3,211 2,459 2,027
June 1975............................................................... 4,697 2,836 2,058
September 1975.......................................................... 4,147 2,526 2,089
December 1975........................................................... 4,422 2,744 2,115
March 1976.............................................................. 8,634 5,454 4,164
June 1976............................................................... 8,634 5,590 4,219
September 1976.......................................................... 8,688 5,697 4,271
December 1976........................................................... 9,567 5,875 4,317
March 1977.............................................................. 11,670 7,289 6,388
June 1977............................................................... 12,544 7,531 6,466
September 1977.......................................................... 12,964 7,320 6,560
December 1977........................................................... 14,321 7,310 6,658
March 1978.............................................................. 17,581 8,851 8,795
June 1978............................................................... 20,380 9,604 8,938
September 1978.......................................................... 22,993 10,435 9,093
December 1978........................................................... 18,999 9,921 9,277
March 1979.............................................................. 24,506 12,765 11,539
June 1979............................................................... 25,677 13,112 11,816
September 1979.......................................................... 28,530 14,101 12,093
December 1979........................................................... 28,447 14,119 12,415
March 1980.............................................................. 24,653 15,463 14,858
June 1980............................................................... 29,458 17,537 15,321
September 1980.......................................................... 36,322 19,501 15,647
December 1980........................................................... 38,276 21,346 16,101
March 1981.............................................................. 42,777 23,654 18,757
June 1981............................................................... 47,008 23,107 19,419
September 1981.......................................................... 35,834 20,746 20,153
December 1981........................................................... 40,543 22,200 20,864
March 1982.............................................................. 38,892 22,433 23,539
June 1982............................................................... 39,538 22,310 24,294
September 1982.......................................................... 44,172 24,880 25,004
December 1982........................................................... 56,778 29,426 25,526
March 1983.............................................................. 69,976 34,562 28,085
June 1983............................................................... 81,326 38,371 28,675
September 1983.......................................................... 80,317 38,305 29,314
December 1983........................................................... 82,590 38,474 29,974
March 1984.............................................................. 81,664 39,499 32,693
June 1984............................................................... 80,945 38,472 33,478
September 1984.......................................................... 86,101 42,188 34,328
December 1984........................................................... 87,246 42,943 35,162
March 1985.............................................................. 98,822 49,078 37,928
June 1985............................................................... 102,024 52,646 38,652
September 1985.......................................................... 101,718 50,472 39,340
December 1985........................................................... 113,141 59,138 40,013
March 1986.............................................................. 127,415 69,734 42,710
June 1986............................................................... 13,4589 73,708 43,385
September 1986.......................................................... 125,100 68,586 44,006
December 1986........................................................... 128,015 72,276 44,608
March 1987.............................................................. 148,919 90,104 47,266
June 1987............................................................... 150,840 94,753 47,932
September 1987.......................................................... 157,945 101,016 48,665
December 1987........................................................... 131,805 78,126 49,371
March 1988.............................................................. 153,126 84,733 52,100
June 1988............................................................... 163,156 90,275 52,898
September 1988.......................................................... 165,359 90,609 53,823
December 1988........................................................... 166,682 93,345 54,846
March 1989.............................................................. 180,523 102,038 58,045
June 1989............................................................... 191,048 111,018 59,334
September 1989.......................................................... 199,205 122,841 60,544
December 1989........................................................... 196,835 125,323 61,755
March 1990.............................................................. 197,085 123,426 64,992
June 1990............................................................... 203,471 131,202 66,286
September 1990.......................................................... 169,796 113,096 67,565
December 1990........................................................... 175,892 123,252 68,788
March 1991.............................................................. 213,897 143,489 71,913
June 1991............................................................... 216,058 143,188 72,942
September 1991.......................................................... 224,678 150,891 73,963
December 1991........................................................... 234,519 163,506 74,858
March 1992.............................................................. 254,353 161,286 77,626
June 1992............................................................... 247,867 164,463 78,366
September 1992.......................................................... 253,716 169,561 79,018
December 1992........................................................... 274,800 178,226 79,628
March 1993.............................................................. 290,972 187,993 82,240
June 1993............................................................... 287,859 188,915 82,849
September 1993.......................................................... 299,287 193,770 83,487
December 1993........................................................... 307,936 198,246 84,130
March 1994.............................................................. 306,589 192,616 86,802
June 1994............................................................... 299,875 193,368 87,644
September 1994.......................................................... 311,060 202,862 88,608
December 1994........................................................... 307,701 202,882 89,760
</TABLE>
<PAGE>
FULL MARKET CYCLE EVALUATION
<TABLE>
<S> <C>
MARKET CYCLE PERFORMANCE: Building real wealth by beating both inflation and 'the market' is the goal
- The appropriate of a sound investment program. We believe that the most appropriate period of
period of measurement performance measurement is a full market cycle, defined as the period from
each general market peak to the next general peak.
DOWN MARKET PERFORMANCE: Superior down market performance is the key to achieving above average full
- The importance of market cycle returns. How we perform in a 'down' market is as critical as how
risk reduction we perform in an 'up' market. By performing better in a down period we are
able to compound returns faster over full cycles. Preserving capital during
'tough' markets by concentrating on risk reduction is a critical part of the
Fund's philosophy.
</TABLE>
S&P 500
(Cumulative Unit Values 7/79 thru 12/94)
[Graph]
<TABLE>
<CAPTION>
Period
Ended: S&P
------ ---
<S> <C>
06/30/79 1
07/31/79 $1.01
08/31/79 $1.07
09/30/79 $1.08
10/31/79 $1.00
11/30/79 $1.06
12/31/79 $1.08
01/31/80 $1.14
02/29/80 $1.15
03/31/80 $1.03
04/30/80 $1.08
05/31/80 $1.14
06/30/80 $1.17
07/31/80 $1.25
08/31/80 $1.27
09/30/80 $1.30
10/31/80 $1.33
11/30/80 $1.47
12/31/80 $1.43
01/31/81 $1.36
02/28/81 $1.39
03/31/81 $1.44
04/30/81 $1.41
05/31/81 $1.42
06/30/81 $1.41
07/31/81 $1.41
08/31/81 $1.33
09/30/81 $1.27
10/31/81 $1.33
11/30/81 $1.39
12/31/81 $1.36
01/31/82 $1.34
02/28/82 $1.26
03/31/82 $1.26
04/30/82 $1.31
05/31/82 $1.27
06/30/82 $1.25
07/31/82 $1.23
08/31/82 $1.38
09/30/82 $1.39
10/31/82 $1.55
11/30/82 $1.62
12/31/82 $1.65
01/31/83 $1.71
02/28/83 $1.75
03/31/83 $1.81
04/30/83 $1.95
05/31/83 $1.94
06/30/83 $2.01
07/31/83 $1.95
08/31/83 $1.98
09/30/83 $2.01
10/31/83 $1.98
11/30/83 $2.03
12/31/83 $2.02
01/31/84 $2.00
02/29/84 $1.93
03/31/84 $1.97
04/30/84 $1.99
05/31/84 $1.88
06/30/84 $1.92
07/31/84 $1.89
08/31/84 $2.10
09/30/84 $2.10
10/31/84 $2.11
11/30/84 $2.09
12/31/84 $2.14
01/31/85 $2.30
02/28/85 $2.34
03/31/85 $2.34
04/30/85 $2.33
05/31/85 $2.47
06/30/85 $2.51
07/31/85 $2.50
08/31/85 $2.48
09/30/85 $2.40
10/31/85 $2.51
11/30/85 $2.69
12/31/85 $2.82
01/31/86 $2.83
02/28/86 $3.05
03/31/86 $3.21
04/30/86 $3.17
05/31/86 $3.34
06/30/86 $3.40
07/31/86 $3.20
08/31/86 $3.44
09/30/86 $3.16
10/31/86 $3.34
11/30/86 $3.42
12/31/86 $3.33
01/31/87 $3.78
02/28/87 $3.93
03/31/87 $4.04
04/30/87 $4.01
05/31/87 $4.05
06/30/87 $4.25
07/31/87 $4.46
08/31/87 $4.63
09/30/87 $4.53
10/31/87 $3.55
11/30/87 $3.26
12/31/87 $3.50
01/31/88 $3.65
02/29/88 $3.82
03/31/88 $3.70
04/30/88 $3.74
05/31/88 $3.77
06/30/88 $3.95
07/31/88 $3.93
08/31/88 $3.80
09/30/88 $3.96
10/31/88 $4.07
11/30/88 $4.01
12/31/88 $4.08
01/31/89 $4.38
02/28/89 $4.27
03/31/89 $4.37
04/30/89 $4.59
05/31/89 $4.78
06/30/89 $4.75
07/31/89 $5.18
08/31/89 $5.28
09/30/89 $5.26
10/31/89 $5.13
11/30/89 $5.24
12/31/89 $5.36
01/31/90 $5.00
02/28/90 $5.07
03/31/90 $5.20
04/30/90 $5.07
05/31/90 $5.57
06/30/90 $5.53
07/31/90 $5.51
08/31/90 $5.01
09/30/90 $4.76
10/31/90 $4.75
11/30/90 $5.05
12/31/90 $5.19
01/31/91 $5.42
02/28/91 $5.81
03/31/91 $5.95
04/30/91 $5.97
05/31/91 $6.22
06/30/91 $5.94
07/31/91 $6.21
08/31/91 $6.36
09/30/91 $6.26
10/31/91 $6.34
11/30/91 $6.08
12/31/91 $6.78
01/31/92 $6.65
02/29/92 $6.74
03/31/92 $6.61
04/30/92 $6.80
05/31/92 $6.83
06/30/92 $6.74
07/31/92 $7.01
08/31/92 $6.87
09/30/92 $6.95
10/31/92 $6.97
11/30/92 $7.21
12/31/92 $7.30
01/31/93 $7.35
02/28/93 $7.45
03/31/93 $7.61
04/30/93 $7.43
05/31/93 $7.63
06/30/93 $7.65
07/31/93 $7.62
08/31/93 $7.91
09/30/93 $7.85
10/31/93 $8.01
11/30/93 $7.93
12/31/93 $8.03
01/31/94 $8.30
02/28/94 $8.08
03/31/94 $7.73
04/30/94 $7.83
05/31/94 $7.95
06/30/94 $7.76
07/31/94 $8.01
08/31/94 $8.34
09/30/94 $8.14
10/31/94 $8.33
11/30/94 $8.02
12/31/94 $8.14
</TABLE>
<TABLE>
<CAPTION>
MARKET CYCLE ANALYSIS DOWN MARKET ANALYSIS
1ST PEAK 2ND PEAK 3RD PEAK 1ST PEAK 2ND PEAK 3RD PEAK
TO 2ND PEAK TO 3RD PEAK TO CURRENT TO 1ST TROUGH TO 2ND TROUGH TO 3RD TROUGH
12/31/80 - 9/30/87 - 6/30/90 - 12/31/80 - 9/30/87 - 6/30/90 -
9/30/87 6/30/90 12/31/94 6/30/82 12/31/87 9/30/90
--------------- --------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Mutual 233.3% 24.2% 46.2% - 6.7% - 16.6% - 16.6%
S&P 500 217.7% 22.0% 47.2% - 12.3% - 22.7% - 13.8%
Russell 2000 Index 171.8% 4.6% 60.0% - 8.8% - 29.1% - 24.5%
3-month T-bills 84.0% 22.3% 22.1% 22.5% 1.5% 1.9%
</TABLE>
Market peaks and troughs were derived by taking the daily S&P 500 cycle
highs and lows, defined as a drop of 10% or greater from the previous peak
or trough, and rounding to the nearest quarter. (Viz. peaks: 11/26/80;
8/25/87; 7/16/90; troughs: 8/12/82; 12/4/87; 10/11/90.)
<PAGE>
PRICE! PRICE! PRICE!
[Illustration]
Remember the popular television commercial in which the spokesman said that
he was so impressed with the Remington electric razor that he bought the whole
company? Buying a company out of fondness for its product may deliver a close
shave, but it does not guarantee a handsome return. While real estate investors
champion 'location, location, location' as the single most important variable in
the investment equation, we espouse 'price, price, price' -- the price at which
we can profitably acquire the investment returns and prospects provided by a
company's products and services.
By our way of thinking, this means getting an above average current return
without overpaying or relying too much in high future growth. The allure of
growth is attractive for all investors, ourselves included. However, the trick
is to balance the odds of sustainable high growth with the price one pays for
that possibility. We prefer a margin of safety based on receiving adequate
current returns. Even if one is confident about future growth, paying up is hard
to justify and the following illustrates why.
Rick's Razors, which is growing at 10% per year, can be bought at 10x
earnings, while Bennie's Blades, which is growing twice as fast at 20% per year,
commands a price of 20x earnings. Because of the interplay between current
earnings and prevailing price, Rick's Razors generates a significantly higher
earnings yield than Bennie's Blades. Earnings yield (the reciprocal of the price
earnings ratio) is the return that an investor receives if all of the company's
earnings were paid out as a dividend.
<TABLE>
<CAPTION>
RICK'S RAZORS BENNIE'S BLADES
(10 PE/10% GROWER) (20 PE/20% GROWER)
EARNINGS YIELD EARNINGS YIELD
------------------ ------------------
<S> <C> <C>
Year 1 10.0% 5.0%
Year 2 11.0% 6.0%
Year 3 12.1% 7.2%
Year 4 13.3% 8.6%
Year 5 14.6% 10.4%
Year 6 16.1% 12.4%
Year 7 17.7% 14.9%
Year 8 19.5% 17.9%
Year 9 21.4% 21.5%
</TABLE>
Not only does Rick's Razors earn a higher current return on invested
capital, but it also takes nine years for the faster growing, but more expensive
Bennie's Blades to catch up on an earnings yield basis. This, of course, assumes
no earnings interruptions (nicks) during the nine years, and that Bennie's
Blades continues to grow its ever increasing asset base at 20% per annum -- a
difficult task at best and typically not achievable.
Noted investor Benjamin Graham astutely observed 60 years ago that any
business is a good business, but at a certain price. Paying the right price
remains our first and foremost risk reduction technique.
<PAGE>
PORTFOLIO SUMMARY
The following information is provided as a 'bird's eye' view of the PMF
portfolio. For a more complete picture, the full portfolio and accompanying
financial statements should be read in their entirety.
<TABLE>
<CAPTION>
% OF COMMON
PORTFOLIO COMPOSITION STOCKS VALUE % OF NET ASSETS
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Top 200 Stocks 75.5% $ 547,876,101 71.0%
Other Stocks 24.5 177,918,861 23.1
------- --------------- ---------------
Common Stocks 100.0% 725,794,962 94.1
-------
-------
Bond & Preferred Stocks 2,430,488 0.3
Other Net Assets 43,191,174 5.6
--------------- ---------------
Total Net Assets $ 771,416,624 100.0%
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK SECTORS % OF NET ASSETS
---------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Cyclicals 25.7%
Financial 20.8
Services 16.3
Retail 8.1
Consumer Durables 7.1
Technology 5.0
Energy 3.7
Health 3.3
Consumer Staples 3.2
Utilities 0.9
</TABLE>
<TABLE>
WEIGHTED AVERAGES
---------------------------------------------------------------------------------------------------------
<S> <C>
Market Capitalization (Total Portfolio) $432 Million
P/E Ratio (200 Largest Positions) 14.3x
P/B Ratio (200 Largest Positions) 1.5x
Portfolio Yield (200 Largest Positions) 2.0%
</TABLE>
<TABLE>
<CAPTION>
TOP TWENTY POSITIONS MARKET VALUE % OF NET ASSETS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Farmer Bros. Co. $ 7,762,400 1.0%
2 Alleghany Corporation 6,897,304 0.9
3 Comdisco, Inc. 6,537,553 0.8
4 NCH Corporation 5,992,000 0.8
5 W.R. Berkley Corp. 5,974,688 0.8
6 Air Express International Corporation 5,838,000 0.8
7 The Pioneer Group, Inc. 5,711,200 0.7
8 U.S. Trust Corp. 5,626,100 0.7
9 Orion Capital Corporation 5,541,512 0.7
10 Kimball International, Inc. Cl. B 5,538,000 0.7
11 Baldwin & Lyons, Inc. Cl. B 4,824,401 0.6
12 Mine Safety Appliances Company 4,734,000 0.6
13 ALLIED Group, Inc. 4,662,900 0.6
14 Leucadia National Corporation 4,622,927 0.6
15 Fab Industries, Inc. 4,601,271 0.6
16 Arnold Industries, Inc. 4,558,775 0.6
17 Tecumseh Products Company 4,558,075 0.6
18 The Standard Register Company 4,544,925 0.6
19 Block Drug Company, Inc. Cl. A 4,533,163 0.6
20 Claire's Stores, Inc. 4,430,400 0.6
</TABLE>
<PAGE>
PENNSYLVANIA
MUTUAL FUND
FINANCIAL STATEMENTS
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMMON STOCKS - 94.1%
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
CONSUMER DURABLES - 7.1%
43,500 Aaron Rents, Inc. Cl. A..... $ 554,591
37,711 Allen Organ Company Cl. B... 1,338,741
105,422 *Athey Products Corp. ...... 685,243
39,100 *Baldwin Piano & Organ
Company................... 430,100
49,375 Bassett Furniture
Industries, Incorporated.. 1,407,188
71,431 *Bell Industries, Inc. ..... 1,455,407
61,000 Core Industries Inc. ....... 594,750
98,400 Donaldson Company, Inc. .... 2,324,700
6,700 *Ethan Allen Interiors
Inc. ..................... 162,475
105,000 Fleetwood Enterprises,
Inc. ..................... 1,968,750
242,600 Flexsteel Industries,
Inc. ..................... 3,153,800
23,800 Forest City Enterprises,
Inc. Cl. A 714,000
47,900 Garan Incorporated.......... 778,375
138,800 *Johnson Worldwide
Associates, Inc. Cl. A.... 2,706,600
168,300 Juno Lighting, Inc. ........ 2,987,325
33,100 K-Swiss Inc. Cl. A.......... 653,725
24,100 *Kit Manufacturing Co. ..... 280,163
71,000 La-Z-Boy Chair Company...... 2,263,125
85,600 *Lazare Kaplan
International, Inc. ...... 813,200
126,390 *Lifetime Hoan Corporation.. 1,485,083
96,100 Minuteman International,
Inc. ..................... 997,038
86,750 National Presto Industries,
Inc. ..................... 3,600,125
31,300 Nordson Corporation......... 1,878,000
135,800 Oshkosh Truck Corporation
Cl. B..................... 1,459,850
45,400 *O'Sullivan Industries
Holdings, Inc. ........... 578,850
61,400 Pittway Corporation Cl. A... 2,471,350
81,800 The Rival Company........... 1,431,500
101,600 Russ Berrie and Company,
Inc. ..................... 1,397,000
76,629 SL Industries, Inc. ........ 344,831
64,200 St. Joe Paper Company....... 3,482,850
167,800 The Stride Rite
Corporation............... 1,866,775
118,200 Sturm, Ruger & Company,
Inc. ..................... 3,353,925
1,500 Thomaston Mills, Inc. Cl.
A......................... 23,625
115,800 Thor Industries, Inc. ...... 2,243,625
2,100 Tiffany & Co. .............. 81,900
163,400 The Topps Company, Inc. .... 837,425
35,300 *Vista Resources, Inc. ..... 719,238
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
38,500 Weyco Group, Inc. .......... $ 1,395,625
------------
54,920,873
------------
CONSUMER STAPLES - 3.2%
147,688 Alico, Inc. ................ 2,547,618
30,800 DEKALB Genetics Corporation
Cl. B..................... 823,900
62,600 Farmer Bros. Co. ........... 7,762,400
43,800 Flowers Industries, Inc. ... 793,875
37,400 *Fresh America Corp. ....... 278,163
29,430 Genesee Corporation Cl. B... 1,030,050
2,640 Maui Land & Pineapple
Company, Inc. ............ 132,000
101,800 Midwest Grain Products,
Inc. ..................... 2,443,200
153,000 Savannah Foods & Industries,
Inc. ..................... 2,256,750
3,600 Seaboard Corporation........ 579,600
99,500 Stanhome Inc. .............. 3,146,688
44,050 Thorn Apple Valley, Inc. ... 1,255,425
10,000 The Tranzonic Companies..... 170,000
69,000 WLR Foods, Inc. ............ 1,811,250
------------
25,030,919
------------
ENERGY - 3.7%
81,800 *American Oilfield Divers,
Inc. ..................... 501,025
76,400 *Atwood Oceanics, Inc. ..... 897,700
226,800 Camco International Inc. ... 4,280,850
5,172 The Coal Creek Mining and
Manufacturing Company..... 587,022
90,650 *Equity Oil Company......... 351,269
36,900 *Gulfmark International
Inc. ..................... 624,994
87,700 Helmerich & Payne, Inc. .... 2,247,313
73,000 The Louisiana Land and
Exploration Company....... 2,655,375
94,044 Lufkin Industries, Inc. .... 1,739,814
64,500 *McFarland Energy, Inc. .... 411,188
45,500 Mitchell Energy &
Development Corp. Cl. A... 739,375
87,800 Mitchell Energy &
Development Corp. Cl. B... 1,646,250
329,140 *Nabors Industries, Inc. ... 2,139,410
121,000 *Noble Drilling
Corporation............... 710,875
235,500 *Oceaneering International,
Inc. ..................... 2,413,875
4,500 Parker & Parsley Petroleum
Company................... 92,250
116,000 Plains Petroleum Company.... 2,726,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
77,600 *Pool Energy Services Co.... $ 523,800
121,100 *Pride Petroleum Services,
Inc. ..................... 605,500
128,280 *Santa Fe Energy Resources,
Inc. ..................... 1,026,240
16,300 Tidewater Inc. ............. 301,550
76,500 The Wiser Oil Company....... 1,090,125
------------
28,311,800
------------
FINANCIAL - 20.8%
36,100 *Alabama National Bank
Corporation............... 315,875
5,900 Alex Brown Incorporated..... 179,213
45,377 *Alleghany Corporation...... 6,897,304
38,000 Alliance Capital Management
L.P....................... 707,750
188,400 ALLIED Group, Inc. ......... 4,662,900
115,850 Argonaut Group, Inc. ....... 3,272,763
94,269 *Avatar Holdings Inc. ...... 3,582,222
121,000 AVEMCO Corporation.......... 1,860,375
27,200 Baker Boyer Bancorp......... 829,600
159,325 W. R. Berkley Corp. ........ 5,974,688
46,300 E.W. Blanch Holdings,
Inc. ..................... 954,938
44,400 The Boston Bancorp.......... 1,293,150
26,000 *Brooklyn Bancorp, Inc. .... 786,500
19,500 CMAC Investment
Corporation............... 563,063
18,700 Capital Re Corporation...... 511,913
20,500 The Colonial Group, Inc. Cl.
A......................... 666,250
47,542 The Commerce Group, Inc. ... 793,357
48,363 Community Banks, Inc. ...... 1,148,621
59,800 Consolidated-Tomoka Land
Co. ...................... 725,075
114,450 Cousins Properties
Incorporated.............. 1,988,569
3,587 Cupertino National Bancorp.. 33,180
73,250 Dauphin Deposit Corp. ...... 1,730,531
31,200 Downey Savings & Loan
Association............... 471,900
87,100 DUFF & PHELPS CORPORATION... 751,238
22,133 DUFF & PHELPS CREDIT RATING
CO........................ 218,563
53,000 Eaton Vance Corp. .......... 1,484,000
57,200 Equitable of Iowa
Companies................. 1,615,900
8,936 Exchange Bank............... 563,029
13,800 *F & M Bancorporation....... 524,400
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
2,079 Farmers & Merchants Bank of
Long Beach................ $ 3,742,200
64,800 The First American Financial
Corporation............... 1,117,800
7,800 First Midwest Bancorp,
Inc. ..................... 187,200
974 The First National Bank of
Anchorage 1,461,000
32,100 First Security
Corporation............... 730,275
22,500 FirstFed Michigan
Corporation............... 461,250
22,850 Foremost Corporation of
America 816,888
92,800 Franklin Resources, Inc. ... 3,306,000
92,600 Fremont General
Corporation............... 2,164,525
143,300 *Gryphon Holdings Inc. ..... 1,916,638
146,200 Guaranty National
Corporation............... 2,686,425
109,107 *Hanmi Bank................. 818,303
73,977 Harleysville Group, Inc. ... 1,793,942
70,500 Horace Mann Educators
Corporation............... 1,498,125
40,900 Integon Corporation......... 536,813
54,700 Intercargo Corporation...... 451,275
64,800 The John Nuveen Company Cl.
A......................... 1,482,300
69,412 Keystone Heritage Group,
Inc. ..................... 1,839,418
169,500 Lehman Bros. Holdings
Inc. ..................... 2,500,125
103,886 Leucadia National
Corporation............... 4,622,927
83,300 Mercury General
Corporation............... 2,394,875
404 Mid-Citco Incorporated...... 852,440
95,100 *Mid Ocean Limited.......... 2,591,475
41,643 *Mutual Assurance, Inc. .... 1,082,718
48,200 NYMAGIC, INC................ 885,675
36,193 National Bancorp of Alaska,
Inc. ..................... 1,845,843
50,700 *The Navigators Group,
Inc. ..................... 735,150
45,700 New England Investment
Companies, L.P. .......... 714,063
184,900 The Newhall Land and Farming
Company................... 2,241,913
28,400 North American Mortgage
Company................... 418,900
136,932 Old Republic International
Corporation............... 2,909,805
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
33,341 ONBANCorp, Inc. ............ $ 775,178
157,206 Orion Capital Corporation... 5,541,512
29,100 *Pacific Gateway Properties
Inc. ..................... 116,400
151,675 Paine Webber Group Inc. .... 2,275,125
52,300 PartnerRe Holdings Ltd. .... 1,085,225
42,800 *Piedmont Management Company
Inc. ..................... 524,300
259,600 The Pioneer Group, Inc. .... 5,711,200
157,400 Piper Jaffray Companies
Inc. ..................... 1,633,025
52,903 Portsmouth Bank Shares,
Inc. ..................... 634,836
94,100 T. Rowe Price Associates,
Inc. ..................... 2,823,000
50,500 Protective Life
Corporation............... 2,455,563
118,500 RLI Corp. .................. 2,429,250
15,200 Raymond James Financial,
Inc. ..................... 212,800
124,900 Re Capital Corporation...... 1,530,025
35,950 *Reading Company Cl. A...... 399,944
10,000 Reinsurance Group of
America, Incorporated..... 246,250
54,700 Reliance Group Holdings,
Inc. ..................... 280,338
19,591 *Reliance Group Holdings,
Inc. ..................... 31,835
63,900 Republic New York
Corporation............... 2,891,475
68,000 SEI Corporation............. 1,173,000
107,000 Security-Connecticut Life
Insurance Company......... 2,407,500
17,000 Selective Insurance Group,
Inc. ..................... 429,250
136,340 Sovereign Bancorp, Inc. .... 1,056,635
10,000 State Street Boston
Corporation............... 286,250
80,400 Student Loan Corporation.... 1,467,300
95,639 *Sunrise Bancorp............ 167,368
74,900 Susquehanna Bancshares,
Inc. ..................... 1,666,525
54,700 Transatlantic Holdings,
Inc. ..................... 3,056,363
11,500 *Transnational Re
Corporation Cl. A......... 270,250
56,100 Trenwick Group Inc. ........ 2,377,238
21,806 TriCo Bancshares............ 316,187
88,600 U. S. Trust Corp. .......... 5,626,100
22,050 Vornado Realty Trust........ 791,044
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
50,630 Webster Financial
Corporation............... $ 936,655
29,300 Wesco Financial
Corporation............... 3,373,163
61,700 Western Investment Real
Estate Trust.............. 794,388
208,300 Willis Corroon Group plc.... 2,135,075
39,900 Wilmington Trust
Corporation............... 907,725
67,500 Zenith National Insurance
Corp. .................... 1,535,625
81,600 *Zurich Reinsurance Centre,
Inc. ..................... 2,356,200
------------
160,640,275
------------
HEALTH - 3.3%
36,100 *Advanced Technology
Laboratories, Inc. ....... 667,850
74,100 C. R. Bard, Inc. ........... 2,000,700
85,300 *Biomet, Inc. .............. 1,194,200
90,300 Blessings Corporation....... 1,286,775
119,293 Block Drug Company, Inc. Cl.
A......................... 4,533,163
10,000 *Community Psychiatric
Centers................... 110,000
40,100 *Diagnostic Products
Corporation............... 1,052,625
40,400 Gish Biomedical, Inc. ...... 257,550
21,300 Jones Medical Industries,
Inc. ..................... 141,113
105,800 Life Technologies, Inc. .... 2,063,100
45,200 *Marquette Electronics, Inc.
Cl. A..................... 1,050,900
120,612 Medex, Inc. ................ 1,628,262
105,200 Mine Safety Appliances
Company................... 4,734,000
58,500 *Nellcor Incorporated....... 1,930,500
183,700 *Vallen Corporation......... 2,525,875
------------
25,176,613
------------
INDUSTRIAL CYCLICALS - 25.7%
58,304 Aceto Corporation........... 816,256
39,900 *Ag-Chem Equipment Co.,
Inc. ..................... 1,576,050
68,500 Albany International Corp.
Cl. A..................... 1,318,625
68,300 American Filtrona
Corporation............... 1,844,100
57,400 Ameron, Inc. ............... 1,671,775
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
80,400 Ampco-Pittsburgh
Corporation............... $ 793,950
82,900 `D'*Anacomp, Inc. .......... 165,800
63,700 AptarGroup, Inc. ........... 1,831,375
15,509 Ash Grove Cement Company.... 1,054,612
89,400 Ashland Coal, Inc. ......... 2,547,900
124,800 *Guy F. Atkinson Company of
California................ 1,248,000
76,325 BHA Group, Inc. ............ 958,833
71,800 BW/IP, Inc. Cl. A........... 1,229,575
67,100 *Banister Inc. ............. 696,163
104,300 BIC Corporation............. 3,063,813
106,500 *Bird Corp. ................ 911,906
76,700 W. H. Brady Co. Cl. A....... 3,719,950
17,600 Brenco, Incorporated........ 209,000
18,753 Burnham Corporation Cl. A... 1,012,662
161,700 CRSS Inc. .................. 1,718,063
173,800 CalMat Co. ................. 3,019,775
39,900 Carlisle Companies,
Incorporated.............. 1,441,388
62,800 Carpenter Technology
Corporation............... 3,516,800
73,000 Cascade Corp. .............. 1,733,750
874 Central Steel & Wire
Company................... 511,290
128,000 *Chase Brass Industries,
Inc. ..................... 1,232,000
14,300 Chicago Rivet & Machine
Co. ...................... 371,800
75,250 CLARCOR Inc. ............... 1,599,063
19,200 Cohu, Inc. ................. 432,000
9,030 ConBraCo Industries,
Inc. ..................... 4,153,800
42,200 Crompton & Knowles
Corporation............... 696,300
78,800 Curtiss-Wright Corporation.. 2,866,350
255,848 Delta Woodside Industries,
Inc. ..................... 2,942,252
30,000 *Detrex Corporation......... 307,500
137,500 *Devcon International
Corp. .................... 1,134,375
85,000 *DeVlieg-Bullard, Inc. ..... 148,750
128,000 Dixie Yarns, Inc. .......... 896,000
93,100 The Duriron Company, Inc. .. 1,652,525
17,600 Eastern Co. ................ 228,800
147,832 Fab Industries, Inc. ....... 4,601,271
120,700 Fansteel Inc. .............. 844,900
144,300 Florida Rock Industries,
Inc. ..................... 3,950,213
77,800 Giddings & Lewis, Inc. ..... 1,147,550
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
130,487 Gilbert Associates, Inc. Cl.
A......................... $ 1,859,440
173,100 P. H. Glatfelter Company.... 2,683,050
49,600 Gleason Corporation......... 731,600
110,812 Gorman-Rupp Company......... 1,980,765
80,700 Greif Bros. Corporation Cl.
A......................... 3,490,275
16,875 Guardsman Products, Inc. ... 210,938
89,125 Guilford Mills, Inc. ....... 1,983,031
81,300 Handy & Harman.............. 1,249,988
69,300 *C. H. Heist Corp. ......... 493,763
35,400 Hunt Manufacturing Co. ..... 477,900
146,800 *Insituform Technologies,
Inc. Cl. A................ 1,706,550
154,500 *Intermet Corporation....... 1,042,875
129,500 International Aluminum
Corporation............... 3,885,000
71,800 Kaydon Corporation.......... 1,723,200
36,500 *Kentucky Electric Steel
Company................... 319,375
213,000 Kimball International, Inc.
Cl. B..................... 5,538,000
97,700 *Kinark Corporation......... 317,525
23,300 Knape & Vogt Manufacturing
Company................... 454,350
22,800 *Laclede Steel Company...... 228,000
22,300 *Lancer Corporation......... 409,763
135,420 Lawter International,
Inc. ..................... 1,641,968
210,460 LeaRonal, Inc. ............. 3,867,203
188,950 +Liberty Homes, Inc. Cl.
A......................... 1,747,788
300,012 Lilly Industries, Inc. Cl.
A......................... 4,200,168
31,690 The Lincoln Electric
Company................... 1,164,608
53,450 Lindberg Corporation........ 334,063
41,200 Liqui-Box Corporation....... 1,369,900
9,500 *Lydall, Inc. .............. 308,750
13,406 MacDermid, Incorporated..... 492,671
170,800 The Manitowoc Company,
Inc. ..................... 3,693,550
290,100 *Manville Corporation....... 2,610,900
31,100 Herman Miller, Inc. ........ 816,375
58,300 The Monarch Machine Tool
Company................... 583,000
32,900 Paul Mueller Company........ 987,000
125,837 Myers Industries, Inc. ..... 1,761,718
89,600 NCH Corporation............. 5,992,000
33,750 *NCI Building Systems,
Inc. ..................... 582,188
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
10,000 NACCO Industries, Inc. Cl.
A......................... $ 483,750
94,700 New England Business
Service, Inc. ............ 1,775,625
66,700 *New Jersey Steel
Corporation............... 1,017,175
40,000 *Nichols Research
Corporation............... 510,000
65,592 Oakwood Homes Corporation... 1,598,805
46,750 Oil-Dri Corporation of
America................... 812,281
153,400 Oregon Steel Mills, Inc. ... 2,396,875
43,200 *Paragon Trade Brands,
Inc. ..................... 572,400
71,550 Penn Engineering and
Manufacturing Corp. ...... 3,014,044
107,243 Penn Virginia Corporation... 3,378,155
75,100 *Perini Corporation......... 704,063
34,800 The Pittston Services
Group..................... 922,200
61,000 Precision Castparts
Corp. .................... 1,235,250
89,693 Preformed Line Products
Company................... 3,049,562
62,000 *Proler International
Corp. .................... 387,500
135,500 Puerto Rican Cement Company,
Inc. ..................... 3,810,938
195,764 Quaker Chemical
Corporation............... 3,670,575
48,600 Regal-Beloit Corporation.... 662,175
76,000 The Reynolds and Reynolds
Company Cl. A............. 1,900,000
97,310 Robroy Industries, Inc. Cl.
A......................... 1,605,615
44,600 Russell Corporation......... 1,399,325
38,500 Scotsman Industries,
Inc. ..................... 659,313
101,100 *Shiloh Industries, Inc. ... 783,525
34,500 *Simpson Manufacturing Co.,
Inc. ..................... 370,875
120,000 Skyline Corporation......... 2,310,000
117,800 Smith Corona Corporation.... 294,500
48,300 Springs Industries, Inc. Cl.
A......................... 1,787,100
45,300 The L. S. Starrett Company
Cl. A..................... 1,013,588
28,600 *Steel of West Virginia,
Inc. ..................... 314,600
113,200 Stone & Webster, Inc. ...... 3,763,900
199,600 Tab Products Co. ........... 1,372,250
88,500 Tecumseh Products Company
Cl. A..................... 3,982,500
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
12,650 Tecumseh Products Company
Cl. B..................... $ 575,575
88,400 *Todd Shipyards
Corporation............... 508,300
4,000 *Total Containment, Inc. ... 36,620
69,300 *The Turner Corporation..... 571,725
147,600 *UNC, Inc. ................. 885,600
44,400 Velcro Industries N.V. ..... 3,030,300
90,532 Versa Technologies, Inc. ... 1,244,815
67,900 Vulcan Materials Company.... 3,437,438
70,000 Watts Industries, Inc. Cl.
A......................... 1,478,750
18,480 *Wedco Technology, Inc. .... 188,843
39,318 Woodward Governor Company... 2,594,988
95,200 Zero Corporation............ 1,332,800
22,000 Zurn Industries, Inc. ...... 396,000
------------
198,596,316
------------
RETAIL - 8.1%
12,500 *Alexander's, Inc. ......... 660,938
90,000 Blair Corporation........... 3,600,000
401,900 Charming Shoppes, Inc. ..... 2,662,588
369,200 Claire's Stores, Inc. ...... 4,430,400
232,750 *The Clothestime, Inc. ..... 829,172
104,100 *CONSOLIDATED STORES
CORPORATION............... 1,938,863
36,900 *Crown Books Corporation.... 571,950
28,100 Dart Group Corporation Cl.
A......................... 2,163,700
91,900 Deb Shops Inc. ............. 275,700
382,700 *The Dress Barn, Inc. ...... 4,114,025
327,200 Family Dollar Stores,
Inc. ..................... 4,090,000
140,500 Hancock Fabrics, Inc. ...... 1,246,938
54,900 *InterTAN Inc. ............. 446,063
127,100 Lawson Products, Inc. ...... 3,304,600
161,600 *Marshall Industries........ 4,322,800
75,000 *Mikasa, Inc. Cl. A......... 1,228,125
32,600 *Milgray Electronics,
Inc. ..................... 456,400
118,950 Nash Finch Company.......... 1,962,675
118,300 The Neiman Marcus Group,
Inc. ..................... 1,597,050
89,500 *Old America Stores,
Inc. ..................... 1,320,125
32,500 *One Price Clothing Stores,
Inc. ..................... 255,938
95,900 *Orchard Supply Hardware
Stores Corporation........ 719,250
94,900 Oshkosh B'Gosh, Inc. Cl. A.. 1,328,600
328,600 Pier 1 Imports, Inc. ....... 3,080,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
43,767 Pioneer-Standard
Electronics, Inc. ........ $ 689,330
50,362 Richardson Electronics,
Ltd. ..................... 390,306
97,600 Richfood Holdings, Inc. .... 1,561,600
100,925 Rykoff-Sexton, Inc. ........ 2,056,347
135,705 Strawbridge & Clothier Cl.
A......................... 3,104,252
201,250 Super Food Services,
Inc. ..................... 2,163,438
32,800 *Syms Corp. ................ 213,200
355,377 *TBC Corporation............ 3,287,237
41,300 *United Retail Group,
Inc. ..................... 325,238
81,300 *Western Micro Technology,
Inc. ..................... 518,288
70,625 Wyle Laboratories........... 1,377,188
------------
62,292,949
------------
SERVICES - 16.3%
144,700 ABM Industries
Incorporated.............. 3,364,275
115,592 ADVO, Inc. ................. 1,993,962
291,900 Air Express International
Corporation............... 5,838,000
134,400 *American City Business
Journals, Inc. ........... 2,284,800
44,700 Angelica Corporation........ 1,234,838
219,700 Arnold Industries, Inc. .... 4,558,775
193,700 Atlantic Southeast Airlines,
Inc. ..................... 3,002,350
327,078 Baldwin & Lyons, Inc. Cl.
B......................... 4,824,401
59,950 Banta Corporation........... 1,813,488
8,100 Bay Meadows Operating
Company and California
Jockey Club............... 116,438
51,150 Bowl America Incorporated
Cl. A..................... 818,400
184,000 Bowne & Co., Inc. .......... 3,197,000
67,800 CPI Corp. .................. 1,211,925
22,800 *Continental Airlines
Holdings, Inc. Cl. B...... 210,900
175,550 Crawford & Company Cl. A.... 2,764,913
91,900 Crawford & Company Cl. B.... 1,470,400
165,700 Dames & Moore............... 2,444,075
60,800 *Duplex Products, Inc. ..... 516,800
41,000 Ennis Business Forms,
Inc. ..................... 512,500
63,600 Expeditors International of
Washington, Inc. ......... 1,383,300
85,900 *FRP Properties, Inc. ...... 1,578,413
127,000 *FCA International Ltd. .... 362,162
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
1,192 Fisher Companies Inc. ...... $ 270,584
74,300 FlightSafety International,
Inc. ..................... 3,018,438
56,100 Florida East Coast
Industries, Inc. ......... 3,702,600
206,577 Frozen Food Express
Industries, Inc. ......... 3,201,944
183,567 G & K Services, Inc. Cl.
A......................... 3,051,801
105,700 Arthur J. Gallagher &
Co. ...................... 3,382,400
114,300 A. P. Green Industries,
Inc. ..................... 2,114,550
24,297 Grey Advertising Inc. ...... 3,668,847
59,800 Handleman Company........... 680,225
241,737 The Harper Group............ 3,807,358
143,725 Hilb, Rogal & Hamilton
Company................... 1,742,666
67,900 *Hornbeck Offshore Services,
Inc. ..................... 848,750
16,300 Houghton Mifflin Company.... 739,613
28,200 *IHOP Corp. ................ 768,450
67,700 *International Dairy Queen,
Inc. Cl. A................ 1,150,900
83,600 *International Dairy Queen,
Inc. Cl. B................ 1,358,500
162,400 Intertrans Corporation...... 2,111,200
27,800 Kansas City Southern
Industries, Inc. ......... 858,325
55,800 Kenan Transport Company..... 976,500
10,471 Lady Baltimore Foods, Inc.
Cl. A..................... 596,847
53,500 The Marcus Corporation...... 1,498,000
40,960 *Markel Corporation......... 1,699,840
126,300 Merrill Corporation......... 2,147,100
164,600 *National Education
Corporation............... 678,975
249,000 *Offshore Logistics,
Inc. ..................... 3,237,000
7,300 THE OLSTEN CORPORATION...... 231,775
38,200 Omnicom Group Inc. ......... 1,976,850
31,100 PCA International, Inc. .... 322,663
51,800 PHH Corporation............. 1,800,050
41,800 *Park Communications,
Inc. ..................... 1,170,400
83,000 *Payco American
Corporation............... 570,625
33,100 Petroleum Helicopters,
Inc. ..................... 372,375
112,700 *Pinkerton's, Inc. ......... 2,197,650
93,650 Plenum Publishing
Corporation............... 2,786,088
81,400 Quebecor Inc. Cl. A......... 1,007,325
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
848 *Queen City Investments,
Inc. ..................... $ 216,240
155,300 *Rollins Environmental
Services, Inc. ........... 757,088
50,200 *Earl Scheib, Inc. ......... 294,925
14,700 Scope Industries............ 343,613
6,900 *Shoney's, Inc. ............ 87,975
33,400 Showboat, Inc. ............. 484,300
308,100 Sotheby's Holdings, Inc. Cl.
A......................... 3,543,150
259,710 The Standard Register
Company................... 4,544,925
43,900 *Supercuts, Inc. ........... 362,175
54,200 True North Communications
Inc. ..................... 2,330,600
22,100 Uniforce Temporary Personel,
Inc. ..................... 221,000
183,500 *The Union Corporation...... 2,523,125
135,243 *Vie De France Corporation.. 473,351
52,500 Wallace Computer Services,
Inc. ..................... 1,522,500
38,600 Werner Enterprises, Inc. ... 916,750
34,000 John Wiley & Sons, Inc. Cl.
A......................... 1,504,500
------------
125,375,546
------------
TECHNOLOGY - 5.0%
91,300 AAR CORP. .................. 1,221,138
181,500 ADT Limited................. 1,951,125
48,600 *Acuson Corporation......... 789,750
187,725 *American Software, Inc. Cl.
A......................... 563,175
35,150 Astro-Med, Inc. ............ 377,863
109,600 *Astrosystems, Inc. ........ 424,700
28,400 Augat Inc. ................. 536,050
30,300 BEI Electronics, Inc. ...... 151,500
13,000 BGS Systems, Inc. .......... 286,000
23,600 *Bolt Beranek And Newman
Inc. ..................... 351,050
44,800 *CEM Corporation............ 492,800
282,705 Comdisco, Inc. ............. 6,537,553
38,900 *Comptek Research, Inc. .... 680,750
52,600 *Comshare, Inc. ............ 749,550
54,300 *DH Technology, Inc. ....... 1,303,200
63,800 *Data I/O Corporation....... 350,900
38,419 *Dionex Corporation......... 1,450,317
9,100 *Exar Corporation........... 222,950
81,433 Federal Signal Corporation.. 1,659,197
49,205 Hach Company................ 713,473
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
29,000 *Indigo N.V. ............... $ 482,125
35,000 Instron Corporation......... 437,500
16,500 Joslyn Corporation.......... 418,688
95,200 Kaman Corporation Cl. A..... 1,047,200
81,600 Keithley Instruments,
Inc. ..................... 816,000
26,900 *Key Tronic Corporation..... 282,450
5,000 *Komag, Incorporated........ 130,625
117,600 *MDL Information Systems,
Inc. ..................... 984,900
19,300 MacNeal-Schwendler
Corporation............... 200,238
43,063 *Maxwell Laboratories,
Inc. ..................... 314,898
16,700 Measurex Corporation........ 394,538
52,900 Modern Controls, Inc. ...... 337,238
74,400 *Moore Products Co. ........ 1,134,600
158,103 National Computer Systems,
Inc. ..................... 2,450,597
146,400 Newport Corporation......... 1,134,600
37,500 The Oilgear Company......... 534,375
166,600 Scitex Corporation Limited.. 2,769,725
77,400 Shared Medical Systems
Corporation............... 2,534,850
21,700 *Sunair Electronics,
Inc. ..................... 39,331
79,900 *Wang Laboratories, Inc. ... 808,988
41,900 Woodhead Industries, Inc. .. 670,400
------------
38,736,907
------------
UTILITIES - .9%
45,300 *Allegheny & Western Energy
Corporation............... 475,650
34,700 *American Mobile Satellite
Corporation............... 442,425
12,900 Maine Public Service
Company................... 267,675
108,400 *Public Service Company of
New Mexico................ 1,409,200
50,500 *Seagull Energy
Corporation............... 965,813
64,647 *Southern Union Company..... 1,066,676
44,000 Southwest Water Company..... 374,000
88,900 Western Gas Resources,
Inc. ..................... 1,711,325
------------
6,712,764
------------
Total Common Stocks (Cost
$543,267,043)............. 725,794,962
------------
PREFERRED STOCKS - .3%
47,000 +Anacomp, Inc. $4.125 Cum.
Conv. Rd. Exch. .......... 1,175,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
23,700 Bird Corp. $1.85 Conv. ..... $ 379,200
25,700 Glendale Federal Bank,
F.S.B. 8.75% Non-Cum.
Conv. Ser. E.............. 716,388
------------
Total Preferred Stocks (Cost
$2,400,093)............... 2,270,588
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CORPORATE BOND - .0%
$ 246,000 Standard Commercial Corp.
7.25% Conv. Sub. Deb. due
3/31/07 (Cost $257,070).... 159,900
------------
U.S. TREASURY OBLIGATIONS - 5.1%
10,000,000 U.S. Treasury Note 8.5% due
7/15/97.................... 10,160,900
30,000,000 U.S. Treasury Note 7% due
4/15/99.................... 29,071,800
------------
Total U.S. Treasury
Obligations (Cost
$41,735,938)............... 39,232,700
------------
<CAPTION>
VALUE
(NOTE 1)
------------
<S> <C>
REPURCHASE AGREEMENT - 1.0%
State Street Bank and Trust Company,
5.15% due 1/3/95, collateralized by U.S.
Treasury Obligation, 8% due 8/15/99,
valued at $7,803,679 (Cost $7,800,000)... $ 7,800,000
------------
TOTAL INVESTMENTS - 100.5% (COST
$595,460,144)............................ 775,258,150
LIABILITIES LESS CASH AND OTHER
ASSETS - (.5%)........................... (3,841,526)
------------
NET ASSETS - 100.0%........................ $771,416,624
------------
------------
</TABLE>
* Non-income producing.
+ At December 31, 1994, the Fund owned 5% or more of the Company's outstanding
shares thereby making the Company an affiliated person as defined in the
Investment Company Act of 1940. (See Note 5).
INCOME TAX INFORMATION - The cost for federal income tax purposes was
$598,037,434. At December 31, 1994, net unrealized appreciation for all
securities was $177,220,716, consisting of aggregate gross unrealized
appreciation of $211,113,001 and aggregate gross unrealized depreciation of
$33,892,285.
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $595,460,144) (Note 1)...................................... $775,258,150
Receivable for investments sold................................................................... 5,383,693
Receivable for dividends and interest............................................................. 2,274,513
Receivable for shares of beneficial interest sold................................................. 655,014
Cash.............................................................................................. 222,030
Prepaid expenses and other assets................................................................. 115,514
------------
TOTAL ASSETS............................................................................... 783,908,914
------------
LIABILITIES:
Net income and capital gain distributions payable................................................. 7,484,076
Payable for investments purchased................................................................. 3,400,444
Accrued expenses.................................................................................. 296,956
Investment advisory fee payable (Note 2).......................................................... 496,363
Payable for shares of beneficial interest redeemed................................................ 814,451
------------
TOTAL LIABILITIES.......................................................................... 12,492,290
------------
NET ASSETS................................................................................. $771,416,624
------------
------------
ANALYSIS OF NET ASSETS:
Undistributed net investment income............................................................... $ 91,343
Accumulated net realized loss on investments...................................................... (1,840,071)
Net unrealized appreciation on investments........................................................ 179,798,006
Shares of beneficial interest (Note 3)............................................................ 104,069
Additional paid-in capital........................................................................ 593,263,277
------------
NET ASSETS................................................................................. $771,416,624
------------
------------
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($771,416,624[div]104,068,607 shares outstanding) (Note 3)...................................... $7.41
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income........................................................ $ 11,804,371 $ 13,135,680
Net realized gain on investments............................................. 70,357,152 53,390,025
Net unrealized (depreciation) appreciation on investments.................... (88,633,065) 46,471,684
-------------- --------------
(Decrease) increase in net assets resulting from operations.................. (6,471,542) 112,997,389
Dividends paid from net investment income.................................... (10,380,594) (13,039,043)
Distributions paid from net realized gains................................... (68,889,610) (56,897,641)
FROM CAPITAL SHARE TRANSACTIONS:
Decrease in net assets from capital share transactions (Note 3).............. (165,002,473) (123,123,800)
-------------- --------------
DECREASE IN NET ASSETS......................................................... (250,744,219) (80,063,095)
NET ASSETS:
Beginning of year............................................................ 1,022,160,843 1,102,223,938
-------------- --------------
End of year (including undistributed net investment income and distributions
in excess of net investment income of $91,343 and $753,152,
respectively).............................................................. $ 771,416,624 $1,022,160,843
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
PENNSYLVANIA MUTUAL FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends.......................................................................... $ 15,569,976
Interest........................................................................... 4,959,044
------------
Total Income................................................................. $20,529,020
Expenses:
Investment advisory fee (Note 2)................................................... 6,831,793
Custodian and transfer agent fees.................................................. 523,450
Administrative and clerical services............................................... 377,932
Miscellaneous...................................................................... 226,284
Supplies and postage............................................................... 215,878
Trustees' fees..................................................................... 120,188
Shareholder reports and notices.................................................... 108,726
Insurance.......................................................................... 97,460
Facilities and office space........................................................ 92,258
Legal and auditing fees............................................................ 89,438
Federal and state registration fees................................................ 41,242
------------
Total Expenses............................................................... 8,724,649
-----------
Net Investment Income........................................................ 11,804,371
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments..................................................... 70,357,152
Net unrealized depreciation on investments........................................... (88,633,065)
------------
Net realized and unrealized loss on investments...................................... (18,275,913)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $(6,471,542)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance over the last five years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1993 1992 1991 1990
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........................ $8.31 $8.00 $7.29 $5.78 $6.85
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income................................... 0.12 0.11 0.11 0.12 0.17
Net Gain (Loss) on Investments (realized and
unrealized)........................................... (0.18) 0.79 1.07 1.72 (0.96)
Total from Investment Operations..................... (0.06) 0.90 1.18 1.84 (0.79)
LESS DISTRIBUTIONS:
Dividends (from net investment income).................. (0.11) (0.11) (0.10) (0.12) (0.16)
Distributions (from net capital gains).................. (0.73) (0.48) (0.37) (0.21) (0.12)
Total Distributions.................................. (0.84) (0.59) (0.47) (0.33) (0.28)
NET ASSET VALUE, END OF YEAR.............................. $7.41 $8.31 $8.00 $7.29 $5.78
TOTAL RETURN.............................................. (0.7%) 11.3% 16.2% 31.8% (11.5%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands).................... $771,417 $1,022,161 $1,102,224 $789,141 $548,873
Ratio of Expenses to Average Net Assets................... 0.98% 0.98% 0.91% 0.95% 0.96%
Ratio of Net Investment Income to Average Net Assets...... 1.33% 1.23% 1.48% 1.73% 2.62%
Portfolio Turnover Rate................................... 17% 24% 22% 29% 15%
</TABLE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Pennsylvania Mutual Fund (the 'Fund'), is a diversified open-end management
investment company established as a business trust under the laws of
Massachusetts.
a. Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked prices
for Nasdaq securities. Quotations are taken from the market where the security
is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotations are not readily available are valued at their fair value
under procedures established and supervised by the Board of Trustees. Bonds and
other fixed income securities may be valued by reference to other securities
with comparable ratings, interest rates and maturities, using established
independent pricing services.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.
c. Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal year.
The schedule of investments includes information regarding income taxes under
the caption 'Income Tax Information'.
d. Distributions:
Dividend and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. Dividend and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
e. Repurchase agreements.
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ('SSB&T'), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.
<PAGE>
PENNSYLVANIA MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
2. INVESTMENT ADVISER:
Under its investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund paid Quest fees totaling $6,831,793 for the year ended
December 31, 1994. The agreement provides for fees equal to 1.0% per annum of
the first $50 million of the Fund's average total net assets, .875% per annum of
the next $50 million of such net assets and .75% per annum of additional amounts
of average total net assets. Such fees are computed daily and are payable
monthly to Quest. Certain administrative, clerical and facilities costs are
allocated among the Fund and other affiliated funds.
3. FUND SHARES:
The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
--------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold.................................................... 7,980,922 $ 65,918,424 30,570,444 $252,871,925
Issued as reinvested dividends and distributions........ 9,687,741 71,786,160 7,386,025 61,377,863
Redeemed................................................ (36,575,906) (302,707,057) (52,731,027) (437,373,588)
</TABLE>
Shares redeemed within one year are subject to a 1% redemption fee.
4. PURCHASES AND SALES OF SECURITIES:
During the year ended December 31, 1994, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
amounted to $148,185,305 and $299,947,635 respectively.
5. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES:
An 'Affiliated Company' as defined in the Investment Company Act of 1940,
is a company in which the Fund owns at least 5% of the company's outstanding
voting securities. The Fund effected the following transactions in shares of
these companies for the year ended December 31, 1994.
<TABLE>
<CAPTION>
Purchases Sales
----------------- ------------------ Realized Dividend
Shares Cost Shares Cost Gain/(Loss) Income
------ ------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Anacomp, Inc.................................... -- -- -- -- -- $193,875
Liberty Homes, Inc.............................. -- -- 11,000 $104,371 $ 8,119 $53,998
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of Pennsylvania Mutual Fund:
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Mutual Fund, including the schedule of investments as of December
31, 1994, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Pennsylvania Mutual Fund as of December 31, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 1, 1995
<PAGE>
QUESTIONS AND ANSWERS
1. WHY DOES PMF CONCENTRATE ON SMALL COMPANY INVESTING?
We believe the less well-known the company, the greater the likelihood of a
pricing discrepancy between market and business value. The 'sleuth-work'
that goes into discovering value-oriented investments for the Fund is our
historic strength.
2. HOW DOES THE FUND DEFINE SMALL COMPANIES?
Generally we mean companies with market capitalizations of less than $750
million. Over longer periods of time these companies have exhibited higher
returns for their investors.
3. AREN'T SMALL COMPANIES MORE RISKY?
Of course, but we try to reduce the risks by paying careful attention to
the cash flow, balance sheet and return characteristics of each company. We
are constantly looking for the right mix of financial quality, returns and
price that can result in investment opportunities for the Fund.
4. WHY DOES PMF FAVOR A CONSISTENT 'VALUE APPROACH'?
Just as economists can't seem to predict the economy right and weathermen
can't seem to predict the weather right, neither do we think money managers
can predict the future of companies very well. We don't think investors
should be the victims of anyone's guessing, even ours. We prefer an
approach that attempts to understand a company's 'worth' on the basis of
today's circumstances.
5. WHY DOES THE FUND USE SO MANY COMPANIES IN ITS PORTFOLIO?
Part of the way we reduce portfolio risk is through broad diversification
across industries and companies. Also, the large number of companies is a
deliberate by-product of our systematic approach. Ours is a price driven as
opposed to a position driven system and requires the disciplined use of
buy/sell points. The key advantage to this system is in its avoidance of
overpaying for companies, a phenomenon that can occur in systems that are
driven by the need to complete positions more than the need to pay close
attention to pricing.
6. HOW IS CASH USED IN THE PORTFOLIO?
The Fund attempts to stay fully invested. However, if there is cash in the
portfolio from time to time, it is primarily because we are unable to find
good values at that moment.
7. WHO MANAGES THE FUND'S INVESTMENT PORTFOLIO?
The Fund's investment portfolio is managed by the Adviser's senior
investment staff, including Charles M. Royce, the firm's Chief Investment
Officer. Mr. Royce is assisted by Thomas R. Ebright, Jack E. Fockler, Jr.
and W. Whitney George.
<PAGE>
8. WHAT'S THE OUTLOOK FOR SMALL-CAP STOCKS?
The outlook for small-cap companies still appears to be favorable, and
especially so in our current slow growth environment. Relative valuations
are still attractive and the 1994 pause in small company performance
returns was in keeping with similar slowdowns experienced in previous
small-cap cycles.
9. WHERE DOES PMF STAND ON TIMING THE MARKET?
We don't think it can be done successfully over long time periods. We think
most investors overreact to the short-term 'ups' and 'downs' of the market,
making mistakes that damage their long-term investment program. By seeking
to avoid risk, they actually increase their risk by making too many
short-term decisions. Historical results of many funds, like ours, show
that a long-term continuous investment program can produce
better-than-average results for the patient investor.
10. DOES THE FUND HAVE 'CONTINUOUS INVESTMENT PROGRAMS' AVAILABLE?
Yes, Pennsylvania Mutual Fund offers an Automatic Investment Plan for
automatic share purchases through your checking account on a monthly basis
and a Payroll Direct Deposit Plan for automatic share purchases through
payroll deduction.
11. SINCE THE FUND INVESTS PRIMARILY IN SMALLER COMPANIES, WHAT INDEX OR
INDICES SHOULD BE CONSIDERED FOR COMPARISON PURPOSES?
The most commonly acknowledged small company indices are the Nasdaq
Composite, the Russell 2000 and the newly created S&P Small Cap 600. The
Nasdaq Composite has returns back to 1971, the Russell 2000 to 1979 and the
S&P Small Cap 600 to 1984. The Nasdaq Composite has quite a few large-cap
names, which skews its weighted average market-cap up. Both the Russell
2000 and the S&P Small Cap 600 are more 'small-cap oriented' in their
capitalization and, because of this, are probably better proxies for the
sector.
12. WHAT IS THE AVERAGE PORTFOLIO TURNOVER RATE?
Over the past ten years, the average has been 20-25%. This translates into
an average holding period of 4-5 years per company.
13. DOES THE FUND IMPOSE ANY SALES CHARGES OR 12B-1 FEES?
No. The Fund does not impose any charges when you invest or reinvest. In
addition, there are no 12b-1 fees. However, in order to discourage
short-term trading, the Fund imposes a 1% early redemption fee on
shareholders who hold the Fund for less than 1 year.
14. WHEN CAN I EXPECT DIVIDENDS?
The Fund distributes any net realized capital gains and net investment
income annually in December. All distributions are automatically reinvested
unless otherwise instructed by the shareholder.
<PAGE>
15. IS THE FUND AVAILABLE FOR IRA INVESTMENTS AND OTHER RETIREMENT PLANS?
Yes, the Fund offers IRA and 403(b) plans. Due to the Fund's philosophy and
long-term approach, we believe that it may be an appropriate vehicle for
all types of retirement plans.
16. HOW OFTEN DOES THE FUND MAIL OUT STATEMENTS?
Statements are mailed out after each transaction, after any changes in
account registration and at the end of each semi-annual period. Tax
information will be mailed by January 31 of each year. In addition,
semi-annual reports to shareholders are also distributed.
17. WHERE IS THE FUND LISTED ON A DAILY BASIS?
The Fund can be found in the financial tables in the mutual fund section of
most daily newspapers under the heading of ROYCE FUNDS.
<PAGE>
TRUSTEES
Hubert L. Cafritz
Thomas R. Ebright
Richard M. Galkin
Stephen L. Isaacs
William L. Koke
David L. Meister
Charles M. Royce
OFFICERS
Charles M. Royce, President and Treasurer
Thomas R. Ebright, Vice President
Daniel A. O'Byrne, Vice President and Assistant Secretary
Susan I. Grant, Secretary
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
CUSTODIAN
State Street Bank and Trust Company
<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS
Chicken magnate Frank Perdue has convinced millions of Americans through
his television commercials that they need his name on their chicken parts. As
with many things, it's the 'perception' and not the 'substance' which draws the
attention. We are sure that Frank's chicken parts are quite good, but we believe
that it's the impression he creates that makes the chicken particularly
distinctive, not the fact that it is good chicken.
About this time every year the various Wall Street 'wizards' begin their
banter in hopes of creating the impression for investors that their crystal ball
is the right one. This annual rite of stock market prognostication amounts to
nothing more than an illusion because no one really knows what the future will
hold. The competition among both the seers and their suckers grows in intensity
and since opinions are more prevalent than facts, the illusions start to blur
reality, turning perception into substance.
For the moment, let's ignore the hype and self promotion of the wizards and
pretend that there is someone who could actually call market turns. That
information would be so valuable that only a fool would want to sell it. The
smart move would be to prevent others from gaining any understanding of it and
to only use it secretly and more importantly, personally. The bottom line is
that true seers would be publicity shy.
We, on the other hand, avoid year-end fortune telling. Instead, we try to
give you the unvarnished truth without the packaging. Our goal is to give
substance to the stock selection process, not create illusions for our
shareholders. By not getting caught up in the market forecast game, we can spend
more time on what really matters and what we have been hired to do - find
undervalued, high quality small companies for your portfolio.
------------------------------------------------------
THE ROYCE FUNDS
General Information and Telephone Purchases ......... 1-(800) 221-4268
Shareholder Account Services ........................ 1-(800) 841-1180
Financial Advisor Services .......................... 1-(800) 33-ROYCE
The Royce Funds InfoLine ............................ 1-(800) 78-ROYCE
1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied or preceded by a current Prospectus of the Fund
<PAGE>
STATEMENT OF DIFFERENCES
The dagger footnote symbol shall be expressed as 'D'
