As filed with the Securities and Exchange Commission on April 30,
1996.
Registration No. 2-19995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
Pre-Effective Amendment No. ______ / /
Post-Effective Amendment No. 63 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 23 /X /
(Check appropriate box or boxes)
PENNSYLVANIA MUTUAL FUND
(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212)
355-7311
Charles M. Royce, President
Pennsylvania Mutual Fund
1414 Avenue of the Americas, New York, New York 10019
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Pennsylvania Mutual Fund has registered an indefinite number of
securities under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Its 24f-2 Notice for its
most recent fiscal year was filed on February 28, 1996.
Total number of pages: 60
Index to Exhibits is located on page: 56
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
Item of Form N-1A CAPTION or Location in
Prospectus
Part A
I. Cover Page.......................................
Cover Page
II. Synopsis..........................................
FUND EXPENSES
III. Condensed Financial Information... FINANCIAL
HIGHLIGHTS
IV. General Description of Registrant.. INVESTMENT
OBJECTIVE,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
GENERAL INFORMATION
V. Management of the Fund................ MANAGEMENT
OF THE FUND,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance......................... *
VI. Capital Stock and Other Securities. GENERAL
INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
IMPORTANT ACCOUNT INFORMATION,
REDEEMING YOUR SHARES,
TRANSFERRING OWNERSHIP,
OTHER SERVICES
VII. Purchase of Securities Being
Offered ........................................
NET ASSET VALUE PER SHARE,
OPENING AN ACCOUNT AND
PURCHASING SHARES,
EXCHANGE PRIVILEGE,
OTHER SERVICES
VIII. Redemption or Repurchase............. REDEEMING
YOUR SHARES
IX. Pending Legal Proceedings............. *
<PAGE>
CAPTION or Location in Statement
Item of Form N-1A of Additional
Information
Part B
X. Cover Page.......................................
Cover Page
XI. Table of Contents............................ TABLE
OF
CONTENTS
XII. General Information and History.... *
XIII. Investment Objectives and Policies. INVESTMENT
POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund................ MANAGEMENT
OF THE FUND
XV. Control Persons and Principal
Holders of Securities....................
MANAGEMENT OF THE FUND,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services ........................................
MANAGEMENT OF THE FUND,
INVESTMENT ADVISORY SERVICES,
INDEPENDENT ACCOUNTANTS
XVII. Brokerage Allocation and Other
Practices........................................ PORTF
OLIO
TRANS
ACTIO
NS
XVIII. Capital Stock and Other Securities. DESCRIPTION
OF THE FUND
XIX. Purchase, Redemption and Pricing
of Securities Being Offered.......... PRICING OF
SHARES BEING OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status........................................
TAXAT
ION
XXI. Underwriters..................................... *
XXII. Calculation of Performance Data.... PERFORMANCE
DATA
XXIII. Financial Statements........................ **
* Not applicable.
** Incorporated by reference.
<PAGE>
The Royce Funds
- ------------------------------------------------------------------------------
Pennsylvania Mutual Fund
- ------------------------------------------------------------------------------
PROSPECTUS -- April 30, 1996
- ------------------------------------------------------------------------------
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR
SERVICES -- 1-800-33-ROYCE
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
AND POLICIES
Pennsylvania Mutual Fund (the 'Fund') is a no-load, open-end diversified
management investment company. Its investment objective is long-term
capital appreciation. The Fund seeks to achieve this objective primarily
through investments in common stocks and securities convertible into common
stocks of small companies selected on a value basis. There can be no
assurance that the Fund will achieve its objective.
- --------------------------------------------------------------------------
TO OPEN AN ACCOUNT
Please complete, sign and return the Account Application Form. If you have
any questions regarding the Fund or if you need help in completing the
Application Form, please call Investor Information. The minimum initial
investment is $2,000, except for IRA's and accounts establishing an
Automatic Investment Plan, which have $500 minimums. The Fund is offered on
a no-load basis.
- --------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS
This Prospectus sets forth concisely the information that you should know
about the Fund before you invest. It should be retained for future
reference. A 'Statement of Additional Information' containing further
information about the Fund has been filed with the Securities and Exchange
Commission. The Statement is dated April 30, 1996 and has been incorporated
by reference into this Prospectus. A copy may be obtained without charge by
writing to the Fund or calling Investor Information.
If you are viewing the electronic version of this Prospectus through an
online computer service, you may request a printed version free of charge
by calling Investor Information. The E-mail address for The Royce Funds is
[email protected] and the Internet Home Page is
http://www.roycefunds.com
- ------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Fund Expenses........................... 2
Financial Highlights.................... 3
Fund Performance and Volatility......... 4
Investment Objective.................... 5
Investment Policies..................... 6
Investment Risks........................ 6
Investment Limitations.................. 7
Management of the Fund.................. 8
General Information..................... 9
Page
Dividends, Distributions and Taxes...... 9
Net Asset Value Per Share............... 10
SHAREHOLDER GUIDE
Opening an Account and Purchasing
Shares................................. 11
Choosing a Distribution Option.......... 13
Important Account Information........... 13
Redeeming Your Shares................... 14
Exchange Privilege...................... 17
Transferring Ownership.................. 17
Other Services.......................... 17
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that you would incur as a
shareholder of the Fund.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases..................................... None
Sales Load Imposed on Reinvested Dividends.......................... None
Deferred Sales Load................................................. None
Redemption Fee -- on purchases held for 1 year or more.............. None
Early Redemption Fee -- on purchases held for less than 1 year...... 1%
The Fund is no-load
and has no 12b-1
fees
Annual Fund Operating Expenses
Management Fees..................................................... .77%
Other Expenses...................................................... .21%
Total Operating Expenses............................................ .98%
Fund expenses in
1995 were .98% of
average net assets
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Fund.
The following examples illustrate the expenses that you would incur on a $1,000
investment over various periods, assuming a 5% annual rate of return and
redemption at the end of each period.
1 Year 3 Years 5 Years 10 Years
--------- --------- --------- ---------
$10 $31 $54 $120
These examples should not be considered a representation of past or
future expenses or performance. Actual expenses may be higher or
lower than those shown.
2
<PAGE>
- --------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS
(For a share out-
standing through-
out each year)
The following financial highlights are part of the Fund's financial
statements and have been audited by Coopers & Lybrand L.L.P., independent
accountants. The Fund's financial statements and Coopers & Lybrand L.L.P.'s
reports on them are included in the Fund's Annual Reports to Shareholders
and are incorporated by reference into the Statement of Additional
Information and this Prospectus. Further information about the Fund's
performance is contained elsewhere in this Prospectus and in the Fund's
Annual Report to Shareholders for 1995, which may be obtained without
charge by calling Investor Information.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.................... $ 7.41 $ 8.31 $ 8.00 $ 7.29 $ 5.78 $ 6.85 $ 6.41
--- --- --- --- --- --- ---
Income from Investment Operations
Net investment income.... 0.11 0.12 0.11 0.11 0.12 0.17 0.21
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.27 (0.18) 0.79 1.07 1.72 (0.96) 0.86
--- --- --- --- --- --- ---
Total from Investment
Operations.......... 1.38 (0.06) 0.90 1.18 1.84 (0.79) 1.07
--- --- --- --- --- --- ---
Less Distributions
Dividends (from net
investment income)...... (0.11) (0.11) (0.11) (0.10) (0.12) (0.16) (0.22)
Distributions (from
capital
gains).................. (0.97) (0.73) (0.48) (0.37) (0.21) (0.12) (0.41)
--- --- --- --- --- --- ---
Total Distributions... (1.08) (0.84) (0.59) (0.47) (0.33) (0.28) (0.63)
--- --- --- --- --- --- ---
Net Asset Value, End of
Year....................... $ 7.71 $ 7.41 $ 8.31 $ 8.00 $ 7.29 $ 5.78 $ 6.85
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Total Return................ 18.7% -0.7% 11.3% 16.2% 31.8% -11.5% 16.7%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Year
(millions).............. $ 630 $ 771 $ 1,022 $ 1,102 $ 789 $ 549 $ 551
Ratio of Expenses to
Average Net Assets...... .98%<F1> .98% .98% .91% .95% .96% .97%
Ratio of Net Investment
Income
to Average Net Assets... 1.18% 1.33% 1.23% 1.48% 1.73% 2.62% 2.93%
Portfolio Turnover
Rate.................... 10% 17% 24% 22% 29% 15% 23%
<CAPTION>
1988 1987 1986
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Year.................... $ 5.47 $ 6.98 $ 7.43
--- --- ---
Income from Investment Opera
Net investment income.... 0.14 0.14 0.14
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.20 (0.02) 0.65
--- --- ---
Total from Investment
Operations.......... 1.34 0.12 0.79
--- --- ---
Less Distributions
Dividends (from net
investment income)...... (0.12) (0.33) (0.13)
Distributions (from
capital
gains).................. (0.28) (1.30) (1.11)
--- --- ---
Total Distributions... (0.40) (1.63) (1.24)
--- --- ---
Net Asset Value, End of
Year....................... $ 6.41 $ 5.47 $ 6.98
-----------------------------------
-----------------------------------
Total Return................ 24.6% 1.4% 11.2%
-----------------------------------
-----------------------------------
Ratios/Supplemental Data
Net Assets, End of Period
(millions).............. $ 444 $ 276 $ 333
Ratio of Expenses to
Average Net Assets...... 1.01% .99% .98%
Ratio of Net Investment
Income
to Average Net Assets... 2.35% 2.02% 1.85%
Portfolio Turnover
Rate.................... 24% 23% 19%
- ---------
<FN>
<F1>
Expense ratio before waiver of fees by the investment adviser would have
been .99% for the year ended December 31, 1995.
</FN>
</TABLE>
3
<PAGE>
- ----------------------------------------------------------------------------
FUND
PERFORMANCE
AND VOLATILITY
Total return is the
change in value over
a given time period,
assuming
reinvestment of
dividends and
capital gains
distributions
From time to time, the Fund may include in communications to current or
prospective shareholders figures reflecting total return over various time
periods. 'Total return' is the rate of return on an amount invested in the
Fund from the beginning to the end of the stated period. 'Average annual
total return' is the annual compounded percentage change in the value of an
amount invested in the Fund from the beginning until the end of the stated
period.
Total returns are historical measures of past performance and are not
intended to
indicate future performance. Total returns assume the reinvestment of all
net investment income dividends and capital gains distributions. The
figures do not reflect the Fund's early redemption fee because it applies
only to redemptions of share purchases held for less than one year.
The S&P 500 is a widely recognized, unmanaged index of large company
stocks. The
S&P 500 figures below, which are presented for comparison to the Fund's
performance, also assume the reinvestment of all dividends paid by the
stocks in the index.
The Fund's average annual total returns (%) for the periods ended December
31, were:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<C> <C> <C> <C> <C>
<S>
PMF annual total return.................... 18.7 (0.7) 11.3 16.2 31.8
S&P 500 Index annual total return.......... 37.5 1.3 10.0 7.7 30.5
PMF 5 year average annual total return..... 15.0 8.4 12.0 14.5 11.4
PMF 10 year average annual total return.... 11.3 12.0 12.4 15.1 16.7
PMF 20 year average annual total return.... 17.8 -- -- -- --
</TABLE>
Results of a $10,000 Initial Investment in
Pennsylvania Mutual Fund
$10,000
Initial Valuation at December 31, 1995
Investment Period ---------------------------------
in Shares Investment S&P 500 3-Month
PMF on Held in PMF Index T-bills
- ----------- --------- ----------- --------- ---------
12/31/90 5 Years $ 20,089 $ 21,543 $ 12,452
12/31/85 10 Years 29,109 39,709 17,525
12/31/75 20 Years 262,700 150,790 42,360
Results of $2,000 Invested Annually in PMF
Using a Continuous Investment Program
Valuation at December 31, 1995
$2,000 Annual -----------------------------------
Investment in Total 3 Month
PMF Beginning Amount PMF S&P 500 Treasury
on Invested Investment Index Bills
- --------------- --------- ----------- --------- -----------
12/31/90 $ 10,000 $ 14,418 $ 16,211 $ 11,440
12/31/85 20,000 38,341 46,911 26,969
12/31/75 40,000 251,507 240,365 88,132
4
<PAGE>
'Risk' defined as
the volatility of a
fund's total returns
over time
The relative risk of investing in a particular fund should be considered in
addition to the total returns of the fund. Risk, in terms of how volatile
an investor's returns have been, can be measured in a number of ways,
including standard deviation and beta.
Standard deviation measures the range of performance within which a
fund's total returns have fallen. The lower the standard deviation of
the fund, the less volatile and more consistent the fund's monthly
total returns have been over that period. When the standard deviation
of a fund is lower than the standard deviation of an index such as the
S&P 500, the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for
the index chosen to represent the market (the S&P 500) is 1.00. If the
fund has a beta greater than 1.00, it has been more volatile than the
index; if its beta is less than 1.00, it has been less volatile than
the index.
These measures of risk, which are historical in nature and subject to
change monthly, are more fully described in the Statement of Additional
Information. For the three year period ended December 31, 1995, standard
deviation and beta for the Fund and for the S&P 500 (Source: Morningstar,
Inc.) were:
Standard
Deviation Beta
------------- -----------
S&P 500...................... 7.96 1.00
Pennsylvania Mutual Fund..... 6.48 .61
Investors evaluating these and other quantitative measures of risk should
understand that the risk profiles of the Fund's portfolio may change over
time, and that none of such measures are predictive of future volatility.
The investment risks associated with the types of securities in which the
Fund may invest are described below -- see 'Investment Risks.'
- --------------------------------------------------------------------------
INVESTMENT
OBJECTIVE
Pennsylvania Mutual Fund's investment objective is long-term capital
appreciation, primarily through investments in securities of small
companies. Production of income is incidental to this objective. Since
certain risks are inherent in owning any security, there can be no
assurance that the Fund will achieve its objective.
This investment objective of long-term capital appreciation is fundamental
and may not be changed without the approval of a majority of the Fund's
outstanding voting shares.
5
<PAGE>
- ------------------------------------------------------------------------------
INVESTMENT
POLICIES
The Fund invests on
a 'value' basis
Quest Advisory Corp. ('Quest'), the Fund's investment adviser, uses a
'value' method in managing the Fund's assets. In its selection process,
Quest puts primary emphasis on various internal returns indicative of
profitability, balance sheet quality, cash flows and the relationships that
these factors have to the current price of a given security. This is in
contrast to other methods that primarily focus on the future prospects of a
company and concentrate on high growth or emerging growth companies.
The Fund invests
primarily in small
companies
Quest's value method is based on its belief that the securities of certain
small companies may sell at a discount from its estimate of such companies'
'private worth,' that is, what a knowledgeable buyer would pay for the
entire company. Quest attempts to identify and invest in these securities
for the Fund, with the expectation that this 'value discount' will narrow
over time and thus provide capital appreciation for the Fund.
Normally, the Fund will invest at least 65% of its assets in common stocks,
convertible preferred stocks and convertible bonds of small companies with
stock market capitalizations under $750,000,000 at the time of investment.
The remainder of its assets may be invested in securities of companies with
higher stock market capitalizations and non-convertible preferred stocks
and debt securities. The securities in which the Fund invests may be traded
on securities exchanges or in the over-the-counter market.
- --------------------------------------------------------------------------
INVESTMENT
RISKS
The Fund is subject
to certain
investment risks
As a mutual fund investing primarily in common stocks and/or securities
convertible into common stocks, the Fund is subject to market risk, that
is, the possibility that common stock prices will decline over short or
even extended periods. The Fund invests a substantial portion of its assets
in securities of small and/or micro-cap companies. Such companies may not
be well-known to the investing public, may not have significant
institutional ownership and may have cyclical, static or only moderate
growth prospects. In addition, the securities of such companies may be more
volatile in price, have wider spreads between their bid and ask prices and
have significantly lower trading volumes than the larger capitalization
stocks included in the S&P 500 Index. Thus, the Fund's purchases and sales
of such securities may have a greater impact on their market prices than
would be the case with larger capitalization stocks. Accordingly, Quest's
investment method requires a long-term investment horizon, and the Fund
should not be used to play short-term swings in the market.
6
<PAGE>
- --------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
The Fund has
adopted certain
fundamental
limitations
The Fund has adopted certain fundamental limitations, designed to reduce
its exposure to specific situations, which may not be changed without the
approval of a majority of its outstanding voting shares, as that term is
defined in the Investment Company Act of 1940 (the '1940 Act'). These
limitations are set forth in the Statement of Additional Information and
provide, among other things, that the Fund will not:
(a) own more than 10% of the voting securities of any one issuer;
(b) invest more than 25% of its assets in any one industry;
(c) invest in companies for the purpose of exercising control of
management; or
(d) borrow money, except under certain circumstances.
Other Investment
Practices:
In addition to investing primarily in the equity and fixed income
securities described above, the Fund may follow a number of additional
investment practices.
Short-term fixed
income securities
The Fund may invest in short-term fixed income securities for temporary
defensive purposes, to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. These securities consist of
United States Treasury bills, domestic bank certificates of deposit,
high-quality commercial paper and repurchase agreements collateralized by
U.S. Government securities. In a repurchase agreement, a bank sells a
security to the Fund at one price and agrees to repurchase it at the Fund's
cost plus interest within a specified period of seven or fewer days. In
these transactions, which are, in effect, secured loans by the Fund, the
securities purchased by the Fund will have a value equal to or in excess of
the value of the repurchase agreement and will be held by the Fund's
custodian bank until repurchased. Should the Fund implement a temporary
investment policy, its investment objective may not be achieved.
Securities lending
The Fund may lend up to 25% of its assets to qualified institutional
investors for the purpose of realizing additional income. Loans of
securities of the Fund will be collateralized by cash or securities issued
or guaranteed by the United States Government or its agencies or
instrumentalities. The collateral will equal at least 100% of the current
market value of the loaned securities. The risks of securities lending
include possible delays in receiving additional collateral or in recovery
of loaned securities or loss of rights in the collateral if the borrower
defaults or becomes insolvent.
Foreign securities
The Fund may invest up to 10% of its assets in debt and/or equity
securities of foreign issuers. Foreign investments involve certain risks,
such as political or economic instability of the issuer or of the country
of issue, fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to greater
fluctuations in price than the securities of U.S. corporations, and there
may be less publicly available information about their operations. Foreign
companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors such as the Fund.
7
<PAGE>
Lower-rated
debt securities
The Fund may invest up to 35% of its assets in debt securities in the
lowest category of investment grade debt. These bonds may have speculative
characteristics, and changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and
interest payments than is the case with higher grade bonds. The Fund may
also invest no more than 5% of its net assets in lower-rated (high-risk)
non-convertible debt securities, which are below investment grade.
Portfolio turnover
Although the Fund generally seeks to invest for the long term, it retains
the right to sell securities regardless of how long they have been held.
The Fund's annual portfolio turnover rates are shown in the 'Financial
Highlights.' Portfolio turnover rates for the Fund have averaged 21% over
the past 10 years. A 25% turnover rate occurs, for example, if one-fourth
of the Fund's portfolio securities are replaced in one year.
- --------------------------------------------------------------------------
MANAGEMENT OF THE
FUND
Quest Advisory Corp.
is responsible for
the management of
the Fund's portfolio
The Fund's business and affairs are managed under the direction of its
Board of Trustees. Quest, the Fund's investment adviser, is responsible for
the management of the Fund's portfolio, subject to the authority of the
Board of Trustees. Quest was organized in 1967 and has been the Fund's
adviser since June 1967. Charles M. Royce, Quest's President, Chief
Investment Officer and sole voting shareholder since 1972, is primarily
responsible for supervising Quest's investment management activities. Mr.
Royce is assisted by Jack E. Fockler, Jr. and W. Whitney George, Vice
Presidents of Quest, both of whom participate in the investment management
activities, with their specific responsibilities varying from time to time.
Quest is also the investment adviser to Royce Value, Equity Income,
Premier, Micro-Cap, Low-Priced Stock, Total Return, Global Services and
GiftShares Funds, which are series of The Royce Fund, and to other
investment and non-investment company accounts.
As compensation for its services to the Fund, Quest is entitled to receive
annual advisory fees of 1% of the first $50 million of the Fund's average
net assets; .875% of the next $50 million of average net assets; and .75%
of average net assets in excess of $100 million. These fees are payable
monthly from the assets of the Fund and are higher than those paid by other
funds with similar investment objectives. For 1995, the fees paid to Quest
by the Fund were .77% of its average net assets.
Quest selects the brokers who execute the purchases and sales of the Fund's
portfolio securities and may place orders with brokers who provide
brokerage and research services to Quest. Quest is authorized, in
recognition of the value of brokerage and research services provided, to
pay commissions to a broker in excess of the amount which another broker
might have charged for the same transaction.
8
<PAGE>
- --------------------------------------------------------------------------
GENERAL
INFORMATION
Pennsylvania Mutual Fund, one of the group of funds comprising The Royce
Funds, is a Delaware business trust registered with the Securities and
Exchange Commission as a diversified, open-end management investment
company. The Trustees of the Fund have the authority to issue an unlimited
number of shares of beneficial interest, without shareholder approval, and
these shares may be divided into an unlimited number of series and/or
classes (only one series and class is currently outstanding). Shareholders
are entitled to one vote per share.
The Fund is the successor to Pennsylvania Mutual Fund, Inc. ('PMFI'). Each
of the Trustees currently in office was elected by the then stockholders of
PMFI. Meetings of shareholders will not be held except as required by the
1940 Act or other applicable law. A meeting will be held to vote on the
removal of a Trustee or Trustees of the Fund if requested in writing by the
holders of not less than 10% of the outstanding shares of the Fund.
The custodian for securities, cash and other assets of the Fund is State
Street Bank and Trust Company. State Street, through its agent, National
Financial Data Services ('NFDS'), also serves as the Fund's Transfer Agent.
Coopers & Lybrand L.L.P. serves as independent accountants for the Fund.
- --------------------------------------------------------------------------
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
The Fund pays dividends from net investment income and distributes its net
realized capital gains annually in December. Dividends and distributions
will be automatically reinvested in additional shares of the Fund unless
the shareholder chooses otherwise.
Dividends and
capital gains
distributions are
made in December
Shareholders will receive information annually as to the tax status of
distributions made by the Fund for the calendar year. For Federal income
tax purposes, all distributions by the Fund are taxable to shareholders
when declared, whether received in cash or reinvested in shares.
Distributions paid from the Fund's net investment income and short-term
capital gains are taxable to shareholders as ordinary income dividends. A
portion of the Fund's dividends may qualify for the corporate
dividends-received deduction, subject to certain limitations. The portion
of the Fund's dividends qualifying for such deduction is generally limited
to the aggregate taxable dividends received by the Fund from domestic
corporations.
Distributions paid from long-term capital gains of the Fund are treated by
a shareholder for Federal income tax purposes as long-term capital gains,
regardless of how long the shareholder has held Fund shares. If a
shareholder disposes of shares held for six months or less at a loss, such
loss will be treated as a long-term capital loss to the extent of any
long-term capital gains reported by the shareholder with respect to such
shares.
9
<PAGE>
The redemption of shares is a taxable event, and a shareholder may realize
a capital gain or capital loss. The Fund will report to redeeming
shareholders the proceeds of their redemptions. However, because the tax
consequences of a redemption will also depend on the shareholder's basis in
the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a
redemption.
At the time of a shareholder's purchase, the Fund's net asset value may
reflect undistributed income or capital gains. A subsequent distribution of
these amounts by the Fund will be taxable to the shareholder even though
the distribution economically is a return of part of the shareholder's
investment.
The Fund is required to withhold 31% of taxable dividends, capital gain
distributions and redemptions paid to non-corporate shareholders who have
not complied with Internal Revenue Service taxpayer identification
regulations. Shareholders may avoid this withholding requirement by
certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to
backup withholding.
The discussion of Federal income taxes above is for general information
only. The Statement of Additional Information includes an additional
description of Federal income tax aspects that may be relevant to a
shareholder. Shareholders may also be subject to state and local taxes on
their investment. Investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
- --------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE
Net asset value
per share (NAV) is
determined each
day the New York
Stock Exchange is
open
Fund shares are purchased and redeemed at their net asset value per share
next determined after an order is received by the Fund's transfer agent or
an authorized service agent or sub-agent. Net asset value per share is
determined by dividing the total value of the Fund's investments and other
assets, less any liabilities, by the number of outstanding shares of the
Fund. Net asset value per share is calculated at the close of regular
trading on the New York Stock Exchange on each day the Exchange is open for
business.
In determining net asset value, securities listed on an exchange or the
Nasdaq
National Market System are valued on the basis of the last reported sale
price prior to the time the valuation is made or, if no sale is reported
for that day, at their bid price for exchange-listed securities and at the
average of their bid and ask prices for Nasdaq securities. Quotations are
taken from the market where the security is primarily traded. Other
over-the-counter securities for which market quotations are readily
available are valued at their bid price. Securities for which market
quotations are not readily available are valued at their fair value under
procedures established and supervised by the Fund's Board of Trustees.
Bonds and other fixed income securities may be valued by reference to other
securities with comparable ratings, interest rates and maturities, using
established independent pricing services.
10
<PAGE>
- ----------------------------------------------------------------------------
SHAREHOLDER GUIDE
OPENING AN ACCOUNT
AND PURCHASING
SHARES
The Fund's shares are offered on a no-load basis. New accounts (other than
IRA or 403(b)(7) accounts) can be opened either by mail, by telephone or by
wire. An Account Application Form must be completed and returned,
regardless of the method selected. If you need assistance with the Account
Application Form or have any questions about the Fund, please call Investor
Information at 1-800-221-4268. Note: For certain types of account
registrations (e.g., corporations, partnerships, foundations, associations,
other organizations, trusts or powers of attorney), please call Investor
Information to determine if you need to provide additional forms with your
application.
Minimum Initial
Investments
Type Of Account Minimum
Regular accounts $2,000
IRAs* $500
Accounts established with Automatic Investment Plan or $500
Direct Deposit Plan
403(b)(7) accounts* None
Additional
Investments
Subsequent investments may be made by mail ($50 minimum), telephone ($500
minimum), wire or Express Service (a system of electronic funds transfer
from your bank account).
- --------------------------------------------------------------------------
Purchasing By Mail
Complete and sign
the enclosed
Account Application
Form
NEW ACCOUNT ADDITIONAL INVESTMENTS
Please include the amount of your TO EXISTING ACCOUNT
initial investment on the Additional investments should
Application Form, make your check include the Invest-by-Mail
payable to Pennsylvania Mutual Fund, remittance form attached to your
and mail to: Fund account confirmation
The Royce Funds statements. Please make your check
c/o NFDS payable to Pennsylvania Mutual Fund,
P.O. Box 419012 write your account number on your
Kansas City, MO 64141-6012 check and, using the return envelope
provided, mail to the address
indicated on the Invest-by-Mail
form.
For express or
registered mail,
send to:
The Royce Funds All written requests should be
c/o National Financial Data Services mailed to one of the addresses
1004 Baltimore, 5th Floor indicated for new accounts.
Kansas City, MO 64105
- ---------
* Separate forms must be used for opening IRA's or 403(b)(7) accounts; please
call Investor Information at 1-800-221-4268 if you need these forms.
11
<PAGE>
Purchasing By
Telephone:
- --------------------------------------------------------------------------
To open an account by telephone, you Subsequent telephone purchases ($500
should call Investor Information minimum) may also be made by calling
(1-800-221-4268) before 4:00 p.m., Investor Information. For all
Eastern time. You will be given a telephone purchases, payment is due
confirming order number for your within three business days and may
purchase. This number must be placed be made by wire or personal,
on your completed application before business or bank check, subject to
mailing. If a completed and signed collection.
application is not received on an
account, the account may be subject
to backup withholding of Federal
income taxes.
- --------------------------------------------------------------------------
Purchasing By Wire:
Before Wiring:
For a new account,
please contact
Investor
Information at
1-800-221-4268
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: Pennsylvania Mutual Fund
Order Number or Account Number
Account Name
To ensure proper receipt, please be sure your bank includes the name of the
Fund and your order number (for telephone purchases) or account number. If
you are opening a new account, you must call Investor Information to obtain
an order number, and complete the Account Application Form and mail it to
the 'New Account' address above after completing your wire arrangement.
Note: Federal Funds wire purchase orders will be accepted only when the
Fund and Custodian are open for business.
- --------------------------------------------------------------------------
Purchasing By
Express Service
You can purchase shares automatically or at your discretion through the
following options:
Expedited Purchase Option permits you, at your discretion, to transfer
funds ($100 minimum and $200,000 maximum) from your bank account to
purchase shares in your Fund account by telephone or computer online
access.
Automatic Investment Plan allows you to make regular, automatic transfers
($50 minimum) from your bank account to purchase shares in your Fund
account on the monthly or quarterly schedule you select.
To establish the Expedited Purchase Option and/or Automatic Investment
Plan, please provide the appropriate information on the Account Application
Form and attach a voided check. We will send you a confirmation of Express
Service activation. Please wait three weeks before using the service.
To make an Expedited Purchase, other than through computer online access,
please call Shareholder Services at 1-800-841-1180 before 4:00 p.m.,
Eastern time.
12
<PAGE>
Payroll Direct Deposit Plan and Government Direct Deposit Plan let you have
investments ($50 minimum) made from your net payroll or government check
into your existing Fund account each pay period. Your employer must have
direct deposit capabilities through ACH (Automated Clearing House)
available to its employees. You may terminate participation in these
programs by giving written notice to your employer or government agency, as
appropriate. The Fund is not responsible for the efficiency of the employer
or government agency making the payment or any financial institution
transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for
Direct Deposit form, which may be obtained from Investor Information by
calling 1-800-221-4268.
- --------------------------------------------------------------------------
CHOOSING A
DISTRIBUTION
OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option -- Both net investment income dividends
and capital gains distributions will be reinvested in additional Fund
shares. This option will be selected for you automatically unless you
specify one of the other options.
2. Cash Dividend Option -- Your dividends will be paid in cash and your
capital gains distributions will be reinvested in additional Fund shares.
3. All Cash Option -- Both dividends and capital gains distributions will
be paid in cash.
You may change your option by calling Shareholder Services at
1-800-841-1180.
- --------------------------------------------------------------------------
IMPORTANT
ACCOUNT INFORMATION
The easiest way to establish optional services on your account is to select
the options
you desire when you complete your Account Application Form. If you want to
add or change shareholder options later, you may need to provide additional
information and a signature guarantee. Please call Shareholder Services at
1-800-841-1180 for further assistance.
Signature
Guarantees
For our mutual protection, we may require a signature guarantee on certain
written transaction requests. A signature guarantee verifies the
authenticity of your signature and may be obtained from banks, brokerage
firms and any other guarantor that our transfer agent deems acceptable. A
signature guarantee cannot be provided by a notary public.
Certificates
Certificates for whole shares will be issued upon request. If a certificate
is lost, stolen or destroyed, you may incur an expense to replace it.
Purchases Through
Service Providers
If you purchase shares of the Fund through a program of services offered or
administered by a broker-dealer, financial institution or other service
provider, you should read the program materials provided by the service
provider, including information regarding fees which may be charged, in
conjunction with this Prospectus. Certain shareholder servicing features of
a Fund may not be available or may be modified in connection with the
program of services offered. When shares of a Fund are purchased in this
way, the service provider, rather than the customer, may be the shareholder
of record of the shares. Certain service providers may receive compensation
from the Fund and/or Quest for providing such services.
13
<PAGE>
Telephone and
Online Access
Transactions
Neither the Fund nor its transfer agent will be liable for following
instructions communicated by telephone or computer online access that are
reasonably believed to be genuine. The transfer agent uses certain
procedures designed to confirm that telephone and computer online access
instructions are genuine, which may include requiring some form of personal
identification prior to acting on the instructions, providing written
confirmation of the transaction and/or recording incoming calls, and if it
does not follow such procedures, the Fund or the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent transactions.
Nonpayment
If your check or wire does not clear, or if payment is not received for any
telephone or computer online access purchase, the transaction will be
cancelled and you will be responsible for any loss the Fund incurs. If you
are already a shareholder, the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for any loss incurred.
Trade date for
purchases
Your trade date is the date on which shares are credited to your account.
If your purchase is made by telephone, computer online access, check,
Federal Funds wire or exchange and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time),
your trade date is the date of receipt. If your purchase is received after
the close of regular trading on the Exchange, your trade date is the next
business day. Your shares are purchased at the net asset value determined
on your trade date.
In order to prevent lengthy processing delays caused by the clearing of
foreign checks, the Fund will accept only a foreign check which has been
drawn in U.S. dollars and has been issued by a foreign bank with a United
States correspondent bank.
The Fund reserves the right to suspend the offering of Fund shares to new
investors. The Fund also reserves the right to reject any specific purchase
request.
- --------------------------------------------------------------------------
REDEEMING
YOUR SHARES
You may redeem any portion of your account at any time. You may request a
redemption in writing or by telephone. Redemption proceeds normally will be
sent within two business days after the receipt of the request in Good
Order.
Redeeming By
Mail
Redemption requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box
419012, Kansas City, MO 64141-6012. (For express or registered mail, send
your request to The Royce Funds, c/o National Financial Data Services, 1004
Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset value next
determined after NFDS or an authorized service agent or sub-agent has
received all required documents in Good Order.
14
<PAGE>
Definition of Good
Order
Good Order means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if the value of the shares being redeemed exceeds
$50,000 or if the payment is to be sent to an address other than the
address of record or is to be made to a payee other than the
shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the case
of retirement plans, corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as it pertains to your
request, please call Shareholder Services at 1-800-841-1180.
- --------------------------------------------------------------------------
Redeeming By
Telephone
Shareholders who have not established Express Service may redeem up to
$50,000 of their Fund shares by telephone, provided the proceeds are mailed
to their address of record. If preapproved, higher maximums may apply to
institutional shares. To redeem shares by telephone, you or your
pre-authorized representative may call Shareholder Services at
1-800-841-1180. Redemption requests received by telephone prior to the
close of regular trading on the New York Stock Exchange (generally 4:00
p.m., Eastern time) are processed on the day of receipt; redemption
requests received by telephone after the close of regular trading on the
Exchange are processed on the business day following receipt. Telephone
redemption service is not available for Fund-sponsored retirement plan
accounts or if certificates are held. Telephone redemptions will not be
permitted for a period of sixty days after a change in the address of
record. See also 'Important Account Information -- Telephone Transactions.'
- --------------------------------------------------------------------------
Redeeming By Express
Service
If you select the Express Service Automatic Withdrawal option, shares will
be automatically redeemed from your Fund account and the proceeds
transferred to your bank account according to the schedule you have
selected. You must have at least $25,000 in your Fund account to establish
the Automatic Withdrawal option.
The Expedited Redemption option lets you redeem up to $50,000 of shares
from your Fund account by telephone and transfer the proceeds directly to
your bank account. You may elect Express Service on the Account Application
Form or call Shareholder Services at 1-800-841-1180 for an Express Service
application.
Important
Redemption
Information
If you are redeeming shares recently purchased by check, Express Service
Expedited Purchase or Automatic Investment Plan, the proceeds of the
redemption may not be sent until payment for the purchase is collected,
which may take up to fifteen calendar days. Otherwise, redemption proceeds
must be sent to you within seven days of receipt of your request in Good
Order.
15
<PAGE>
If you experience difficulty in making a telephone redemption during
periods of drastic economic or market changes, your redemption request may
be made by regular or express mail. It will be processed at the net asset
value next determined after your request has been received by the Transfer
Agent in Good Order. The Fund reserves the right to revise or terminate the
telephone redemption privilege at any time.
The Fund may suspend the redemption right or postpone payment at times when
the New York Stock Exchange is closed or under any emergency circumstances
as determined by the Securities and Exchange Commission.
Although the Fund will normally make redemptions in cash, it may redeem in
kind under certain circumstances.
Early Redemption
Fee
In order to discourage short-term trading, the Fund assesses an early
redemption fee of 1% on redemption of share purchases held for less than
one year. Purchases of Fund shares prior to July 1, 1996 are exempt from the
fee. Redemption fees will be paid to the Fund, out of the redemption
proceeds otherwise payable to the shareholder, to help offset transaction
costs.
The Fund will use the 'first-in, first-out' (FIFO) method to determine the
one-year holding period. Under this method, the date of the redemption will
be compared with the earliest purchase date of the share purchases held in
the account. If this holding period is less than one year, the fee will be
assessed. In determining 'one year,' the Fund will use the anniversary
month of a transaction. Thus, shares purchased in August 1996, for example,
will be subject to the fee if they are redeemed prior to August 1997. If
they are redeemed on or after August 1, 1997, they will not be subject to
the fee.
No redemption fee will be payable on shares acquired through reinvestment,
on an exchange into another Royce fund, or by shareholders who are (a)
employees of the Fund or Quest or members of their immediate families or
employee benefit plans for them, (b) participants in the Automatic
Withdrawal Plan, (c) certain Fund-approved Group Investment Plans and
charitable organizations, (d) profit-sharing trusts, corporations or other
institutional investors who are investment advisory clients of Quest or (e)
omnibus or similar account customers of certain Fund-approved broker-
dealers and other institutions.
Minimum Account
Balance Requirement
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to involuntarily redeem shares in any Fund account that
falls below the minimum initial investment due to redemptions by the
shareholder. If at any time the balance in an account does not have a value
at least equal to the minimum initial investment, or if an Automatic
Investment Plan is discontinued before an account reaches the minimum
initial investment that would otherwise be required, you may be notified
that the value of your account is below the Fund's minimum account balance
requirement. You would then have sixty days to increase your account
balance before the account is liquidated. Proceeds would be promptly paid
to the shareholder.
16
<PAGE>
- --------------------------------------------------------------------------
EXCHANGE PRIVILEGE
Exchanges with other open-end Royce funds are permitted by telephone,
computer online access or mail. An exchange is treated as a redemption and
purchase; therefore, you could realize a taxable gain or loss on the
transaction. Exchanges are accepted only if the registrations and the tax
identification numbers of the two accounts are identical. Minimum
investment requirements must be met when opening a new account by exchange
and exchanges may be made only for shares of a fund then offering its
shares for sale in your state of residence. The Fund reserves the right to
revise or terminate the exchange privilege at any time.
- --------------------------------------------------------------------------
TRANSFERRING
OWNERSHIP
You may transfer the ownership of any of your Fund shares to another person
by writing to: The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. The request must be in Good Order (see 'Redeeming Your
Shares -- Definition of Good Order'). Before mailing your request, please
contact Shareholder Services at 1-800-841-1180 for full instructions.
- --------------------------------------------------------------------------
OTHER SERVICES
For more information about any of these services, please call Investor
Information at 1-800-221-4268.
Statements and
Reports
A confirmation statement will be sent to you each time you have a
transaction in your account and semi-annually. Financial reports will be
mailed semi-annually. To reduce expenses, only one copy of most shareholder
reports may be mailed to a household. Please call Investor Information if
you need additional copies.
Tax-sheltered
Retirement Plans
Shares of the Fund are available for purchase in connection with certain
types of tax-sheltered retirement plans, including Individual Retirement
Accounts (IRA's) for individuals and 403(b)(7) Plans for employees of
certain tax-exempt organizations.
These plans should be established with the Fund only after an investor has
consulted with a tax adviser or attorney. Information about the plans and
the appropriate forms may be obtained from Investor Information at
1-800-221-4268.
- --------------------------------------------------------------------------
17
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
___________________________________ __________________________________
The Royce Funds The Royce Funds
1414 Avenue of the Americas ---------------------------------
New York, NY 10019
1-800-221-4268
[email protected]
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
Transfer Agent
State Street Bank and Trust Company Pennsylvania
c/o National Financial Data Services Mutual Fund
P.O. Box 419012 A No-Load Mutual Fund
Kansas City, MO 64141-6012
1-800-841-1180 Prospectus
Custodian April 30, 1996
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Assistant Secretary
Susan I. Grant, Secretary
___________________________________ __________________________________
___________________________________ __________________________________
___________________________________ __________________________________
<PAGE>
- -----------------------------------------------------------------------------
The Royce Funds -- Pennsylvania Mutual Fund
Account Application Form
- ------------------------------------
- - Mail to: The Royce Funds c/o
NFDS - For help with this
- - PO Box application,
419012, - or for more information,
- - Kansas City, MO call us at (800) 221-4268
64141-6012 -
- -
- -
- ------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
PLEASE READ THE INSTRUCTIONS ON THE REVERSE SIDE BEFORE YOU COMPLETE THIS
FORM. PLEASE DO NOT USE THIS APPLICATION TO OPEN A ROYCE FUND SPONSORED IRA OR
403(b)(7) RETIREMENT PLAN ACCOUNT.
- --------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
[ ] Individual or Joint Account
Owner's Name: First, Initial, Last
--
Owner's Social Security
Number
Joint Owner's Name: First, Initial, Last
Joint accounts will be registered as joint
tenants with right of survivorship unless
otherwise indicated.
[ ] Gift or Transfer to Minor
Custodian's Name (One name only: First, Initial,
Last)
Name (One name only: First, Initial, Last)
- --
Minor's Social Security Number
under the Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] Trust (Including Corporate Retirement Plans)
Trustee Name(s)
Name of Trust or Retirement Plan
Date of Trust Agreement
For Benefit Of (Name, if applicable)
Social Security Number or Taxpayer ID Number
[ ] Other Entities
Type: [ ] Corporation [ ] Partnership [ ]
Nominee
[ ] Foundation [ ] Charitable
Organization
[ ] Other ()
Name of Entity
- - [ ] Tax-Exempt Entity
Taxpayer ID Number Under IRS Sec. 501(c)3)
- --------------------------------------------------
2 MAILING ADDRESS
Street or PO Box Number
City State Zip
Daytime Phone Evening Phone
- --------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
Representative Name Rep.
Number
Firm Phone
Address State Zip
- --------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
$________________________
- --------------------------------------------------
5 METHOD OF PAYMENT
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) _____________________________________________________________________
Telephone order number _____________________________________________________
- --------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
If no box is checked, all income dividends and capital gain distributions will
be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- --------------------------------------------------
7 EXPRESS SERVICE
To arrange for Express Service, please provide the information below. Passbook
savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] Automatic Investment Plan: On the ___ day each [ ] month [ ] quarter,
transfer $_________ from my bank account to purchase shares in my Royce
Fund account ($50 minimum). I wish to begin my plan in ________ (select
month).
[ ] Automatic Withdrawal Plan: On the ___ day each month, redeem and transfer
$_________ from my Royce Fund account to my bank account ($100 minimum).
[ ] Expedited Purchases and Redemptions: To purchase or redeem shares at any
time, using a bank account to clear the transaction ($100 minimum).
[ ] Wire Redemptions: To have redemption proceeds wired to my commercial bank
($1,000 minimum).
(Application must be signed on reverse side)
- --------------------------------------------------
8 SIGNATURE (Please be sure to sign below)
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written or telephone instructions reasonably believed to be genuine and in
accordance with the procedures described in the Prospectus.
As required by Federal law, I (we) certify under penalties of perjury (1) that
the Social Security or Taxpayer Identification Number provided above is
correct and (2) that the IRS has never notified me (us) that I am (we are)
subject to 31% backup withholding, or has notified me (us) that I am (we are)
no longer subject to such backup withholding. (Note: if part (2) of this
sentence is not true in your case, please strike out that part before signing.
Check One:
[ ] U.S. Citizen [ ] Resident Alien [ ] Non-Resident Alien
____________________________
(Country of
Citizenship)
___________________________________
Signature of Owner, Trustee or
Custodian Date
___________________________________
Signature of Joint Owner or
Co-trustee (if any) Date
- --------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- --------------------------------------------------
1 ACCOUNT REGISTRATION
Please provide the information exactly as you wish it to appear on your
account (e.g., as your name appears on your other legal/financial records such
as your bank account, will, etc.). Please provide your Taxpayer Identification
Number to avoid withholding of taxes. For most individuals, this is your
Social Security Number.
- --------------------------------------------------
2 MAILING ADDRESS
Please provide your complete mailing address.
- --------------------------------------------------
3 ADVISER/DEALER INFORMATION
This section should be completed by your financial adviser or dealer if
applicable.
- --------------------------------------------------
4 INITIAL INVESTMENT
Please indicate the dollar amount you wish to invest. Minimum initial
investment s $2,000 ($500 minimum for accounts opened with an Automatic
Investment Plan).
- --------------------------------------------------
5 METHOD OF PAYMENT
Checks should be made payable to Pennsylvania Mutual Fund. If you have placed
a telephone order to open your account and purchase shares, please include the
order number on the application. Payment is due within 3 business days after
placing the order.
- --------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
All distributions will be reinvested if a box is not checked.
- --------------------------------------------------
7 EXPRESS SERVICE
Express Service is a convenient way to purchase or sell shares automatically
or at your discretion. You may choose from the following Express Service
options:
Automatic Investment Plan -- automatically purchases shares in your Royce
Fund account by transferring money from your bank account on a monthly or
quarterly basis.
Automatic Withdrawal Plan -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
Expedited Purchases and Redemptions -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
Wire Redemptions -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions
in lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and attach
a voided check. Passbook accounts are not eligible for Express Service, and
your bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/ withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and
an Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- --------------------------------------------------
8 SIGNATURE
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
<PAGE>
PENNSYLVANIA MUTUAL FUND
STATEMENT OF ADDITIONAL INFORMATION
PENNSYLVANIA MUTUAL FUND (the "Fund"), a Delaware business
trust, is a professionally managed, no-load open-end registered
investment company. The Fund is designed for long-term investors,
including those who wish to use its shares as a funding vehicle for
certain tax-deferred retirement plans (including Individual
Retirement Account (IRA) plans), and not for investors who intend
to liquidate their investments after a short period of time.
This Statement of Additional Information is not a prospectus,
but should be read in conjunction with the Fund's current
Prospectus dated April 30, 1996. Please retain this document for
future reference. The audited financial statements included in the
Annual Report to the Fund's Shareholders for the fiscal year ended
December 31, 1995 are incorporated herein by reference. To obtain
an additional copy of the Prospectus or Annual Report, please call
Investor Information at 1-800-221-4268.
Investment Adviser
Quest Advisory Corp. ("Quest")
Transfer Agent Custodian
State Street Bank and Trust CompanyState Street Bank and Trust Company
c/o National Financial Data Services
April 30, 1996
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS. . . . . . 2
RISK FACTORS AND SPECIAL CONSIDERATIONS. . . . 3
MANAGEMENT OF THE FUND . . . . . . . . . . . . 8
PRINCIPAL HOLDERS OF SHARES. . . . . . . . . . 10
INVESTMENT ADVISORY SERVICES . . . . . . . . . 11
CUSTODIAN. . . . . . . . . . . . . . . . . . . 12
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . 12
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . 12
CODE OF ETHICS AND RELATED MATTERS . . . . . . 13
PRICING OF SHARES BEING OFFERED. . . . . . . . 14
REDEMPTIONS IN KIND. . . . . . . . . . . . . . 14
TAXATION . . . . . . . . . . . . . . . . . . . 15
DESCRIPTION OF THE FUND. . . . . . . . . . . . 18
PERFORMANCE DATA . . . . . . . . . . . . . . . 20
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement
those set forth in the Fund's Prospectus. Unless otherwise noted,
whenever an investment policy or limitation states a maximum
percentage of the Fund's assets that may be invested in any
security or other asset or sets forth a policy regarding quality
standards, the percentage limitation or standard will be determined
immediately after giving effect to the Fund's acquisition of the
security or other asset. Accordingly, any subsequent change in
values, net assets or other circumstances will not be considered in
determining whether the investment complies with the Fund's
investment policies and limitations.
The Fund's fundamental investment policies cannot be changed
without the approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 [the
"1940 Act"]) of the Fund. Except for the fundamental investment
restrictions set forth below, the investment policies and
limitations described in this Statement of Additional Information
are operating policies and may be changed by the Board of Trustees
without shareholder approval. However, shareholders will be
notified prior to a material change in an operating policy
affecting the Fund.
The Fund may not, as a matter of fundamental policy:
1. Issue any senior securities;
2 Purchase securities on margin or write call options
on its portfolio securities;
3. Sell securities short;
4. Borrow money, except for a privately arranged loan
for temporary purposes in an amount not exceeding
5% of its total assets;
5. Underwrite the securities of other issuers, or
invest in restricted securities;
6. Invest more than 25% of its assets in any one
industry;
7. Own more than 10% of the voting securities of any
one issuer;
8. Purchase or sell real estate or real estate
mortgage loans or invest in the securities of real
estate companies unless such securities are
publicly-traded;
9. Purchase or sell commodities or commodity
contracts;
10. Make loans, except for purchases of portions of
issues of publicly-distributed bonds, debentures
and other securities, whether or not such purchases
are made upon the original issuance of such
securities, and
<PAGE>
except that the Fund may loan up to
25% of its assets to qualified brokers, dealers or
institutions for their use relating to short sales
or other security transactions (provided that such
loans are secured by collateral equal at all times
to at least 100% of the value of the securities
loaned);
11. Invest in companies for the purpose of exercising
control of management;
12. Purchase portfolio securities from or sell such
securities directly to any of its officers,
trustees, employees or investment adviser, as
principal for their own accounts;
13. Invest more than 25% of its total assets in the
securities of other investment companies (open or
closed-end) or more than 5% of its total assets in
the securities of any one other investment company;
and
14. Purchase any warrants, rights or options.
The Fund may not, as a matter of operating policy:
1. Invest more than 5% of its total assets in
securities of unseasoned issuers, including their
predecessors, which have been in operation for less
than three years;
2. Invest in oil, gas or other mineral leases or
development programs;
3. Invest more than 5% of its net assets in lower-
rated (high-risk) non-convertible debt securities;
4. Invest more than 10% of its total assets in the
securities of foreign issuers; or
5. Enter into repurchase agreements with any party
other than the custodian of its assets or having a
term of more than seven days.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Other Investment Companies
The Fund may invest up to 25% of the value of its total assets
in the securities of other investment companies (open or closed-
end) and up to 5% of its total assets in the securities of any one
other investment company. All such securities must be acquired by
the Fund in the open market, in transactions involving no
commissions or discounts to a sponsor or dealer (other than
customary brokerage commissions). The issuers of such securities
acquired by the Fund are not required to redeem them in an amount
exceeding 1% of such issuers' total outstanding securities during
any period of less than 30 days, and the Fund will vote all proxies
with respect to such
<PAGE>
securities in the same proportion as the vote
of all other holders of such securities. The Fund has not, during
the past 5 years, invested in the securities of any open-end
investment companies and has no intention of doing so in the
future.
Fund's Rights as Stockholder
As noted above, the Fund may not invest in a company for the
purpose of exercising control of management. However, the Fund may
exercise its rights as a stockholder and communicate its views on
important matters of policy to management, the board of directors
and/or stockholders if Quest or the Board of Trustees determine
that such matters could have a significant effect on the value of
the Fund's investment in the company. The activities that the Fund
may engage in, either individually or in conjunction with others,
may include, among others, supporting or opposing proposed changes
in a company's corporate structure or business activities; seeking
changes in a company's board of directors or management; seeking
changes in a company's direction or policies; seeking the sale or
reorganization of a company or a portion of its assets; or
supporting or opposing third party takeover attempts. This area of
corporate activity is prone to litigation, and it is possible that
the Fund could be involved in lawsuits related to such activities.
Quest will monitor such activities with a view to mitigating, to
the extent possible, the risk of litigation against the Fund and
the risk of actual liability if the Fund is involved in litigation.
However, no guarantee can be made that litigation against the Fund
will not be undertaken or liabilities incurred.
The Fund may, at its expense or in conjunction with others,
pursue litigation or otherwise exercise its rights as a security
holder to seek to protect the interests of security holders if
Quest and the Fund's Board of Trustees determine this to be in the
best interests of the Fund's shareholders.
Securities Lending
The Fund may lend up to 25% of its assets to brokers, dealers
and other financial institutions. Securities lending allows the
Fund to retain ownership of the securities loaned and, at the same
time, to earn additional income. Since there may be delays in the
recovery of loaned securities or even a loss of rights in
collateral supplied should the borrower fail financially, loans
will be made only to parties that participate in a Global
Securities Lending Program monitored by the Fund's custodian and
who are deemed by it to be of good standing. Furthermore, such
loans will be made only if, in Quest's judgment, the consideration
to be earned from such loans would justify the risk.
Quest understands that it is the current view of the staff of
the Securities and Exchange Commission that investment companies
such as the Fund may engage in such loan transactions only under
the following conditions: (i) the Fund must receive 100% collateral
in the form of cash or cash equivalents (e.g., U.S. Treasury bills
or notes) from the borrower; (ii) the borrower must increase the
collateral whenever the market value of the securities loaned
(determined on a daily basis) rises above the value of the
collateral; (iii) after giving notice, the Fund must be able to
terminate the loan at any time; (iv) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as
well as amounts equivalent to any dividends, interest or other
<PAGE>
distributions on the securities loaned and to any increase in
market value; (v) the Fund may pay only reasonable custodian fees
in connection with the loan; and (vi) the Fund must be able to vote
proxies on the securities loaned, either by terminating the loan or
by entering into an alternative arrangement with the borrower.
Lower-Rated (High-Risk) Debt Securities
The Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated
from Ba to Ca by Moody's Investors Service, Inc. or from BB to D by
Standard & Poor's Corporation or may be unrated. These securities
have poor protection with respect to the payment of interest and
repayment of principal and may be in default as to the payment of
principal or interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due
to changes in the issuer's capacity to pay. The market prices of
lower-rated (high-risk) debt securities may fluctuate more than
those of higher-rated debt securities and may decline significantly
in periods of general economic difficulty, which may follow periods
of rising interest rates.
While the market for lower-rated (high-risk) corporate debt
securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic increase
in the use of such securities to fund highly leveraged corporate
acquisitions and restructurings. Past experience may not provide
an accurate indication of the future performance of the high-
yield/high-risk bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-
rated (high-risk) debt securities that defaulted rose significantly
above prior levels.
The market for lower-rated (high-risk) debt securities may be
thinner and less active than that for higher-rated debt securities,
which can adversely affect the prices at which the former are sold.
If market quotations cease to be readily available for a lower-
rated (high-risk) debt security in which the Fund has invested, the
security will then be valued in accordance with procedures
established by the Board of Trustees. Judgment plays a greater
role in valuing lower-rated (high-risk) debt securities than is the
case for securities for which more external sources for quotations
and last sale information are available. Adverse publicity and
changing investor perceptions may affect the Fund's ability to
dispose of lower-rated (high-risk) debt securities.
Since the risk of default is higher for lower-rated (high-
risk) debt securities, Quest's research and credit analysis may
play an important part in managing securities of this type for the
Fund. In considering such investments for the Fund, Quest will
attempt to identify those issuers of lower-rated (high-risk) debt
securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future.
Quest's analysis may focus on relative values based on such factors
as interest or dividend coverage, asset coverage, earnings
prospects and the experience and managerial strength of the issuer.
Foreign Investments
The Fund may invest up to 10% of its total assets in the
securities of foreign issuers. Foreign investments can involve
significant risks in addition to the risks inherent in U.S.
<PAGE>
investments. The value of securities denominated in or indexed to
foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can
be highly volatile. Many foreign countries lack uniform accounting
and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable
information regarding an issuer's financial condition and
operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions and custodial costs, are
generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than
U.S. markets. Foreign issuers, brokers and securities markets may
be subject to less government supervision. Foreign security
trading practices, including those involving the release of assets
in advance of payment, may involve increased risks in the event of
a failed trade or the insolvency of a broker-dealer, and may
involve substantial delays. It may also be difficult to enforce
legal rights in foreign countries.
Investing abroad also involves different political and
economic risks. Foreign investments may be affected by actions of
foreign governments adverse to the interests of U.S. investors,
including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars or other government intervention. There may be a greater
possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic or social
instability, military action or unrest or adverse diplomatic
developments. There is no assurance that Quest will be able to
anticipate these potential events or counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may have
relatively unstable governments, economies based on only a few
industries and securities markets that trade a small number of
securities.
American Depositary Receipts (ADRs) are certificates held in
trust by a bank or similar financial institution evidencing
ownership of shares of a foreign-based issuer. Designed for use in
U.S. securities markets, ADRs are alternatives to the purchase of
the underlying foreign securities in their national markets and
currencies.
ADR facilities may be established as either unsponsored or
sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the
practices of market participants. A depository may establish an
unsponsored facility without participation by (or even necessarily
the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-
objection from such issuer prior to the establishment of the
facility. Holders of unsponsored ADRs generally bear all the costs
of such facilities. The depository usually charges fees upon the
deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash
distributions and the performance of other services. The
depository of an unsponsored facility frequently is under no
<PAGE>
obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities.
Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depository.
The deposit agreement sets out the rights and responsibilities of
the issuer, the depository and the ADR holders. With sponsored
facilities, the issuer of the deposited securities generally will
bear some of the costs relating to the facility (such as deposit
and withdrawal fees). Under the terms of most sponsored
arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions and to provide
shareholder communications and other information to the ADR holders
at the request of the issuer of the deposited securities.
Repurchase Agreements
In a repurchase agreement, the Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell that
security to the seller at an agreed upon price on an agreed upon
date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price
plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed upon resale price and
marked to market daily) of the underlying security.
The Fund may engage in repurchase agreements with respect to
any U.S. Government security. While it does not presently appear
possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to the Fund
in connection with bankruptcy proceedings), it is the Fund's policy
to enter into repurchase agreements only with its custodian, State
Street Bank and Trust Company, and having a term of seven days or
less.
* * *
Quest believes that the Fund is suitable for investment only
by persons who can invest without concern for current income and
who are in a financial position to assume above-average investment
risks in search for long-term capital appreciation.
<PAGE>
MANAGEMENT OF THE FUND
The following table sets forth certain information as to each
Trustee and officer of the Fund:
Position Held Principal Occupations During the
Name, Address and Age with the Fund Past Five Years
Charles M. Royce* (56) Trustee, President, Secretary, Treasurer and
1414 Avenue of the President and sole director and sole voting
Americas Treasurer shareholder of Quest Advisory Corp.
New York, NY 10019 ("Quest"), the Fund's investment
adviser; Trustee, President and
Treasurer of The Royce Fund ("TRF"),
an open-end diversified management
investment company of which Quest is
the principal investment adviser;
Director, President and Treasurer of
Royce Value Trust, Inc. ("RVT") and,
since September 1993, Royce Micro-
Cap Trust, Inc. ("OTCM"), closed-end
diversified management investment
companies of which Quest is the
investment adviser; Secretary and
sole director and shareholder of
Quest Distributors, Inc. ("QDI"),
the distributor of TRF's shares; and
managing general partner of Quest
Management Company ("QMC"), a
registered investment adviser, and
its predecessor.
Thomas R. Ebright* (51)Trustee Vice President of Quest; Vice
50 Portland Pier, President of TRF until April 1995
Portland, ME 04101 and since April 1996; Director of
RVT and, since September 1993, OTCM;
Vice President since November 1995
(President until October 1995) and
Treasurer of QDI; general partner of
QMC and its predecessor until June
1994; President, Treasurer and a
director and principal shareholder
of Royce, Ebright & Associates,
Inc., a registered investment
adviser, since June 1994; director
of Atlantic Pro Sports, Inc. and of
the Strasburg Rail Road Co. since
March 1993; and President and
principal owner of Baltimore
Professional Hockey, Inc. until May
1993.
Hubert L. Cafritz(72) Trustee Financial consultant.
9421 Crosby Road
Silver Spring, MD
20910
Richard M. Galkin(57) Trustee Private investor and President of
5284 Boca Marina Richard M. Galkin Associates, Inc.,
Circle tele-communications consultants.
South
Boca Raton, FL 33487
<PAGE>
Position Held Principal Occupations During the
Name, Address and Age with the Fund Past Five Years
Stephen L. Isaacs(56) Trustee Director of Columbia University
60 Haven Avenue, Development Law and Policy Program;
Floor B-2 Professor at Columbia University;
New York, NY 10032 and President of Stephen L. Isaacs
Associates, Consultants.
William L. Koke(61) Trustee Registered investment adviser and
73 Pointina Road financial planner with Shoreline
Westbrook, CT Financial Consultants.
06498
David L. Meister(56) Trustee Consultant to the communications
111 Marquez Place industry since January 1993;
Pacific Palisades, Executive officer of Digital Planet
CA 90272 Inc. from April 1991 to December
1992; and consultant to the
communications and television
industry from August 1990 to April
1991.
Jack E. Fockler,Jr.* Vice Vice President (since August 1993)
(37) President and senior associate of Quest,
1414 Avenue of the having been employed by Quest since
Americas October 1989; Vice President of the
New York, NY 10019 Fund, TRF, RVT and OTCM since April
1995; Vice President of QDI since
November 1995; and general partner
of QMC since July 1993.
W. Whitney George* Vice Vice President (since August 1993)
(37) President and senior analyst of Quest, having
1414 Avenue of the been employed by Quest since October
Americas 1991; Vice President of the Fund,
New York, NY 10019 TRF, RVT and OTCM since April 1995;
and general partner of QMC and its
predecessor since January 1992.
Daniel A. O'Byrne* Vice Vice President of Quest since May
(34) President 1994, having been employed by Quest
1414 Avenue of the and since October 1986; and Vice
Americas Assistant President of the Fund, TRF, RVT and
New York, NY 10019 Secretary OTCM since July 1994.
Susan I. Grant* Secretary Compliance Officer and Senior
(43) Counsel of Quest and Secretary of
1414 Avenue of the the Fund, TRF, RVT and OTCM since
Americas August 1994; and Assistant Counsel
New York, NY 10019 of First Investors Corporation from
July 1989 to August 1994.
______________
*An interested person of the Fund and/or Quest within the
meaning of Section 2(a)(19) of the 1940 Act.
Messrs. Royce, Galkin, Isaacs and Meister are also directors
of RVT and OTCM and trustees of TRF, and Mr. Ebright is also a
director of RVT and OTCM.
<PAGE>
The Board of Trustees has an Audit Committee, comprised of
Hubert L. Cafritz, Richard M. Galkin, Stephen L. Isaacs, William L.
Koke and David L. Meister. The Audit Committee is responsible for
recommending the selection and nomination of independent auditors
of the Fund and for conducting post-audit reviews of the Fund's
financial condition with such auditors.
For the year ended December 31, 1995, the following trustees
and employee of the Fund received compensation from the Fund and/or
the three other funds in the group of registered investment
companies comprising The Royce Funds:
Total Compensation
Aggregate Pension or Retirement from The Royce Funds
Compensation Benefits Accrued As Paid to Trustees
Name and Position from Fund Part of Fund Expenses /Directors
Hubert L. Cafritz, $ 17,500 N/A $17,500
Trustee
Richard M. Galkin, 17,500 N/A 60,000
Trustee
Stephen L. Isaacs, 17,500 N/A 60,000
Trustee
William L. Koke, 17,500 N/A 17,500
Trustee
David L. Meister, 17,500 N/A 60,000
Trustee
John D. Diederich, 67,362 $6,257 N/A
Director of Operations
PRINCIPAL HOLDERS OF SHARES
As of March 29, 1996, the only person known to the Fund to be
the record or beneficial owner of 5% or more of its outstanding
shares was as follows:
Number of Type of Percentage of
Name and Address Shares Ownership Outstanding Shares
Charles Schwab & Co. Inc. 10,993,235 Record 15.3%
101 Montgomery Street
San Francisco, CA 94104
As of March 29, 1996, all trustees and officers of the Fund as
a group beneficially owned less than 1% of its outstanding shares.
While Mr. Royce, as the sole director and voting shareholder and
principal officer of Quest, may be deemed to beneficially own
shares of the Fund in which assets of certain of its clients have
been invested by it, for purposes of such computation, shares of
the Fund beneficially owned by Quest for such clients are not
considered as beneficially owned by Mr. Royce.
<PAGE>
INVESTMENT ADVISORY SERVICES
Services Provided by Quest
As compensation for its services under the Investment Advisory
Agreement with the Fund, Quest receives a monthly fee equal to 1%
per annum of the first $50,000,000 of the Fund's average net
assets, 7/8% per annum of the next $50,000,000 of the Fund's
average net assets and 3/4% per annum of average net assets in
excess of $100,000,000. These rates are higher than those paid by
other mutual funds with similar investment objectives.
For each of the three years ended December 31, 1993, 1994 and
1995, the Fund paid advisory fees to Quest of $8,172,494,
$6,831,793 and $5,361,354 (net of $88,173 waived by Quest in 1995),
respectively.
Under the Investment Advisory Agreement, Quest (i) determines
the composition of the Fund's portfolio, the nature and timing of
the changes in it and the manner of implementing such changes,
subject to any directions it may receive from the Fund's Board of
Trustees; (ii) provides the Fund with investment advisory, research
and related services for the investment of its funds; (iii)
furnishes, without expense to the Fund, the services of such of its
executive officers and full-time employees as may be duly elected
executive officers or trustees of the Fund; and (iv) pays any
additional expenses incurred by the Fund in connection with
promoting the sale of its shares and all expenses incurred in
performing its investment advisory duties under the Investment
Advisory Agreement.
The Fund pays all administrative and other costs and expenses
attributable to its operations and transactions, including, without
limitation, transfer agent and custodian fees; legal,
administrative and clerical services; rent for its office space and
facilities; auditing; preparation, printing and distribution of its
prospectuses, proxy statements, shareholders reports and notices;
supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non-affiliated trustees' fees; and brokerage
commissions.
Portfolio Management
The Fund's portfolio is managed by Quest's senior investment
staff, including Charles M. Royce, Quest's Chief Investment
Officer, who is primarily responsible for supervising its
investment management activities. Mr. Royce is assisted by Jack E.
Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, both
of whom participate in such activities, with their specific
responsibilities varying from time to time. In the event of any
significant change in Quest's senior investment staff, the members
of the Fund's Board of Trustees who are not interested persons of
the Fund will consider what action, if any, should be taken in
connection with the Fund's management arrangements.
Certain information concerning Messrs. Royce, Fockler and
George is set forth above under "MANAGEMENT OF THE FUND".
<PAGE>
Limitation on Fund Expenses
Quest has agreed, in connection with the Fund's qualification
of its shares for sale in California, to reduce its investment
advisory fee monthly to the extent that the Fund's "aggregate
annual expenses" (as defined) exceed 2-1/2% of the first $30
million, 2% of the next $70 million and 1-1/2% of any remaining
average net assets of the Fund for any fiscal year.
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the
custodian for the Fund's securities, cash and other assets and the
transfer agent and dividend disbursing agent for shares of the
Fund, but it does not participate in the Fund's investment
decisions. The Fund has authorized State Street to deposit certain
domestic and foreign portfolio securities in several central
depository systems and to use foreign sub-custodians for certain
foreign portfolio securities, as allowed by Federal law. State
Street's main office is at 225 Franklin Street, Boston,
Massachusetts 02107. All mutual fund transfer agent, dividend
disbursing and shareholder service activities are performed by
State Street's agent, National Financial Data Services, at 1004
Baltimore, Kansas City, Missouri 64105.
State Street is responsible for the calculation of the
Fund's daily net asset value per share and for the maintenance of
its portfolio and general accounting records and also provides
certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post
Office Square, Boston, Massachusetts 02109, are the independent
accountants of the Fund.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect
the purchases and sales of the Fund's portfolio securities. No
broker is selected to effect a securities transaction for the Fund
unless such broker is believed by Quest to be capable of obtaining
the best price and execution for the security involved in the
transaction. In addition to considering a broker's execution
capability, Quest generally considers the brokerage and research
services which the broker has provided to it, including any
research relating to the security involved in the transaction
and/or to other securities. Such services may include general
economic research, market and statistical information, industry and
technical research, strategy and company research, and may be
written or oral. Quest determines the overall reasonableness of
brokerage commissions paid, after considering the amount another
broker might have charged for effecting the transaction and the
value placed by Quest upon the brokerage and/or research services
provided by such broker, viewed in terms of either that particular
transaction or Quest's overall responsibilities with respect to its
accounts.
<PAGE>
Quest is authorized, under Section 28(e) of the
Securities Exchange Act of 1934 and under its Investment Advisory
Agreement with the Fund, to pay a brokerage commission in excess of
that which another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and research
services provided by the broker.
Brokerage and research services furnished by brokers
through whom the Fund effects securities transactions may be used
by Quest in servicing all of its accounts and those of QMC, and not
all of such services may be used by Quest in connection with the
Fund.
Even though investment decisions for the Fund are made
independently from those for the other accounts managed by Quest
and QMC, securities of the same issuer are frequently purchased,
held or sold by more than one Quest/QMC account because the same
security may be suitable for all of them. Such purchases and sales
of the same security are generally effected pursuant to Quest/QMC's
Trade Allocation Guidelines and Procedures. Under such Guidelines
and Procedures, unallocated orders are placed with and executed by
broker-dealers during the trading day. The securities purchased or
sold in such transactions are then allocated to one or more of
Quest's and QMC's accounts at or shortly following the close of
trading, using the average net price obtained. Such allocations are
done based on a number of judgmental factors that Quest and QMC
believe should result in fair and equitable treatment to those of
their accounts for which the securities may be deemed suitable. In
some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained for the
Fund.
During each of the three years ended December 31, 1993,
1994 and 1995, the Fund paid brokerage commissions of $594,831,
$797,686 and $683,334, respectively.
For the year ended December 31, 1995, the aggregate
amount of the Fund's brokerage transactions having a research
component was $160,117,031, and the amount of commissions for such
transactions was $531,498.
The Fund did not acquire any securities of its regular
brokers and dealers, as defined in the 1940 Act, or of their
parents, during the year ended December 31, 1995.
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI, QMC and The Royce Funds have adopted a Code
of Ethics under which directors, officers, employees and partners
of Quest, QDI and QMC (collectively, "Quest-related persons") and
interested trustees/directors, officers and employees of The Royce
Funds are prohibited from personal trading in any security which is
then being purchased or sold or considered for purchase or sale by
a Royce Fund or any other Quest or QMC account. Such persons are
permitted to engage in other personal securities transactions if
(i) the securities involved are United States Government
securities, municipal debt securities, money market instruments,
shares of affiliated or non-affiliated registered open-end
investment companies or shares acquired from an issuer in a rights
offering or under an automatic dividend reinvestment
<PAGE>
plan or (ii)
they first obtain permission to trade from Quest's Compliance
Officer and an executive officer of Quest. The Code contains
standards for the granting of such permission, and it is expected
that permission to trade will be granted only in a limited number
of instances.
Quest's and QMC's clients include several private
investment companies in which Quest or QMC has (and, therefore,
Charles M. Royce, Jack E. Fockler, Jr. and/or W. Whitney George may
be deemed to beneficially own) a share of up to 15% of the
company's realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests.
The Code of Ethics does not restrict transactions effected by Quest
or QMC for such private investment company accounts. Transactions
for such private investment company accounts are subject to Quest's
and QMC's allocation policies and procedures. See "Portfolio
Transactions".
As of December 31, 1995, Quest-related persons,
interested trustees/directors, officers and employees of The Royce
Funds and members of their immediate families beneficially owned
shares of The Royce Funds having a total value of approximately
$16.3 million, and Quest's and QMC's equity interests in such
private investment companies totalled approximately $4.7 million.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of the Fund's shares
is based on its current net asset value per share. See "Net Asset
Value Per Share" in the Fund's Prospectus.
As set forth under "Net Asset Value Per Share", the
Fund's custodian determines the net asset value per share of the
Fund at the close of regular trading on the New York Stock Exchange
on each day that the Exchange is open. The Exchange is open on all
weekdays which are not holidays. Thus, it is closed on Saturdays
and Sundays and on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future
which would, in the judgment of the Fund's Board of Trustees or
management, make it undesirable for the Fund to pay for all
redemptions in cash. In such cases, payment may be made in
portfolio securities or other property of the Fund. However, the
Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption by any one shareholder up to
$250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions
would be selected by Quest and valued at the same value assigned to
them in computing the net asset value per share for purposes of
such redemption. Shareholders receiving such securities would
incur brokerage costs when these securities are sold.
<PAGE>
TAXATION
The Fund has qualified and intends to remain qualified
each year for the tax treatment applicable to a regulated
investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). To so qualify, the Fund must
comply with certain requirements of the Code relating to, among
other things, the source of its income and the diversification of
its assets.
By so qualifying, the Fund will not be subject to Federal
income taxes to the extent that its net investment income and
capital gain net income are distributed, so long as the Fund
distributes, as ordinary income dividends, at least 90% of its
investment company taxable income.
A non-deductible 4% excise tax will be imposed on the
Fund to the extent that it does not distribute (including by
declaration of certain dividends), during each calendar year, (i)
98% of its ordinary income for such calendar year, (ii) 98% of its
capital gain net income for the one-year period ending October 31
of such calendar year (or the Fund's actual taxable year ending
December 31, if elected) and (iii) certain other amounts not
distributed in previous years. To avoid the application of this
tax, the Fund intends to distribute substantially all of its net
investment income and capital gain net income at least annually to
its shareholders.
The Fund will maintain accounts and calculate income by
reference to the U.S. dollar for U.S. Federal income tax purposes.
Investments calculated by reference to foreign currencies will not
necessarily correspond to the Fund's distributable income and
capital gains for U.S. Federal income tax purposes as a result of
fluctuations in foreign currency exchange rates. Furthermore, if
any exchange control regulations were to apply to the Fund's
investments in foreign securities, such regulations could restrict
the Fund's ability to repatriate investment income or the proceeds
of sales of securities, which may limit the Fund's ability to make
sufficient distributions to satisfy the 90% distribution
requirement and avoid the 4% excise tax.
Income earned or received by the Fund from investments
in foreign securities may be subject to foreign withholding taxes
unless a withholding exemption is provided under an applicable
treaty. Any such taxes would reduce the Fund's cash available for
distribution to shareholders. It is currently anticipated that the
Fund will not be eligible to elect to "pass through" such taxes to
its shareholders for purposes of enabling them to claim foreign tax
credits or other U.S. income tax benefits with respect to such
taxes.
If the Fund invests in stock of a so-called passive
foreign investment company ("PFIC"), the Fund may be subject to
Federal income tax on a portion of any "excess distribution" with
respect to, or gain from the disposition of, such stock. The tax
would be determined by allocating such distribution or gain ratably
to each day of the Fund's holding period for the stock. The amount
so allocated to any taxable year of the Fund prior to the taxable
year in which the excess distribution or disposition occurs would
be taxed to the Fund at the highest marginal income tax rate in
effect for such years, and the tax would be further increased by an
interest charge. The amount allocated to the taxable year of the
distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would
<PAGE>
not be
taxable to the Fund to the extent distributed by the Fund as a
dividend to shareholders. In lieu of being taxable in the manner
described above, the Fund may be able to elect to include annually
in income its pro rata share of the ordinary earnings and net
capital gain (whether or not distributed) of the PFIC. In order to
make this election, the Fund would be required to obtain annual
information from the PFICs in which it invests, which in many cases
may be difficult to obtain. Alternatively, if eligible, the Fund
may be able to elect to mark to market its PFIC stock, resulting in
the stock being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be
reported as ordinary income, and any resulting loss would not be
recognized.
Investments of the Fund in securities issued at a
discount or providing for deferred interest payments or payments of
interest in kind (which investment are subject to special tax rules
under the Code) will affect the amount, timing and character of
distributions to shareholders. For example, with respect to
securities issued at a discount, the Fund will be required to
accrue as ordinary income each year a portion of the discount (even
though the Fund may not have received cash interest payments equal
to the amount included in income) and to distribute such income
each year in order to maintain its qualification as a regulated
investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to
satisfy the 90% distribution requirement and to avoid income and
excise taxes, the Fund may have to dispose of securities that it
would otherwise have continued to hold.
Distributions
For Federal income tax purposes, distributions by the
Fund from net investment income and from any net realized
short-term capital gain are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional
shares. Ordinary income generally cannot be offset by capital
losses. For corporate shareholders, distributions of net
investment income (but not distributions of short-term capital
gains) may qualify in part for the 70% dividends received deduction
for purposes of determining their regular taxable income. (However,
the 70% dividends received deduction is not allowable in
determining a corporate shareholder's alternative minimum taxable
income.) The amount qualifying for the dividends received
deduction generally will be limited to the aggregate dividends
received by the Fund from domestic corporations. The dividends
received deduction for corporate shareholders may be further
reduced or eliminated if the shares with respect to which dividends
are received by the Fund are treated as debt-financed or are deemed
to have been held for fewer than 46 days, or under other generally
applicable statutory limitations.
So long as the Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement,
distributions by the Fund from its net capital gains will be
taxable as long-term capital gains, whether received in cash or
reinvested in shares and regardless of how long a shareholder has
held his or its Fund shares. Such distributions are not eligible
for the dividends received deduction. Long-term capital gains of
non-corporate shareholders, although fully includible in income,
currently are taxed at a lower maximum marginal Federal income tax
rate than ordinary income.
<PAGE>
Distributions by the Fund in excess of its current and
accumulated earnings and profits will reduce a shareholder's basis
in Fund shares (but, to that extent, will not be taxable) and, to
the extent such distributions exceed the shareholder's basis, will
be taxable as capital gain assuming the shareholder holds Fund
shares as capital assets.
A distribution will be treated as paid during a calendar
year if it is declared in October, November or December of the year
to shareholders of record in such month and paid by January 31 of
the following year. Such distributions will be taxable to such
shareholders as if received by them on December 31, even if not
paid to them until January. In addition, certain other
distributions made after the close of a taxable year of the Fund
may be "spilled back" and treated as paid by the Fund (other than
for purposes of avoiding the 4% excise tax) during such year. Such
dividends would be taxable to the shareholders in the taxable year
in which the distribution was actually made by the Fund.
The Fund will send written notices to shareholders
regarding the amount and Federal income tax status as ordinary
income or capital gain of all distributions made during each
calendar year.
Back-up Withholding/Withholding Tax
Under the Code, certain non-corporate shareholders may
be subject to 31% withholding on reportable dividends, capital
gains distributions and redemption payments ("back-up
withholding"). Generally, shareholders subject to back-up
withholding will be those for whom a taxpayer identification number
and certain required certifications are not on file with the Fund
or who, to the Fund's knowledge, have furnished an incorrect
number. In addition, the Fund is required to withhold from
distributions to any shareholder who does not certify to the Fund
that such shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such shareholder
has under-reported interest or dividend income. When establishing
an account, an investor must certify under penalties of perjury
that such investor's taxpayer identification number is correct and
that such investor is not subject to or is exempt from back-up
withholding.
Ordinary income distributions paid to shareholders who
are non-resident aliens or which are foreign entities will be
subject to 30% United States withholding tax unless a reduced rate
of withholding or a withholding exemption is provided under an
applicable treaty. Non-U.S. shareholders are urged to consult their
own tax advisers concerning the United States tax consequences to
them of investing in the Fund.
Timing of Purchases and Distributions
At the time of an investor's purchase, the Fund's net
asset value may reflect undistributed income or capital gains or
net unrealized appreciation of securities held by the Fund. A
subsequent distribution to the investor of such amounts, although
it may in effect constitute a return of his or its investment in an
economic sense, would be taxable to the shareholder as ordinary
income or capital gain as described above. Investors should
carefully consider the tax consequences of purchasing Fund shares
just prior to a distribution, as they will receive a distribution
that is taxable to them.
<PAGE>
Sales or Redemptions of Shares
Gain or loss recognized by a shareholder upon the sale,
redemption or other taxable disposition of shares in the Fund
(provided that such shares are held by the shareholder as a capital
asset) will be treated as capital gain or loss, measured by the
difference between the adjusted basis of the shares and the amount
realized on the sale, redemption or other taxable disposition.
Such gain or loss will be long-term capital gain or loss if the
shares disposed of were held for more than one year. A loss will
be disallowed to the extent that the shares disposed of are
replaced (including by receiving shares upon the reinvestment of
distributions) within a period of 61 days, beginning 30 days before
and ending 30 days after the sale of the shares. In such a case,
the basis of the shares acquired will be increased to reflect the
disallowed loss. A loss recognized upon the sale, redemption or
other taxable disposition of shares held for 6 months or less will
be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received with respect to such
shares.
* * *
The foregoing relates to Federal income taxation.
Distributions, as well as any gains from a sale, redemption or
other taxable disposition of Fund shares, also may be subject to
state and local taxes. Under current law, so long as the Fund
qualifies for the Federal income tax treatment described above, it
is believed that the Fund will not be liable for any income or
franchise tax imposed by Delaware.
Investors are urged to consult their own tax advisers
regarding the application to them of Federal, state and local tax
laws.
DESCRIPTION OF THE FUND
Fund Organization
The Fund was established as a Delaware business trust
under Delaware law by a Certificate of Trust, effective May 21,
1993. A copy of the Certificate of Trust is on file with the
Secretary of State of Delaware, and a copy of the Trust Instrument
of the Fund, its principal governing document, is available for
inspection by shareholders at the Fund's office in New York.
The Fund is the successor to Pennsylvania Mutual Fund,
Inc. ("PMFI"), a diversified open-end investment company, organized
as a corporation under the laws of the State of Delaware in 1962.
PMFI had the same investment objective, policies and limitations as
the Fund. The succession was effected on June 30, 1993, when the
Fund acquired all of PMFI's assets and assumed all of PMFI's
liabilities in exchange for a number of its shares equal to the
number of shares of capital stock of PMFI then outstanding, and
such shares of the Fund were then distributed to PMFI's
stockholders in complete liquidation of PMFI. Upon the completion
of such transaction, each stockholder of PMFI became the owner of
full and fractional shares of
<PAGE>
the Fund equal in number and
aggregate net asset value to the shares such stockholder held in
PMFI. Unless the context otherwise requires, all references in the
Prospectus and in this Statement of Additional Information to the
Fund include PMFI for the period prior to such succession.
The Fund has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited number
of series and/or classes without shareholder approval. (The Fund
presently has only one class of shares and has not established any
additional series.) These shares are entitled to one vote per share
(with proportional voting for fractional shares) on such matters as
shareholders are entitled to vote.
Each of the Trustees currently in office was elected by
the then stockholders of PMFI. There will normally be no meeting
of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of such Trustees remain in
office, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. In addition,
Trustees may be removed from office by written consents signed by
the holders of 66 2/3% of the outstanding shares of the Fund and
filed with the Fund's custodian or by a vote of the holders of 66
2/3% of the outstanding shares of the Fund at a meeting duly called
for the purpose, which meeting will be held upon the written
request of the holders of at least 10% of the Fund's outstanding
shares. Upon the written request by 10 or more shareholders of the
Fund, who have been shareholders for at least 6 months and who hold
shares constituting at least 1% of the Fund's outstanding shares,
stating that such shareholders wish to communicate with the Fund's
other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider the removal of a Trustee,
the Fund is required to provide a list of its shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders). Except as provided above, the Trustees may continue
to hold office and appoint their successors.
Shares are freely transferable, are entitled to
distributions as declared by the Trustees and, in liquidation of
the Fund, are entitled to receive its net assets. Shareholders
have no preemptive rights. The Fund's fiscal year ends on December
31.
The Board of Trustees of the Fund recently approved a
reorganization of the Fund, pursuant to which the Fund and TRF will
be merged into The Royce Fund, a newly organized Delaware business
trust, and the Fund will become a separate series of the new trust
and continue to have the same investment objective, policies and
restrictions. The new trust will have the same trustees and
officers as the Fund, and Quest will continue as the Fund's
investment adviser under the present Investment Advisory Agreement.
The reorganization requires the approval of TRF's shareholders and,
if approved by them, is scheduled to become effective on June 28,
1996.
Shareholder Liability
Generally, Fund shareholders will not be personally
liable for the obligations of the Fund under Delaware law. The
Delaware Business Trust Act provides that a shareholder of a
Delaware business trust is entitled to the same limited liability
extended to stockholders of private corporations for profit
organized under the Delaware General Corporation Law. No
<PAGE>
similar
statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the extent
that the Fund or a shareholder of the Fund is subject to the
jurisdiction of courts in those states, the courts may not apply
Delaware law and may thereby subject Fund shareholders to
liability. To guard against this possibility, the Trust Instrument
(i) requires that every written obligation of the Fund contain a
statement that such obligation may be enforced only against the
Fund's assets (however, the omission of this disclaimer will not
operate to create personal liability for any shareholder); and (ii)
provides for indemnification out of Fund property of any Fund
shareholder held personally liable for the Fund's obligations.
Thus, the risk of a Fund shareholder incurring financial loss
beyond his investment because of shareholder liability is limited
to circumstances in which: (i) a court refuses to apply Delaware
law; (ii) no contractual limitation of liability was in effect; and
(iii) the Fund itself would be unable to meet its obligations. In
light of Delaware law, the nature of the Fund's business and the
nature of its assets, management believes that the risk of personal
liability to a Fund shareholder is extremely remote.
PERFORMANCE DATA
The Fund's performance may be quoted in various ways.
All performance information supplied for the Fund is historical and
is not intended to indicate future returns. The Fund's share price
and total returns fluctuate in response to market conditions and
other factors, and the value of the Fund's shares when redeemed may
be more or less than their original cost.
Total Return Calculations
Total returns quoted reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value per
share (NAV) over the period. Average annual total returns are
calculated by determining the growth or decline in value of a
hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth
or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce
an average annual total return of 7.18%, which is the steady annual
rate of return that would equal 100% growth on a compounded basis
in ten years. While average annual total returns are a convenient
means of comparing investment alternatives, investors should
realize that the Fund's performance is not constant over time, but
changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
In addition to average annual total returns, the Fund's
unaveraged or cumulative total returns, reflecting the simple
change in value of an investment over a stated period, may be
quoted. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken
down into their components of income and capital (including capital
gains and changes in share prices) in order to illustrate the
relationship of these factors and their contributions to total
return. Total returns and other performance information may be
quoted numerically or in a table, graph or similar illustration.
<PAGE>
Historical Fund Results
The following table shows the Fund's total returns for
the periods indicated. Such total returns reflect all income earned
by the Fund, any appreciation or depreciation of its assets and all
expenses incurred by the Fund for the stated periods. The table
compares the Fund's total returns to the records of the Russell
2000 Index (Russell 2000) and Standard & Poor's 500 Composite Stock
Price Index (S&P 500) over the same periods. The comparison to the
Russell 2000 shows how the Fund's total return compared to the
record of a broad index of small capitalization stocks. The S&P
500 comparison is provided to show how the Fund's total returns
compared to the record of a broad average of common stock prices
over the same period. The Fund has the ability to invest in
securities not included in the indices, and its investment
portfolio may or may not be similar in composition to the indices.
Figures for the indices are based on the prices of unmanaged groups
of stocks, and, unlike the Fund, their returns do not include the
effect of paying brokerage commissions and other costs and expenses
of investing in a mutual fund.
During the twenty year period from December 31, 1975 to
December 31, 1995, a hypothetical $10,000 investment in the Fund
would have grown to $262,700, assuming all distributions were
reinvested.
Pennsylvania
Period ended December 31, 1995 Mutual Fund Russell 2000 S&P 500
1 Year Total Return 18.7% 28.4% 37.5%
5 Year Average Annual Total Return 15.0% 21.0% 16.6%
10 Year Average Annual Total Return 11.3% 11.3% 14.8%
The Fund's performance may be compared in advertisements
to the performance of other mutual funds in general or to the
performance of particular types of mutual funds, especially those
with similar investment objectives. Such comparisons may be
expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. ("Lipper"), an independent service that monitors the
performance of registered investment companies. The Fund's
rankings by Lipper for the one year period ended December 31, 1995
was 264 out of 304 small company growth funds. Money market funds
and municipal funds are not included in the Lipper survey. The
Lipper performance analysis ranks funds on the basis of total
return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees payable by shareholders into
consideration and is prepared without regard to tax consequences.
The Lipper General Equity Funds Average can be used to
show how the Funds' performances compare to a broad-based set of
equity funds. The Lipper General Equity Funds Average is an
average of the total returns of all equity funds (excluding
international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper. As of
December 31, 1995, the average included 181 capital appreciation
funds, 654 growth funds, 355 small company growth funds, 495 growth
and income funds, 146 equity income funds, 125 mid-
<PAGE>
cap funds and 48
S&P Index objective funds. Capital appreciation, growth and small
company growth funds usually invest principally in common stocks,
with long-term growth as a primary goal. Growth and income and
equity income funds tend to be more conservative in nature and
usually invest in a combination of common stocks, bonds, preferred
stocks and other income-producing securities. Growth and income and
equity income funds generally seek to provide their shareholders
with current income as well as growth of capital, unlike growth
funds which may not produce income.
Ibbotson Associates (Ibbotson) provides historical
returns of the capital markets in the United States. The Fund's
performance may be compared to the long-term performance of the
U.S. capital markets in order to demonstrate general long-term risk
versus reward investment scenarios. Performance comparisons could
also include the value of a hypothetical investment in common
stocks, long-term bonds or U.S. Treasury securities. Ibbotson
calculates total returns in the same manner as the Fund.
The capital markets tracked by Ibbotson are common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds,
U.S. Treasury bills and the U.S. rate of inflation. These capital
markets are based on the returns of several different indices. For
common stocks, the S&P 500 is used. For small capitalization
stocks, return is based on the return achieved by Dimensional Fund
Advisors (DFA) U.S. Growth and Income Small Company Fund. This
fund is a market-value-weighted index of the ninth and tenth
deciles of the New York Stock Exchange (NYSE), plus stocks listed
on the American Stock Exchange (AMEX) and over-the-counter (OTC)
with the same or less capitalization as the upper bound of the NYSE
ninth decile. As of December 31, 1995, DFA contained approximately
2,700 stocks, with a median market capitalization of about $102
million.
The S&P 500 Composite Stock Price Index is an unmanaged
index of common stocks frequently used as a general measure of
stock market performance. The Index's performance figures reflect
changes of market prices and quarterly reinvestment of all
distributions.
The S&P SmallCap 600 Index is an unmanaged market-
weighted index consisting of 600 domestic stocks chosen for market
size, liquidity and industry group representation. As of December
31, 1995, the weighted mean market value of a company in this Index
was approximately $640 million.
The Russell 2000, prepared by the Frank Russell Company,
tracks the return of the common stocks of the 2,000 smallest out of
the 3,000 largest publicly traded U.S.-domiciled companies by
market capitalization. The Russell 2000 tracks the return on these
stocks based on price appreciation or depreciation and includes
dividends.
U.S. Treasury bonds are securities backed by the credit
and taxing power of the U.S. government and, therefore, present
virtually no risk of default. Although such government securities
fluctuate in price, they are highly liquid and may be purchased and
sold with relatively small transaction costs (direct purchase of
U.S. Treasury securities can be made with no transaction costs).
Returns on intermediate-term government bonds are based on a one-
bond portfolio constructed each year, containing a bond that is the
shortest non-callable bond available
<PAGE>
with a maturity of not less
than five years. This bond is held for the calendar year and
returns are recorded. Returns on long-term government bonds are
based on a one-bond portfolio constructed each year, containing a
bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and
returns are recorded. Returns on U.S. Treasury bills are based on
a one-bill portfolio constructed each month, containing the
shortest term bill having not less than one month to maturity. The
total return on the bill is the month-end price divided by the
previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for
Research in Security Prices; The Wall Street Journal is the source
thereafter. Inflation rates are based on the Consumer Price Index.
Quest may, from time to time, compare the performance of
common stocks -- especially small capitalization stocks -- to the
performance of other forms of investment over periods of time.
From time to time, in reports and promotional literature,
the Fund's performance also may be compared to other mutual funds
tracked by financial or business publications and periodicals, such
as KIPLINGER's, INDIVIDUAL INVESTOR, MONEY, FORBES, BUSINESS WEEK,
BARRON's, FINANCIAL TIMES, FORTUNE, MUTUAL FUND MAGAZINE and THE
WALL STREET JOURNAL. In addition, financial or business
publications and periodicals, as they relate to fund management,
investment philosophy and investment techniques, may be quoted.
Morningstar, Inc.'s proprietary risk ratings may be
quoted in advertising materials. For the three years ended
December 31, 1995, the average risk score for the 1,394 equity
funds rated by Morningstar with a three-year history was 1.00 and
the average risk score for the 171 small company funds rated by
Morningstar with a three-year history was 1.04. The Fund's risk
score was 0.62, placing it within the lowest 10% of all equity
funds and within the lowest 10% of all small company funds for the
three-year period.
The Fund's performance may also be compared to those of
other compilations or indices.
Advertising for the Fund may contain examples of the
effects of periodic investment plans, including the principle of
dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or
guard against loss in a declining market, the investor's average
cost per share can be lower than if fixed numbers of shares are
purchased at the same intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing
shares during periods of low price levels.
The Fund may be available for purchase through retirement
plans or other programs offering deferral of or exemption from
income taxes, which may produce superior after-tax returns over
time. For example, a $2,000 annual investment earning a taxable
return of 8% annually would have an after-tax value of $177,887
after thirty years, assuming tax was deducted
<PAGE>
from the return each
year at a 28% rate. An equivalent tax-deferred investment would
have a value of $244,692 after thirty years.
Risk Measurements
Quantitative measures of "total risk," which quantify the
total variability of a portfolio's returns around or below its
average return, may be used in advertisements and in communications
with current and prospective shareholders. These measures include
standard deviation of total return and the Morningstar risk
statistic. Such communications may also include market risk
measures, such as beta, and risk-adjusted measures of performance
such as the Sharpe Ratio, Treynor Ratio, Jensen's Alpha and
Morningstar's star rating system.
Standard Deviation. The risk associated with a fund or
portfolio can be viewed as the volatility of its returns, measured
by the standard deviation of those returns. For example, a fund's
historical risk could be measured by computing the standard
deviation of its monthly total returns over some prior period, such
as three years. The larger the standard deviation of monthly
returns, the more volatile - i.e., spread out around the fund's
average monthly total return, the fund's monthly total returns have
been over the prior period. Standard deviation of total return can
be calculated for funds having different objectives, ranging from
equity funds to fixed income funds, and can be measured over
different time frames. The standard deviation figures presented are
annualized statistics based on the trailing 36 monthly returns.
Approximately 68% of the time, the annual total return of a fund
will differ from its mean annual total return by no more than plus
or minus the standard deviation figure. 95% of the time, a fund's
annual total return will be within a range of plus or minus 2x the
standard deviation from its mean annual total return.
Beta. Beta measures the sensitivity of a security's or
portfolio's returns to the market's returns. It measures the
relationship between a fund's excess return (over 3-month T-bills)
and the excess return of the benchmark index (S&P 500 for domestic
equity funds). The market's beta is by definition equal to 1.
Portfolios with betas greater than 1 are more volatile than the
market, and portfolios with betas less than 1 are less volatile
than the market. For example, if a portfolio has a beta of 2, a
10% market excess return would be expected to result in a 20%
portfolio excess return, and a 10% market loss would be expected to
result in a 20% portfolio loss (excluding the effects of any firm-
specific risk that has not been eliminated through
diversification).
Morningstar Risk. The Morningstar proprietary risk
statistic evaluates a fund's downside volatility relative to that
of other funds in its class based on the underperformances of the
fund relative to the riskless T-bill return. It then compares this
statistic to those of other funds in the same broad investment
class.
Sharpe Ratio. Also known as the Reward-to-Variability
Ratio, this is the ratio of a fund's average return in excess of
the risk-free rate of return ("average excess return") to the
standard deviation of the fund's excess returns. It measures the
returns earned in excess of those that could have been earned on a
riskless investment per unit of total risk assumed.
<PAGE>
Treynor Ratio. Also known as the Reward-to-Volatility
Ratio, this is the ratio of a fund's average excess return to the
fund's beta. It measures the returns earned in excess of those
that could have been earned on a riskless investment per unit of
market risk assumed. Unlike the Sharpe Ratio, the Treynor Ratio
uses market risk (beta), rather than total risk (standard
deviation), as the measure of risk.
Jensen's Alpha. This is the difference between a fund's
actual returns and those that could have been earned on a benchmark
portfolio with the same amount of risk - i.e., the same beta, as
the portfolio. Jensen's Alpha measures the ability of active
management to increase returns above those that are purely a reward
for bearing market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual
fund rating service that rates mutual funds on the basis of risk-
adjusted performance. Ratings may change monthly. Funds with at
least three years of performance history are assigned ratings from
one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the funds' three-, five- and ten-year average
annual returns (when available). Funds' returns are adjusted for
fees and sales loads. Ten percent of the funds in an investment
category receive five stars, 22.5% receive four stars, 35% receive
three stars, 22.5% receive two stars and the bottom 10% receive one
star.
None of the quantitative risk measures taken alone can
be used for a complete analysis and, when taken individually, can
be misleading at times. However, when considered in some
combination and with the total returns of a fund, they can provide
the investor with additional information regarding the volatility
of a fund's performance. Such risk measures will change over time
and are not necessarily predictive of future performance or risk.
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements Included in Prospectus (Part A):
Financial Highlights or Selected Per Share Data and
Ratios for the ten years ended December 31, 1995.
The following audited financial statements of the Registrant
are included in the Registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1995, filed with the Securities
and Exchange Commission under Section 30(b)(1) of the Investment
Company Act of 1940, and have been incorporated in Part B hereof by
reference:
Schedule of Investments at December 31, 1995;
Statement of Assets and Liabilities at December 31,
1995;
Statement of Changes in Net Assets for the years
ended December 31, 1995 and December 31, 1994;
Statement of Operations for the year ended
December 31, 1995;
Financial Highlights for the years ended December
31, 1995, 1994, 1993, 1992 and 1991;
Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996.
Financial statements, schedules and historical information
other than those listed above have been omitted since they are
either inapplicable or are not required.
b. Exhibits:
The exhibits required by Items (1) through (3), (6), (7),
(9) through (12) and (14) through (16), to the extent
applicable to Registrant, have been filed with
Registrant's predecessor's initial Registration Statement
(No. 2-19995) and Post-Effective Amendments Nos. 43, 45,
46, 47, 48, 49, 51, 52, 53, 54, 55, 56, 57, 58, 60 and 62
thereto and are incorporated by reference herein.
(11) Consent of Coopers & Lybrand L.L.P.
(16) Schedule for Computation of Performance Quotations
Provided in Item 22.
(17) Financial Data Schedule.
Item 25. Persons Controlled by or Under Common Control With
Registrant
There are no persons directly or indirectly controlled by
or under common control with the Registrant.
<PAGE>
Item 26. Number of Holders of Securities
As of March 31, 1996, the number of record holders of
shares of the Registrant was 22,696.
Item 27. Indemnification
The Trust Instrument of the Registrant provides that any
person who is or has been a trustee, officer, employee or agent of
the Trust (a "Covered Person") shall be indemnified by the Trust or
the appropriate Series to the fullest extent permitted by law
against liability and all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Covered Person and against amounts paid or
incurred by him in the settlement thereof. However, no
indemnification shall be provided to a Covered Person (i) who
shall, in respect of the matter involved, have been adjudicated by
a court or body before which the proceeding was brought to be
liable to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office or (ii) in the
event of a settlement, unless there has been a determination that
such Covered Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (A) by the court or other
body approving the settlement, (B) by at least a majority of those
trustees who are neither interested persons of the Trust nor are
parties to the matter, based upon a review of readily available
facts or (C) by written opinion of independent legal counsel based
upon a review of readily available facts.
The Trust Instrument also provides that the rights of
indemnification provided therein may be insured against by policies
maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person is
entitled and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person. Additionally, the Trust may,
to the maximum extent permitted by law, advance money for expenses,
provided that Covered Person undertakes to repay the Trust if his
conduct is later determined not entitled to indemnification under
the Trust Instrument, and one of the following conditions are met:
(i) such Covered Person shall have provided appropriate security
for such undertaking, (ii) the Trust is insured against losses
arising out of any such advance payments or (iii) either a majority
of a quorum of the trustees who are neither interested persons of
the Trust nor parties to the matter, or independent legal counsel
in a written opinion shall have determined, based upon a review of
readily available facts (as opposed to a full trial type inquiry)
that there is reason to believe that such Covered Person will not
be disqualified from indemnification under the Trust. Finally, the
Trust Instrument requires any shareholder amendment which would
have the effect of reducing the indemnification protection for such
Covered Person be approved by an affirmative vote of two-thirds of
the outstanding shares of the Trust entitled to vote on the matter.
<PAGE>
Item 27. Indemnification (Continued)
The Investment Advisory Agreement by and between the
Registrant and Quest Advisory Corp. obligates the Registrant to
indemnify Quest Advisory Corp. and hold it harmless from and
against all damages, liabilities, costs and expenses (including
reasonable attorneys' fees) incurred by Quest Advisory Corp. in or
by reason of any action, suit, investigation or other proceeding
arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by Quest Advisory Corp. in
connection with the performance of any of its duties or obligations
under the Agreement or otherwise as an investment adviser of the
Registrant. Quest Advisory Corp. is not entitled to
indemnification in respect of any liability to the Registrant or
its security holders to which it would otherwise be subject by
reason of its willful misfeasance, bad faith or gross negligence.
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the filings on Schedule D to the
Application on Form ADV, as amended, of Quest Advisory Corp. for
Registration as an Investment Adviser under the Investment Advisers
Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any principal
underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company Act
of 1940, are maintained at the following locations:
Pennsylvania Mutual Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
<PAGE>
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts
trust company ("State Street"), provides certain management-related
services to the Registrant pursuant to a Custodian Contract made as
of June 29, 1973 between the Registrant's predecessor and State
Street. Under such Custodian Contract, State Street, among other
things, has contracted to keep books of accounts and render such
statements, including interim monthly financial statements, as
agreed to in the then current mutually-executed Fee Schedule or
copies thereof from time to time as requested by the Treasurer or
any executive of the Registrant's predecessor, and to assist
generally in the preparation of reports to holders of shares of the
Registrant's predecessor to the Securities and Exchange Commission,
to State "Blue Sky" authorities and to others, in the auditing of
accounts and in other ministerial matters of like nature as agreed
to between the Registrant and State Street. All of these services
are rendered pursuant to instructions received by State Street from
the Registrant in the ordinary course of business.
Registrant or its predecessor paid the following fees to
State Street for services rendered pursuant to the Custodian
Contract for each of the three (3) fiscal years ended December 31:
1995: $161,870
1994: $184,709
1993: $261,182
Item 32. Undertakings
Registrant hereby undertakes to call a special meeting of
the Registrant's shareholders upon the written request of
shareholders owning at least 10% of the outstanding shares of the
Registrant for the purpose of voting upon the question of the
removal of a trustee or trustees and, upon the written request of
10 or more shareholders of the Registrant who have been such for at
least 6 months and who own at least 1% of the outstanding shares of
the Registrant, to provide a list of shareholders or to disseminate
appropriate materials at the expense of the requesting
shareholders.
Registrant hereby undertakes to furnish each person to
whom a prospectus for any series of the Registrant is delivered
with a copy of the latest annual report to shareholders of such
series upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on the 29th day of April, 1996.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of Rule
485 under the Securities Act of 1933 and that no material event requiring
disclosure in the prospectus, other than one listed in paragraph (b)(1) of
such Rule or one for which the Commission has approved a filing under
paragraph (b)(1)(ix) of the Rule, has occurred since the latest of the
following three dates: (i) the effective date of the Registrant's Registration
Statement; (ii) the effective date of the Registrant's most recent
Post-Effective Amendment to its Registration Statement which included a
prospectus; or (iii) the filing date of a post-effective amendment filed under
paragraph (a) of Rule 485 which has not become effective.
PENNSYLVANIA MUTUAL FUND
By: /s/Charles M. Royce
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Charles M. Royce President, Treasurer 4/29/96
Charles M. Royce and Trustee (Principal
Executive, Accounting
and Financial Officer)
/s/ Hubert L. Cafritz Trustee 4/29/96
Hubert L. Cafritz
/s/ Thomas R. Ebright Trustee 4/29/96
Thomas R. Ebright
/s/ Richard M. Galkin Trustee 4/29/96
Richard M. Galkin
/s/ Stephen L. Isaacs Trustee 4/29/96
Stephen L. Isaacs
/s/ William L. Koke Trustee 4/29/96
William L. Koke
/s/David L. Meister Trustee 4/29/96
David L. Meister
NOTICE
A copy of the Trust Instrument of Pennsylvania Mutual Fund is
available for inspection at the office of the Registrant, and notice is
hereby given that this instrument is executed on behalf of the Registrant by
an officer of the Registrant as an officer and not individually and that the
obligations of or arising out of this instrument are not binding upon any of
the Trustees or shareholders individually but are binding only upon the
assets and property of the Registrant.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
(11) Consent of Coopers & Lybrand L.L.P. 57
(16) Schedule For Computation Of Performance 58
Quotations Provided in Item 22
(17) Financial Data Schedule 59
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Pennsylvania Mutual Fund:
We hereby consent to the following with respect to Post-Effective
Amendment No. 63 to the Registration Statement on Form N-1A (File No. 2-
19995) under the Securities Act of 1933, as amended, of Pennsylvania
Mutual Fund:
1. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
2. The incorporation by reference of our report dated February
7, 1996 accompanying the Annual Report of Pennsylvania Mutual
Fund for the year ended December 31, 1995, in the Prospectus
and Statement of Additional Information.
3. The reference to our firm under the heading "Independent
Accountants" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L. P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1996
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial
investment in the Fund by applying the "Annual Total Return" and
the "Average Annual Total Return" percentages set forth in this
Registration Statement in response to Item 22 to the following
total return formula:
P x (1+T) to the nth power = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1,
5 or 10 year periods at the end of the 1, 5 or
10 year periods
1) 1 Year Ending Redeemable Value ("ERV") of a $1,000 investment
in the Fund for the period ended December 31, 1995
$1,000 (1+1872)to the 1st power = $1,187.20 ERV
2) 5 Year ERV of a $1,000 investment in the Fund for the period
ended December 31, 1995:
$1,000 (1+.1497)to the 5th power = $2,008.40 ERV
3) 10 Year ERV of a $1,000 investment in the Fund for the period
ended December 31, 1995:
$1,000 (1+.1128)to the 10th power = $2,910.90 ERV
<PAGE>
[ARTICLE] 6
[CIK] 0000077271
[NAME] PENNSYLVANIA MUTUAL FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 425549193
[INVESTMENTS-AT-VALUE] 622765081
[RECEIVABLES] 1731323
[ASSETS-OTHER] 27860
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 639810131
[PAYABLE-FOR-SECURITIES] 1753615
[SENIOR-LONG-TERM-DEBT] 7937905
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 9691520
[SENIOR-EQUITY] 81702
[PAID-IN-CAPITAL-COMMON] 412541837
[SHARES-COMMON-STOCK] 81701995
[SHARES-COMMON-PRIOR] 104068607
[ACCUMULATED-NII-CURRENT] 2681
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 20276503
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 197215888
[NET-ASSETS] 630118611
[DIVIDEND-INCOME] 13344746
[INTEREST-INCOME] 1789770
[OTHER-INCOME] 0
[EXPENSES-NET] 6853151
[NET-INVESTMENT-INCOME] 8281365
[REALIZED-GAINS-CURRENT] 95221780
[APPREC-INCREASE-CURRENT] 17417882
[NET-CHANGE-FROM-OPS] 120921027
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 8285016
[DISTRIBUTIONS-OF-GAINS] 73143226
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 39278575
[NUMBER-OF-SHARES-REDEEMED] 294670193
[SHARES-REINVESTED] 74600820
[NET-CHANGE-IN-ASSETS] (180790798)
[ACCUMULATED-NII-PRIOR] 91343
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5449527
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 6941324
[AVERAGE-NET-ASSETS] 702706045
[PER-SHARE-NAV-BEGIN] 7.41
[PER-SHARE-NII] .11
[PER-SHARE-GAIN-APPREC] 1.27
[PER-SHARE-DIVIDEND] .11
[PER-SHARE-DISTRIBUTIONS] .97
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.71
[EXPENSE-RATIO] .98
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
PENNSYLVANIA MUTUAL FUND
1414 AVENUE OF THE AMERICAS
New York, NY 10019
(212) 355-7311
(800) 221-4268
April 30, 1996
Document Control: Filing Desk
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Pennsylvania Mutual Fund
File No.s 2-19995 & 811-1149
Gentlemen:
Enclosed herewith for filing under the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended (the
"1940 Act"), is Post-Effective Amendment No. 63 under the 1933 Act and
Amendment No. 23 under the 1940 Act to the Registration Statement on Form
N-1A of Pennsylvania Mutual Fund (the "Fund"), including exhibits. The
filing indicates manual signatures and has been marked to reflect changes
from Post-Effective Amendment No. 62, filed with the Commission on May 1,
1995.
The enclosed Amendment is being filed to become effective immediately
pursuant to paragraph (b) of Rule 485 under the 1933 Act. The opinion
required for filing under Rule 485(b) is also enclosed.
Any communications regarding this filing may be directed to Howard J.
Kashner or the undersigned.
Sincerely,
/s/s Susan I. Grant
Susan I. Grant
Secretary
SIG:am
C:\WPWIN\QUEST\PENN\PEA63.LTR
Enclosures
<PAGE>
SUSAN I. GRANT
PENNSYLVANIA MUTUAL FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
April 29, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Pennsylvania Mutual Fund
Registration No. 2-19995
File No. 811-1149
Gentlemen:
I have reviewed Post-Effective Amendment No. 63 to the Registration
Statement on Form N-1A of Pennsylvania Mutual Fund (the "Fund") under the
Securities Act of 1933, as amended (the "Act"), which is to be filed by the
Fund with the Commission pursuant to paragraph (b) of Rule 485 under the
Act. This is to advise you that it is my judgment that such Post-Effective
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to paragraph (b) of said Rule.
Sincerely,
/s/ Susan I. Grant
Susan I. Grant, Esq.
SIG:am
C:\WPWIN\QUEST\PENN\485B-OPN.LT2
<PAGE>
