SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 17 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19 X
WILLIAM PENN INTEREST INCOME FUND FILE NO. 14609
(Exact Name if registrant as specified in charter)
2650 Westview drive, Wyomissing, PA 19610
(Address of principal executive offices)
610.670.1031
(Registrant's telephone number)
Dennis J. Westley, 2650 Westview Drive, Wyomissing, PA 19610
(name and address of agent for service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragaph
(b) of rule 485
CROSS REFERENCE SHEET
N-1A Item No. Location
Part A
Item 1 Cover Page Cover Page
Item 2 Synopsis Prospectus Summary
Item 3 Condensed Financial Information Financial Highlights
Item 4 General Description of Registrant Fund Organization,
Investment Objectives
Item 5 Management of the Fund Management of the Fund
Item 6 Capital Stock & Other Securities Fund Organization
Item 7 Purchase of Securities Being How to Buy Shares Offered
Item 8 Redemption or Repurchase How to Redeem Shares
How to Transfer Shares
Item 9 Pending Legal Proceedings General Information
PART B
Item 10 Cover Page Cover Page
Item 11 Table of Contents Table of Contents
Item 12 General Information and History General Information
Item 13 Investment Objectives & Policies Investment Objectives
And Policies
Item 14 Management of the Fund Management of the Fund
Item 15 Control Persons and Principal
Holders of Securities Not applicable
Item 16 Investment Advisory and Other Investment Advisor,Sub-
Services Advisor, Transfer Agent
Item 17 Brokerage Allocation Portfolio Transactions
Item 18 Capital Stock & Other Securities General Information
Item 19 Purchase, Redemption and Pricing Additional Purchase
of Securities being Offered and Redemption
Information
Item 20 Tax Status Additional Information
Concerning taxes
Item 21 Underwriters Distributor
Item 22 Calculation of Performance Data Yield and Total Return
Calculations
Item 23 Financial Statements Independent Auditors and
Financial Statements
THE WILLIAM PENN FUNDS
SHAREHOLDER SERVICES:
610-670-1031
1-800-523-8440
P.O. Box 1419
Reading, Pennsylvania 19603
Overnight Mail:
2650 Westview Drive
Wyomissing, PA 19610
WILLIAM PENN INTEREST INCOME FUNDS
P R O S P E C T U S
Table of Contents
Fund Expenses 2
Financial Highlights 3
Fund Organization 6
Investment Objectives and Policies 7
Management of the Fund 12
Performance Information 14
Yield Information 16
Risk Factors 16
Dividends, Capital Gains Distributions, and Taxes 17
How to Buy Shares 19
How to Transfer Shares 22
How to Redeem Shares 23
Shareholder Services 24
General Information 26
WILLIAM PENN INTEREST INCOME FUND
Prospectus
The Board of Trustees of William Penn Interest Income Fund has
approved an Agreement and Plan of Reorganization for the Fund pursuant
to
which the Fund's assets will be acquired by a similar Federated Fund.
The William Penn Quality Income Fund shareholders will receive the
equivalent value of their shares in the Federated Bond Fund. The
William
Penn Money market Income Fund shareholders will receive the equivalent
value of their shares in Federated Automated Cash Management. The
William Penn New York Tax-Free Income Fund shareholders will receive the
equivalent value of their shares in Federated New York Municipal income
Fund. The Pennsylvania Tax-Free Income Fund shareholders will receive
the equivalent value of their shares in Federated Pennsylvania Municipal
Income Fund. The William Penn U.S. Government Income Fund shareholders
will receive their shares in Federated Fund for U.S. Government
Securities.
The Reorganization will be a tax-free exchange whereby the William Penn
Interest Income Fund shareholders will become Federated shareholders,
and
after which William Penn Interest income Fund will terminate. William
Penn Interest Income Fund shareholders will be asked to approve the
Reorganization at a shareholders' meeting scheduled to be held on May
29, 1997. Shareholders have received a complete proxy statement
describing the transaction. The Board of Trustees has recommended that
William Penn Interest Income shareholders vote in favor of the
Reorganization.
Federated Investors is a mutual fund group formed in 1955 and based in
Pittsburgh, Pennsylvania. Federated serves as manager or administrator
for mutual funds with an aggregate $110 billion in portfolio assets.
Federated has a reputation for excellent customer service, and has
invested in state-of-the-art technology to provide fund shareholders
with
comprehensive information. William Penn Interest Income Fund
shareholders who become Federated shareholders through the
Reorganization will have access to all funds in the Federated Family of
Funds.
The WILLIAM PENN INTEREST INCOME FUND (the "Fund") is an open-end,
diversified management investment company, organized under
Pennsylvania law as a common law trust. Currently, the Fund consists
of five portfolios (the "Portfolios"), each of which represents a
separate mutual fund with its own distinct investment objective and
policies. The securities offered hereby are shares of beneficial
interest in the Portfolios.
U.S. GOVERNMENT SECURITIES INCOME PORTFOLIO
seeks to provide a high level of current income from investments in
obligations of the U.S. Government and its agencies and
instrumentalities, consistent with the preservation of capital and the
maintenance of liquidity.
QUALITY INCOME PORTFOLIO seeks to provide
the highest level of current income available from investment grade
corporate bonds and other fixed-income securities, consistent with
the preservation of capital and the maintenance of liquidity. All of
the investments in this Portfolio will be in rated securities, and at
least 70% will have one of the three highest grades assigned by
Standard & Poor's Corporation or Moody's Investors Services, Inc.
NEW YORK TAX-FREE INCOME PORTFOLIO seeks to provide a high level of
current income exempt from both Federal income taxes and New York
income and personal property taxes, without assuming any undue risk
to income or principal. In pursuing this objective, the Portfolio will
invest principally in investment grade state and city municipal
obligations with varying terms of maturity.
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
seeks to provide a high level of current income
exempt from both Federal income taxes and Pennsylvania income and
personal property taxes, without assuming any undue risk to income or
principal. In pursuing this objective, the Portfolio will invest
principally in investment grade Pennsylvania municipal obligations
with varying terms of maturity.
MONEY MARKET INCOME PORTFOLIO
seeks to maximize current income available from investments in a
variety of specific short-term instruments, consistent with the
preservation of capital and the maintenance of liquidity. All
investments of the Portfolio will have a maturity of one year or less,
and the average maturity of this Portfolio will be 90 days or less.
THIS PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE IS NO ASSURANCE THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus is designed to set forth concisely the information
that you should know before you invest, and should be retained for
future reference. A "Statement of Additional Information" containing
additional information about the Fund has been filed with the
Securities and Exchange Commission. The Statement is dated April 30,
1997, and has been incorporated by reference into this Prospectus. A
copy of the Statement may be obtained, without charge, by writing to
the Fund, or by calling the Shareholder Services Department.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS ANY COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Fund Expenses
The following tables illustrate all expenses and fees that a
shareholder of the respective Portfolios will incur and is intended to
assist you in understanding the various costs and expenses that an
investor in The Fund will bear directly or indirectly.
Class Class
Shareholder Money A C
transaction Expenses Market Shares Shares
Maximum Sales Charge
Imposed on Purchasers None 4.75% None
Sales Charge Imposed on
Reinvested Dividends None None None
Deferred Sales Charge None None 1.0%(1)
Redemption Fee None None None
Exchange Fee None None None
(1) Only if shares are redeemed within 12 months or purchase. See "How
to Buy Shares."
The following table shows the actual expenses the respective Portfolios
incurred in the last fiscal year, as a percentage of average net
assets. New York Tax-Free shares were not publically offered the entire
prior fiscal year but assumptions were made below as if they had been
outstanding the entire year.
Annual Fund Operating Expenses After Reimbursements/Waivers*
Class A and Class C Management 12b-1 Other Total Operating
Interest Income Portfolios Fees Fees Expenses Expenses
U.S. Government Securities A 0.65% 0.07% 0.28% 1.00%
U.S. Government Securities C 0.65% 0.46% 0.53% 1.64%
Quality Income A 0.50% None 0.25% 0.75%
Quality Income C 0.50% 0.46% 0.53% 1.49%
New York Tax-Free Income A 0.00% 0.00% 0.00% 0.00%
Pennsylvania Tax-Free Income A 0.57% None 0.28% 0.85%
Pennsylvania Tax-Free Income C 0.57% 0.75% 0.32% 1.64%
Money Market 0.34% None 0.31% 0.65%
Example
The following example illustrates the expenses that a shareholder would
pay on a $1,000 investment after one year and over a period of three,
five and ten years utilizing the actual expenses from the last fiscal
year and assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period after deferred sales charge has expired.
Class A and Class C
Interest Income
Portfolios 1 Year 3 Years 5 Years 10 Years
U.S. Government Securities A $ 57 $ 78 $ 100 $ 164
U.S. Government Securities C 17 52 89 194
Quality Income A 55 70 87 136
Quality Income C 26 47 81 178
New York Tax-Free Income A 57 76 98 159
Pennsylvania Tax-Free Income A 56 73 92 147
Pennsylvania Tax-Free Income C 17 52 89 194
Money Market 7 21 36 81
This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
*Penn Square Management Corporation, the Advisor and Distributor of
the Fund, reimbursed/waived a portion of the expenses/fees for the
Money Market Income, the Pennsylvania Tax-Free Income, the Quality
Income and the U.S. Government Securities Income Portfolios,
respectively. If there had not been any waiver or reimbursement, the
total operating expenses, as a percentage of average net assets, of
each of the Portfolios in 1996 would have been 1.04% for the
Money Market, 1.25% for the Pennsylvania Tax-Free, 1.22% for the
Quality Income, 1.33% for the U.S. Government Securities and 1.08%
For the New York Tax-Free.
Financial Highlights
The following information has been audited by Ernst & Young LLP,
independent accountants, whose unqualified report thereon is included
in the Fund's Annual Report to shareholders for the year ended
December 31, 1996 and is incorporated by reference into the Statement
of Additional Information. The following information should be read
in conjunction with the other financial statements and notes thereto
included in the Annual Report. Additional information about the
Fund's performance is contained in the Annual Report which may be
obtained without charge from the Fund.
Class C*
U.S.
Government Pennsylvania
Securities Quality Tax-Free
Income Income Income
Net Asset Value:
Beginning of period $10.80 $10.59 $11.31
Investment Operations:
Net investment income 0.518 0.504 0.492
Net realized and unrealized gain
(loss) on investments (0.240) (0.120) (0.280)
Total from Investment Operations 0.278 0.384 0.212
Distributions:
Dividends from net
investment income (0.518) (0.504) (0.492)
Distributions from net realized
gains on investments -0- -0- -0-
Total Distributions (0.518) (0.504) (0.492)
Net Asset Value:
End of period $10.56 $10.47 $11.03
Total Return:
(excluding sales charge) 2.6% 3.7% 1.9%
Net assets, end of period (000) 168 547 1,653
Ratio of gross expenses to
average net assets 1.97% 1.96% 2.05%
Ratio of net expenses to
average net assets 1.64% 1.49% 1.64%
Ratio of net investment
income to average net assets 5.13% 5.00% 4.49%
Portfolio turnover rate (a) 478.4% 525.0% 24.3%
*Effective November 15, 1995, the Fund commenced offering Class C
shares. All capital shares issued and outstanding as of November 15,
1995 were classified as Class A shares.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights
For the years ended December 31, 1996, 1995, 1994, 1993, 1992, 1991,
1990, 1989, 1988, and from October 12, 1987 to December 31, 1987
(Commencement of Operations)
Pennsylvania Tax-Free Income Portfolio Class A
For a share outstanding throughout the year.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net As set Value: Beginning of year
$11.31 $10.31 $11.40 $10.93 $10.71 $10.29 $10.34 $10.16 $9.95 $10.00
Investment Operations:
Net investment income
0.580 0.642 0.618 0.602 0.642 0.669 0.696 0.718 0.749 0.117
Net realized and unrealized gain (loss) on investments
(0.270)1.040 (1.090) 0.470 0.220 0.450 (0.010) 0.180 0.210(0.050)
Total from Investment Operations
0.310 1.682 (0.472) 1.072 0.862 1.119 0.686 0.898 0.959 0.067
Distributions:
Dividends from net investment income
(0.580)(0.642)(0.618)(0.602)(0.642)(0.669)(0.696)(0.718)(0.749)(0.117)
Distributions from net realized gains on investments
- -0- (0.040) -0- -0- -0- (0.030)(0.040) -0- -0- -0-
Total Distributions
(0.580)(0.682)(0.618)(0.602)(0.642)(0.699)(0.736)(0.718)(0.749)(0.117)
Net Asset Value: End of year
$11.04 $11.31 $10.31 $11.40 $10.93 $10.71 $10.29 $10.34 $10.16 $9.95
Total Return: (excluding sales charge)
2.9% 16.7% (4.2%) 10.0% 8.3% 11.3% 7.0% 9.1% 10.0% 0.7%
Net assets, end of period (000)
129726 123791 91954 89897 63386 44817 23880 19243 8645 368
Ratio of gross expenses to average net assets
1.25% 1.30% n/a
Ratio of net expenses to average net assets
0.85% 0.85% 0.79% 0.65% 0.50% 0.32% 0.31% 0.20% -0- 0.26%
Ratio of net investment income to average net assets
5.29% 5.84% 5.71% 5.31% 5.93% 6.33% 6.84% 6.92% 7.40% 6.38%
Portfolio turnover rate
24.3% 10.0% 15.3% 1.0% 1.3% 22.2% 33.3% -0- -0- -0-
Money Market Income Portfolio Class A
For a share outstanding throughout the year.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net Asset Value: Beginning of year
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Investment Operations:
Net investment income
0.047 0.052 0.036 0.025 0.030 0.055 0.075 0.086 0.075 0.014
Net realized and unrealized gain/(loss) on investments
- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0-
Total from Investment Operations
0.047 0.052 0.036 0.025 0.030 0.055 0.075 0.086 0.075 0.014
Distributions:
Dividends from net investment income
(0.047) (0.052) (0.036)(0.025)(0.030)(0.055)(0.075)(0.086)(0.075)(0.014)
Distributions from net realized gains on investments
-0- -0- -0- -0- -0- -0- -0- -0- -0- -0-
Total Distributions
(0.047)(0.052) (0.036)(0.025)(0.030)(0.055)(0.075)(0.086)(0.075)(0.014)
Net Asset Value: End of year
$1.00 $1.00 $1.00 $1.00 $ 1.00 $ 1.00 $1.00 $1.00 $1.00 $1.00
Total Return: (excluding sales charge)
4.8% 5.3% 3.7% 2.5% 3.1% 5.6% 7.8% 9.0% 7.7% 1.4%
Net assets, end of period(000)
18676 12041 9015 5569 6469 10447 12587 11076 6233 909
Ratio of gross expenses to average net assets
1.04% 1.14% n/a
Ratio of net expenses to average net assets
0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65% 0.60% -0- 0.03%
Ratio of net investment income to average net assets
4.72% 5.19% 3.76% 2.50% 3.06% 5.51% 7.46% 8.59% 7.91% 6.98%
Portfolio turnover rate
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
U.S. Government Securities Income Portfolio Class A
For a share outstanding throughout the year.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net Asset Value: Beginning of year
$10.80 $9.64 $10.79 $10.50 $10.57 $10.28 $10.25 $9.90 $10.07 $10.00
Investment Operations :
Net investment income
0.603 0.660 0.746 0.860 0.907 0.949 0.854 0.835 0.794 0.128
Net realized and unrealized gain (loss) on investments
(0.220) 1.160 (1.150) 0.310 (0.070) 0.290 0.030 0.540 (0.140) 0.070
Total from Investment Operations
0.383 1.820 (0.404) 1.170 0.837 1.239 0.884 1.375 0.654 0.198
Distributions:
Dividends from net investment income
(.603) (.660) (.746) (.860) (.907) (.949) (.854) (.835) (.794) (.128)
Distributions from net realized gains on investments
0 0 0 (.02) 0 0 0 (.190) (.03) 0
Total Distributions
(.603) (.660) (.746) (.880) (.907) (.949) (.854) (1.025) (.824) (.128)
Net Asset Value: End of year
10.58 10.80 9.64 10.79 10.50 10.57 10.28 10.25 9.90 10.07
Total Return: (excluding sales charge)
3.8% 19.4% (3.8%) 11.4% 8.4% 12.7% 9.0% 14.1% 6.3% 2.0%
Net assets, end of period (000)
38685 47717 43881 50188 37871 24556 2372 1214 1264 257
Ratio of gross expenses to average net assets
1.33% 1.29% n/a
Ratio of net expenses to average net assets
1.00% 1.00% 1.00% 1.00% 1.05% 0.71% 0 0 0 0.42%
Ratio of net investment income to average net assets
5.78% 6.40% 7.36% 7.84% 8.60% 10.10% 8.22% 8.12% 7.89% 5.57%
Portfolio turnover rate
478.4% 227.8% 122.6% 111.9% 41.9% 84.4% 212.3% 274.2% 22.2% -0-
Quality Income Portfolio Class A
For a share outstanding throughout the year.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net Asset Value: Beginning of year
$10.59 $9.52 $10.70 $10.55 $10.55 $9.66 $9.75 $9.83 $10.08 $10.00
Investment Operations:
Net investment income
.592 .686 .739 .916 .817 .825 .835 .880 .883 .135
Net realized and unrealized gain/(loss)on investments
(.100) 1.07 (1.17) .410 -0- .890 (.09) .12 (.211) .08
Total from Investment Operations
.492 1.756 (.431) 1.326 .817 1.715 .745 1.00 .672 .215
Distributions:
Dividends from net investment income
(.592) (.686) (.739) (.916) (.817) (.825) (.835) (.88) (.883) (.135)
Distributions from net realized gains on investments
- -0- -0- (.009) (.26) -0- -0- -0- (.200) (.039) -0-
Total Distributions
(.592) (.686) (.748) (1.176) (.817) (.825) (.835) (1.08) (.922) (.135)
Net Asset Value: End of year
$10.49 $10.59 $9.52 $10.70 $10.55 $10.55 $9.66 $9.75 $9.83 $10.08
Total Return: (excluding sales charge)
4.9% 19.1% (4.2) 12.9% 8.2% 19.0% 7.9% 10.1% 6.6% 2.2%
Net assets, end of period (000)
31064 29675 26998 27111 15527 3572 2472 1504 1246 284
Ratio of gross expenses to average net assets
1.22% 1.29% n/a
Ratio of net expenses to average net assets
.75% .78% .38% .45% .31% .10% .05% -0- .03% .28%
Ratio of net investment income to average net assets
5.74% 6.77% 7.30% 8.32% 7.88% 8.24% 8.84% 8.86% 8.82% 6.45%
Portfolio turnover rate
525.0% 239.2% 163.8% 337.6% 316.6% 189.6% 170.1% 252.4% 142.1% -0-
New York Tax-Free Income Portfolio (c)
Net asset value: beginning of period $10.00
Investment operations
Net investment income 0.346
Net realized and unrealized gain on investment 0.170
Total from investment operation 0.516
Distributions
Dividends from net investment income (0.346)
Distribution from net realized gains on investments -0-
Total distributions (0.346)
Net asset value: end of period 10.17
Total return (excluding sales charge) 5.1%
Net asset, end of period (000) 256
Ratio of gross expenses to average net assets 1.08%
Ratio of net expenses to average net assets -0-
Ratio of net investment income to average net assets 3.59%
Portfolio turnover rate (a) 18.7%
(c) New York Tax-Free Fund commenced operations on April 1, 1996,
accordingly, all financial information of for the nine month period
ended December 31, 1996.
Fund Organization
The William Penn Interest Income Fund (the "Fund) is an open-end,
diversified management investment company, organized as a
Pennsylvania common law trust pursuant to a Declaration of
Trust (the "Trust) dated April 14, 1987. The Trust provides that the
Trustees have the power to issue an indefinite number of shares of
beneficial interest in the Fund. The Fund is a "series fund"
in that the Trustees have the power to designate one or more series or
portfolios of shares in the Fund. Investments in the Fund are
currently offered in five separate portfolios (the "Portfolios").
Each Portfolio of the Fund represents a separate mutual fund with its
own distinct investment objective and policies. The Trustees may
establish additional Portfolios without shareholder approval, which
Portfolios may have distinctly different investment objectives. You
may invest in one or more of the Portfolios. Proceeds from the sale of
shares of each Portfolio will be invested in accordance with the
Portfolio's investment objective and policies as outlined elsewhere in
this Prospectus. Each shareholder will be entitled to the pro rata
share of all dividends and distributions from the investment assets of
the Portfolio or Portfolios in which he/she is invested. Each of the
Portfolios, except the Money Market Income Portfolio, offers a Class A
and a Class C share. Each class has a different sales charge and
expense structure. See "How to Buy Shares" for a description of the
differences. Under the terms of the Trust, the Trustees are permitted
to issue an indefinite number of shares of beneficial interest of the
Fund. The Trustees have the power to designate one or more classes, or
portfolios, of securities and to classify or reclassify any unissued
shares with respect to such portfolios. The shares of each Portfolio
when issued are fully paid and non-assessable, and have no preference
within a particular Portfolio with respect to conversion, exchange,
dividends, retirement, or other features. The shares of each
Portfolio are entitled to one vote per share, have pro rata
liquidation rights, and do not have preemptive rights or the power to
accumulate votes. On any matter submitted to the shareholders for a
vote, all shares of the Fund then issued and outstanding and entitled
to vote, irrespective of the Portfolio, shall be voted in the
aggregate and not by Portfolio, except (i) when required by the
Investment Company Act of 1940, shares shall be voted by individual
Portfolio; and (ii) when the matter does not affect any interest
of a particular Portfolio, then only shareholders of the affected
Portfolio(s) shall be entitled to vote thereon. As a Pennsylvania
common law trust, the Fund is not required, and does not intend
to, hold annual shareholder meetings. Holders of 30% of the
outstanding shares of the Fund have the right to call a special
meeting for the purpose of removing Trustees or for other proper
purposes.
Investment Objectives and Policies
The investment objective and policies of each Portfolio are set forth
below. Each Portfolio's investment objective is deemed to be a
fundamental policy which may not be changed without the vote of a
majority of the particular Portfolio's outstanding shares. Except as
otherwise provided, the Fund's investment policies are not deemed to
be fundamental policies and may, therefore, be changed by the Trustees
without a shareholder vote. The Fund will not change its investment
policies, however, without giving written notice to shareholders. Of
course, no assurance can be given that any of the Portfolios will
achieve its investment objective.
U.S. GOVERNMENT SECURITIES INCOME PORTFOLIO: The investment objective
is to provide a high level of current income, consistent with the
preservation of capital and the maintenance of liquidity, from
investments in securities of the U.S. Government, its agencies and
instrumentalities. The Portfolio's investment policies include
investing, under normal circumstances, at least 65% of the
value of its total assets in the following securities:(1) U.S.
Government securities which include bills, bonds, and notes issued by
the United States Treasury, backed by the "full faith and credit"
of the U.S. Government.(2) U.S. Government agency securities issued or
guaranteed by U.S. Government sponsored instrumentalities and federal
agencies. These include securities issued by the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation
(FHLMC), Federal Home Loan Banks, Federal Land Banks, Farmers Home
Administration, Federal Financing Bank, Federal Intermediate Credit
Bank, Resolution Trust Corporation, the Tennessee Valley Authority,
and the Export-Import Bank.(3) Securities listed above which are
subject to repurchase agreements. The Portfolio may invest in the
following kinds of assets: Futures contracts, options on futures
contracts, and options on fixed-income securities, and interest rate
swaps provided that the securities underlying such transactions do not
exceed 20% of the portfolio's assets at the time of purchase. The
portfolio will engage in futures and/or options transactions only for
hedging purposes and only if such transactions are consistent
with its investment objectives and policies. Because of their
relatively riskless nature, U.S. Government securities generally
yield less than other interest bearing investments, and therefore,
the U.S. Government Securities Income Portfolio is expected to have a
lower yield than the Quality Income Portfolio.
QUALITY INCOME PORTFOLIO: The investment objective is to provide the
highest level of current income consistent with the preservation of
capital from investment grade bonds and other fixed-income securities
issued by corporations, municipalities, and the U.S. Government.
Investment grade bonds are generally considered to be those having one
of the four highest grades assigned by S&P (AAA, AA, A or BBB) or
Moody's (Aaa, Aa, A, or Baa). Pursuant to the investment policies of
this Portfolio, at least 70% of this Portfolio will be invested in the
following kinds of fixed-income securities:(1) Debt securities which
at the time of purchase are rated in the top three grades (i.e., A or
better) by either Moody's Investment Service, Inc. ("Moody's") or
Standard & Poor's Corp. ("S&P").(2) Securities of or guaranteed by the
U.S. Government, its agencies or instrumentalities.(3) Commercial
paper of companies having, at the time of purchase, an issue of
outstanding debt securities rated A or better by either Moody's or
S&P, or commercial paper rated A-1 or A-2 by S&P, or Prime 1 or Prime
2 by Moody's. The remaining 30% of the Portfolio may be invested in
the following kinds of assets:(1) Debt securities not included in the
three highest grades referred to above.(2) Convertible securities and
preferred stocks.(3) Foreign bonds and other fixed-income securities
denominated in foreign currencies where, in the opinion of the Advisor
and/or Sub-Advisor, the combination of current yield, currency value,
and appreciation potential offers attractive expected returns. The
value of such foreign denominated securities may not exceed 15% of the
portfolio at the time of purchase.(4) Futures contracts, options on
futures contracts, and options on fixed-income securities, provided
that the securities underlying such transactions do not exceed 20% of
the portfolio's assets at the time of purchase. The portfolio will
engage in futures and/or options transactions only for hedging
purposes and only if such transactions are consistent with its
investment objectives and policies.(5) Interest rate and/or currency
swaps, provided that the securities underlying such transactions do
not exceed 20% of the portfolio's assets at the time of purchase. This
Portfolio will not invest in securities rated below B by S&P or
Moody's. For defensive purposes under certain market conditions, this
Portfolio may temporarily invest in short term money market
instruments eligible for purchase by the Money Market Income
Portfolio.
NEW YORK TAX-FREE INCOME PORTFOLIO: The investment objective is to
provide a high level of current income exempt from Federal income tax
and New York personal income taxes, consistent with liquidity and
stability of principal. This Portfolio's investment policy will be to
invest principally in investment grade municipal obligations issued by
or on behalf of the state of New York and its political subdivisions,
agencies authorities, and instrumentalities ("New York Bonds"). At
least 75% of the Portfolio's assets will be invested in New York Bonds
rated at the time of purchase within the four highest grades assigned
by Moody's or S&P, or if not rated, determined by the advisor to be of
comparable quality. This Portfolio will not invest in securities rated
below B by S&P or Moody's. In accordance with the Portfolio's
investment policy, generally 100%, but at least 80% of the
Portfolio's total assets will be invested in New York Bonds, and no
more than 20% will be invested in taxable securities. Under certain
market conditions, however, the Portfolio may invest in non-tax-exempt
securities for temporary defensive purposes. Such temporary
investments may include investments in U.S. Government securities or
other high grade investments (two highest categories of Moody's or
S&P). Because the interest on New York Bonds is exempt from federal
income taxation and New York taxes, the yield is generally lower than
that of portfolios primarily invested in taxable securities. This
Portfolio may also utilize bond (including Treasury Bills) futures
contracts, options on futures contracts and options. However, the
Portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts
in combination with its outstanding obligations with respect to
options transactions would exceed 35% of its total assets. This
Portfolio may engage in futures and/or options transactions only
for hedging purposes when it is consistent with the investment
objectives. The Portfolio will maintain assets sufficient to meet its
obligations under such contracts in a segregated account with
the custodian bank.
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO: The investment objective is to
provide a high level of current income exempt from Federal income
tax and Pennsylvania income and personal property taxes, consistent
with liquidity and stability of principal. This Portfolio's investment
policy will be to invest principally in investment grade municipal
obligations issued by or on behalf of the Commonwealth of Pennsylvania
and its political subdivisions, agencies, authorities, and
instrumentalities ("Pennsylvania Bonds"). At least 75% of the
Portfolio's total assets will be invested in Pennsylvania Bonds rated
at the time of purchase within the four highest grades assigned by
Moody's or S&P, or, if not rated, determined by the advisor to be of
comparable quality. This Portfolio will not invest in securities rated
below B by S&P or Moody's.This Portfolio will invest in securities to
benefit from the income they generate, not to generate trading
profits. Pursuant to this Portfolio's investment policy, its
investments may not be varied except to: eliminate unsafe investments
and investments not consistent with the preservation of capital or tax
status of the Portfolio, honor redemption requests, reinvest earnings,
and/or defray normal expenses. In accordance with the Portfolio's
investment policy, generally 100%, but at least 80% of the Portfolio's
total assets will be invested in Pennsylvania Bonds, and no more than
20% will be invested in taxable securities. Under certain market
conditions, however, the Portfolio may invest in non-tax-exempt
securities for temporary defensive purposes. Such temporary
investments may include investments in U.S. Government securities or
other high grade investments (two highest categories of Moody's or
S&P). Because the interest on Pennsylvania Bonds is exempt from
federal income taxation and Pennsylvania taxes, the yield is generally
lower than that of taxable securities; this Portfolio is therefore
expected to have a lower yield than the other Portfolios. This
Portfolio may also utilize bond (including Treasury Bills) futures
contracts, options on futures contracts and options. However, this
Portfolio will not enter into futures contracts to the extent
that its outstanding obligations to purchase securities under these
contracts in combination with its outstanding obligations with respect
to options transactions would exceed 35% of its total assets. This
Portfolio may engage in futures and/or options transactions only for
hedging purposes when it is consistent with the investment objective.
The Portfolio will maintain assets sufficient to meet its obligations
under such contracts in a segregated account with the custodian
bank.
MONEY MARKET INCOME PORTFOLIO: The investment objective is to maximize
current income, consistent with the preservation of capital and
maintenance of liquidity, from investments in specific short-term
money market instruments. The Portfolio's investment policy
includes investing in the following money market instruments:(1)
Negotiable certificates of deposit, Euro-dollar deposits, bankers'
acceptances and time deposits of U.S. banks and U.S. branches of
foreign banks having total assets in excess of $1 billion.(2)
Commercial paper (including variable amount master demand notes) rated
A-1 by S&P, or P-1 by Moody's, or, if not rated, issued by a
corporation having an outstanding unsecured debt issue rated AA or
better by S&P, or Aa or better by Moody's. Five percent of the
portfolio may be held in second tier paper, such as A-2 or
P-2.(3) U.S. Government short-term obligations, including Treasury
bills, notes, and bonds that mature within one year, and short-term
securities of federal agencies and instrumentalities, including the
Federal Home Loan Banks, Federal Land Banks, Government National
Mortgage Association, Federal Intermediate Credit Bank, Federal
Financing Bank, and the Tennessee Valley Authority.(4) Securities
listed above, subject to repurchase agreements. This Portfolio will
limit its investments to those U.S. dollar denominated instruments
that the advisor, under the supervision of the Trustees: (a)
determines present minimal credit risk and are of "high quality," as
indicated by high S&P or Moody's ratings or, (b) in the case of any
instrument that is not rated, determines is of comparable quality. All
of the securities in this Portfolio will mature within one year, and
the average maturity of the Portfolio will be 90 days or less. This
Portfolio is expected to maintain a net asset value of $1.00 per share
for purposes of sales and redemptions, although there can be no
assurance it will be able to do so.
INVESTMENT LIMITATIONS: There are certain limitations placed on the
Fund's investment advisor to reduce the Portfolios'exposure to certain
risks. These limitations may not be changed without the approval of a
majority of the shares outstanding of a particular Portfolio. Some of
these limitations are that a Portfolio may not:(1) Invest more than
5% of the value of its assets in the securities of any single issuer
(except of the U.S. Government, its agencies or instrumentalities).(2)
Purchase more than 10% of the voting securities of any issuer.(3)
Invest more than 5% of its assets in companies with a continuous
operating history (including predecessors) of less than 3 years.(4)
Invest more than 25% of its assets in any one industry, with the
exceptions of (i) obligations of the U.S. Government or its agencies
or instrumentalities, and (ii) for all Portfolios except the Money
Market Income Portfolio, certificates of deposit or bankers'
acceptances.(5) Borrow money, except from a bank and only for
temporary or emergency purposes. Any such borrowing may not exceed 5%
of the lower of the value or cost of the Portfolio's total assets.(6)
Pledge, mortgage, or otherwise hypothecate its assets to an extent
greater than 5% of the value of its total assets.(7) Invest more than
10% of the value of its assets in illiquid securities, including
restricted securities, and repurchase agreements maturing in more
than seven days.
ADDITIONAL INVESTMENT INFORMATION: For a detailed discussion of the
various securities held in the portfolios of the Fund, see the
Statement of Additional Information.
MANAGEMENT OF THE FUND
TRUSTEES
Under the terms of the Trust, the Fund is managed by a Board
of Trustees. There may never be less than three nor more than ten
Trustees. The Trustees exercise all powers not required by statute or
by the Trust to be exercised by the shareholders. Each Trustee who is
not affiliated with Penn Square Management Corporation will receive a
quarterly fee of $1,000 for services performed as Trustee to the Fund.
The Trustees are also reimbursed for their out-of-pocket expenses
incurred as Trustees. The Trustees of the Fund, as a group, own less
than one percent of the Fund's outstanding shares.
ADVISOR AND SUB-ADVISOR
The investment advisor of the Fund is Penn Square Management
Corporation, 2650 Westview Drive, Wyomissing, Pa. 19610 (mailing
address: P.O. Box 1419, Reading, Pa. 19603), hereafter called the
Advisor. The Advisor, subject to the authority of the Board of
Trustees, is responsible for the overall management of the Fund. The
Advisor provides and pays for office space, executive and other
personnel, and services required for the daily administration of the
Fund. The Advisor is a wholly owned subsidiary of The William Penn
Company, 9 West 57th Street, New York, New York 10019.Under the
investment advisory agreement, each Portfolio pays the Advisor a
management fee based on a percentage of the total net assets of the
Portfolio. The fees are calculated monthly based on the following
annual percentages:
U.S. Government Securities Income Portfolio 0.65%
Quality Income Portfolio 0.65%
New York Tax-Free Income Portfolio 0.65%
Pennsylvania Tax-Free Income Portfolio 0.65%
Money Market Income Portfolio 0.50%
Miller, Anderson & Sherrerd LLP (the "Sub-Advisor") serves as an
investment advisor for the Portfolios pursuant to a sub-advisory
agreement with the Advisor. The Sub-Advisor, a wholly owned subsidiary
of Morgan Stanley Group Inc., was organized in 1969 and is located at
One Tower Bridge, West Conshohocken, Pennsylvania 19428. The
Sub-Advisor provides management services to employee benefit plans,
endowment funds, foundations, and other institutional investors, and
currently manages assets in excess of $30 billion. Under an agreement
entered into with the Advisor, the Sub-Advisor will provide investment
advisory services for the Portfolios and will be compensated solely by
the Advisor. The Advisor will pay the Sub-Advisor a fee based on the
aggregate net asset value of the Portfolio, as follows: .375% on the
first $50,000,000, .25% on the next $50,000,000 and .20% over
$100,000,000.
DISTRIBUTOR
Penn Square Management Corporation is the "Distributor" of the Fund.
The Distributor provides selling and sales services for the Fund. In
providing these services, the Distributor incurs advertising,
promotional, and printing expenses. The Distributor is entitled to be
reimbursed for certain of these expenses pursuant to the Fund's 12b-1
Plan discussed below. The Distributor receives no other compensation
for its services as distributor, except that a sales charge may be
paid to the Distributor. Rule 12b-1, which was adopted by the
Securities and Exchange Commission under the Investment Company Act of
1940, permits an investment company directly or indirectly to pay
expenses associated with the distribution of its shares in accordance
with a plan adopted by the Fund and approved by its shareholders.
Pursuant to this rule, the Fund has entered into a Distribution
Services Agreement (the "Plan") with the Distributor.
Class A Shares: The Distributor is entitled to be reimbursed monthly
by the Fund for certain of its expenses incurred in connection
with its services as Distributor at an annual rate not exceeding .50%
of the Fund's net assets. Subject to this percentage limitation, the
Distributor may be reimbursed for its expenses incurred in connection
with (a) advertising and marketing Fund shares; (b) printing and
distributing the Prospectus; (c) implementing and operating the Plan;
and (d) payments made by the Distributor for servicing fees to
broker/dealers, financial institutions, or other industry
professionals ("Service Organizations") for distribution and/or
shareholder administrative services provided to their customers who
own Fund shares. Pursuant to a Servicing Agreement with the
Distributor, a Service Organization may receive, on an annual basis,
up to .50% of the average daily net asset value of Fund shares owned
by shareholders with whom the Service Organization has a servicing
relationship. The Services provided by a Service Organization pursuant
to a Servicing Agreement may include distribution or shareholder
administrative services, including establishing and maintaining
shareholder accounts, sending confirmations of transactions,
forwarding financial reports and other communications to shareholders,
and responding to shareholder inquiries regarding the Fund.
Class C Shares: The fund has adopted a Distribution Plan for Class C
shares to compensate the Distributor for its services and costs in
distributing Class C shares. Under the Plan, the Fund pays the
Distributor an annual 12(b)1 Distribution Fee of 0.75% per year on
Class C shares. The Distributor also receives a Service Fee of 0.25%
per year. Both fees are computed on the average annual net assets of
Class C shares, determined as of the close of each regular business
day. The Distribution Fee allows investors to buy Class C shares
without a front end sales charge while permitting the Distributor to
compensate dealers who sell Class C shares. The Distribution Fee and
Service Fee increase Class C expenses by 1.00% of average net assets
per year. The Distributor pays sales commissions of 1.00% of the
purchase price to dealers from its own resources at the time of the
sale. The Distributor retains the Distribution Fee during the first
year shares are outstanding to recoup the sales commission it pays,
the advances of service fee payments it makes, and its financing
costs. The Distributor plans to pay the Distribution Fee as an
ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more. The Distributor receives no other
compensation for its services as distributor, except that the
sales charge will be paid to the Distributor. The Distributor may, in
turn, pay such sales charge to broker/dealers as a commission for
generating sales of Fund shares (see "How to Buy Shares").
TRANSFER AGENT
Penn Square Management Corporation acts as Transfer Agent for the
Fund. For the services it provides in these capacities, the
Corporation is reimbursed only for the actual costs incurred in
providing such services. The Corporation will continue to provide
services as Transfer Agent at cost or below cost.
Performance Information
Government New York Pennsylvania Money
Securities Quality Tax-Free Tax-Free Market
Income Income Income Income Income
Total Return:
One Year Ended
12/31/96 3.83% 4.93% 5.16%* 2.94% 4.83%
Lipper Comparative
Averages 1.72% 3.19% n/a 3.52% 4.80%
Five Years
Ended 12/31/96 43.85% 46.14% n/a 37.08% 20.99%
Lipper Comparative
Averages 33.20% 49.12% n/a 40.13% 21.42%
Average Annual Total Return:
One Year
Ended 12/31/96 *** -1.10% -0.05% n/a -1.95% 4.83%
Five Years Ended
12/31/96 *** 6.50% 6.84% n/a 5.48% 3.88%
Five Years
Ended 12/31/96 ** 7.54% 7.88% n/a 6.51% 3.88%
Lipper Comparative
Averages 5.90% 8.32% n/a 6.98% 3.96%
Source of return information: Lipper Analytical Service
* For the three quarters ended December 31, 1997.
** Excludes initial sales charge of 4.75%.
Lipper Comparative Averages do not include a sales charge.
*** Adjusted to reflect initial sales charge of 4.75%, except Money
Market Portfolio.
Past performance is not predictive of future performance. Investment
return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. This report is for the information of shareholders of
William Penn Interest Income Fund. It must not be distributed to other
than such shareholders unless it has been preceded by, or is
accompanied by, a Prospectus by which all offerings of the Fund's
shares are made. Class A offering price includes a maximum sales
charge of 4.75%.
Illustration of Assumed Investment: The graphs below illustrate the
results of an assumed investment of $10,000 made on October 12, 1987
(inception of Portfolios), with dividends and capital gain
distributions reinvested. The graphs below assume a 4.75% sales charge
so that the initial amount invested is $9,525; Lipper Comparative
figures do not include a sales charge assumption. The results
represent past performance and should not be considered as a
representation of the gain or loss which may be realized from an
investment made in the Portfolios today.
Yield Information
From time to time the Fund advertises the "yield" and "effective
yield" with respect to its Portfolios. Both yield figures are based on
historical earnings and are not intended to indicate future
performance. The "yield" for each Portfolio (except for the Money
Market Income Portfolio) is based on a standard thirty day base period
calculation (stated in the advertisement) which is computed by
dividing the Portfolio's net investment income during the base period
by the maximum offering price on the last day of the base period times
the average number of shares outstanding during the base period. The
"yield" of the Money Market Income Portfolio refers to the income
generated by an investment in such Portfolio over a seven day period.
This income is then "annualized," so that the amount of income
generated by the investment during that week is assumed to be
generated each week over a fifty-two week period and is shown as a
percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in
a Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment.
Risk Factors
In general, each Portfolio of the Fund involves varying degrees of
risk. For the most part, however, the risks inherent in each Portfolio
are primarily a function of the maturity length of the Portfolio
and the quality characteristics of the underlying securities. The
Quality Income Portfolio, the New York and Pennsylvania Tax-Free
Income Portfolios may invest in lower grade bonds, i.e., those
having an S&P or Moody's rating of B. See "INVESTMENT OBJECTIVES AND
POLICIES." Such investments do not always have outstanding investment
characteristics and may have speculative characteristics as well.
Non-rated securities will also be considered for investment by
the New York and Pennsylvania Tax-Free Income Portfolios when the
advisor believes that the financial conditions of the issuers of such
obligations and the protection afforded by the terms of the
obligations themselves limit the risk to the Portfolio to a degree
comparable to that of rated securities that are consistent with the
Portfolio's objective and policies. With respect to repurchase
agreements and securities lending, a Portfolio will be relying on the
obligation of the other party to the transaction rather than on the
credit-worthiness of the issuer of the underlying obligations. The
Portfolios will have at least 100% collateral in both types of
transactions, however, and to minimize risk will only engage in such
transactions with banks and securities dealers deemed to be qualified
by the advisor. The Portfolios will be affected similarly by market
changes. The investments in which the Fund proposes to engage will be
affected by national and international trends in business, and by
cyclical fluctuations in capital markets. More specifically, the
investments held by each Portfolio may be affected by general changes
in interest rates. There is generally an inverse relationship between
changes in interest rates and changes in the prices of interest
sensitive securities. With respect to mortgage-backed securities,
however, such as GNMA certificates, this relationship may not be
consistent because of the effect of prepayments of the underlying
mortgages when mortgage rates decline. As a result of the various
changes in the market that may affect the value of the investments in
the Portfolios, redemptions by shareholders could require the sale of
a Portfolio's investments at a time when such a sale otherwise might
not be desirable. Because the New York and Pennsylvania Tax-Free
Income Portfolios concentrate their investments in New York and
Pennsylvania, there are risks that would not be present if they were
diversified nationally. Also, legislative proposals may be introduced
that would restrict or eliminate the federal, state and local income
tax exemption for interest on the types of securities to be purchased
by this Portfolio. Any such proposals, if enacted, would reduce the
number of securities that the Portfolio could purchase consistent with
its investment objective. In recent years, New York State, New York
City and other New York public bodies have encountered financial
difficulties, and New York City is currently encountering financial
difficulties which could have an adverse effect with respect to the
performance of the Portfolio. Currently, Moody's, Standard &
Poor's and Fitch Investors Service, Inc. rate New York City's general
obligation bonds Baal, A-, and A-, respectively, and Moody's and
Standard & Poor's rate New York State's general obligation bonds A and
A-, respectively.
Dividends, Capital Gains Distributions, and Taxes
Shareholders will automatically receive all dividends and capital gain
distributions (if any) in additional shares at net asset value unless
the shareholder has indicated on the Account Registration Form the
option to receive all distributions in cash. Dividends: Each Portfolio
will declare a dividend every day on which the New York Stock Exchange
is open. Each dividend will be credited to shares of record the
previous business day, providing such shares have been properly paid
for. The total dividends, rounded to the nearest cent, will be
credited to each shareholder's account and paid to the shareholder on
a monthly basis either through reinvestment in shares of the Fund or
through a cash payment, as elected by the shareholder. When shares are
redeemed, any declared but unpaid dividends on those shares will be
paid with the next regular dividend payment, not at the time of
redemption. The amount of each daily dividend may differ from the
actual net investment income earned by the Portfolio that day. Any
undistributed net income will be distributed by the Fund in subsequent
dividends.
Capital Gains: Net realized capital gains in a Portfolio, if any, will
be distributed from that Portfolio at least annually.
Federal Taxes: The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. As such,
each Portfolio will be treated as a separate corporation for federal
tax purposes and will not be liable for federal income taxes, except
to the extent a portion of its net taxable income, if any, is not
distributed. Within 30 days after the close of each calendar year,
shareholders of each Portfolio will be provided with full information
on IRS Form 1099-DIV or 1099-R regarding dividends and capital gains
distributions for federal tax purposes, including information as to
the portion of a capital gains distribution qualifying as a long-term
capital gain and such other information as may be required by law.
Distributions of income, including any net realized short-term capital
gains, from the Money Market Income Portfolio, the U.S. Government
Securities Income Portfolio, and the Quality Income Portfolio will be
taxable as ordinary income, whether received in cash or additional
shares. Distributions from any of the Portfolios of long-term capital
gains, if any, will be taxable as such, whether received in cash or
additional shares, and regardless of the shareholder's holding
period. The New York and Pennsylvania Tax-Free Income Portfolios
intend to invest a sufficient portion of their assets in Pennsylvania
Bonds and, possibly, certain other state and municipal obligations so
that it will qualify to pay "exempt-interest dividends" to its
shareholders. Exempt-interest dividends distributed to a shareholder
are not included in the shareholder's gross income for federal income
tax purposes. Shareholders who are subject to the alternative minimum
tax, however, may be liable for such tax to the extent this Portfolio
invests in certain private activity bonds. Distributions of net
investment income derived from securities the interest on which
is not exempt from taxation, whether received in cash or additional
shares, will be taxable to shareholders as ordinary income. In
general, the exchange of shares of one Portfolio for shares in another
Portfolio will be treated as a taxable event.
State Taxes: The federal income tax treatment of Fund distributions
and the sale, exchange or redemption of Fund shares does not
necessarily apply for state and local income tax purposes. Similarly,
income on certain U.S. Government securities, which is ordinarily
exempt from state taxation, may not be so exempt when received as
distributions from the Fund. Distributions from the New York or
Pennsylvania Tax-Free Income Portfolios that are attributable to
interest received on New York or Pennsylvania Bonds should be
excludable from a shareholder's gross income for his respective state
for individual income tax purposes.
The Fund is organized as a Pennsylvania common law trust. As such, it
will not be liable for any corporate income or franchise tax in the
Commonwealth of Pennsylvania. Shareholders who are Pennsylvania
residents may be subject to personal property tax on their shares.
How to Buy Shares
Minimum Investments: The minimum initial investment is $500 and the
minimum repeat purchase is $100. A minimum initial investment of $250
will be accepted for any retirement plan. For certain accounts
introduced by professional investment advisors these minimums may be
waived.
Shares may be purchased by the following methods:
By Investment Dealer: Through any broker/dealer, bank or savings bank
which is registered in the state where the purchase is made and which
has a sales agreement with the William Penn Funds.
By Mail: Make your check payable to the Fund and mail along with a new
account application or reorder form to the address on the cover.
By Wire: Purchases by wire will be accepted only for additions to
existing accounts. Instruct your bank to wire funds to:
CoreStates Bank
Philadelphia, PA
ABA #031000011
Credit: William Penn Funds
a/c #0036438916
(Portfolio name)
(your fund acct. no.)
By Telephone:
Payments for telephone orders must be received within three business
days of the order. If payment is not timely received, the Fund may
cancel the order and redeem shares in the account to compensate the
Fund for any decline in value of the canceled purchase.
In Person: By visiting our office at 2650 Westview Drive,
Wyomissing, PA. All purchase orders are executed based on the net
asset value calculated at the close of business on the day such
purchase orders are received. Purchase orders received after the
close of the New York Stock Exchange will be executed based on the net
asset value calculated on the next business day. The Trustees reserve
the right to reject all orders that are considered to be not in the
best interest of the Fund. Share certificates will not be issued
unless an investor specifically requests them.
Net Asset Value: The net asset value per share is calculated by adding
the current value of all the securities in the Fund's portfolio and
all other assets, subtracting the liabilities, and dividing the
remainder by the number of the Fund's outstanding shares. Securities
listed on the New York Stock Exchange or any other exchange approved
by the Trustees are valued on the basis of the closing sale that day,
or if there is no sale, on the basis of the median of the closing bid
and ask price of that day. All other securities shall be valued at the
median of the closing bid and ask price of that day. If there is no
sale or closing bid and ask price on the day of calculation, a
portfolio security will be valued at the preceding business day's
available sale or median of the bid and ask prices. When market
quotations are not readily available, such securities are valued as
determined in good faith by the Board of Trustees. See the Statement
of Additional Information for an illustration of net asset value
determination.
Class A Shares: The offering price for a Class A share of beneficial
interest of the Fund is the net asset value per share plus a sales
charge as shown in the following illustration: There is no sales
charge on purchases exceeding the maximum amount stated above, on
purchases by certain employee benefit plans, on purchases made through
a recognized fee based program offered by some broker/dealers, on
purchases by policyholders of selected insurance companies, on
purchases by certain investment advisors on behalf of their
discretionary accounts, or on purchases by certain other persons as
described in the Statement of Additional Information. In addition, any
person who was invested in Penn Square Mutual Fund as of November 30,
1988 will not be charged a sales charge for purchases made in any
portfolio of the William Penn Family of Funds providing the account
has remained open. Retirement accounts opened prior to July 19, 1990
will not be subject to a sales charge. The Fund receives all monies
paid equal to the net asset value per share, and any sales charge will
be allocated to the Fund's distributor. The distributor may, in turn,
pay such amounts to broker/dealers as commission for sales of Fund
shares. The distributor may also, at its expense, provide additional
promotional incentives to broker/dealers who sell shares of the Fund.
The Fund reserves the right to modify the sales charge at its
discretion. From time to time the Fund may sponsor sales contests
among registered representatives who sell shares of the Fund.
Class C Shares: Class C shares are sold at net asset value without
an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge
of 1.0% is deducted from redemption proceeds. The contingent deferred
sales charge is paid to the Distributor to reimburse its expenses in
providing distribution related services to the Fund in connection with
the sale of Class C shares. The contingent deferred sales charge is
assessed on the lesser of the net asset value of the shares at the
time of redemption or purchase, and does not apply to shares purchased
through the reinvestment of dividends or capital gains.
Sales Charge
Sales Charge as a % of
Amount of as a % of Net Asset Dealers'
Purchase Offering Price Value Concession
Less than
$50,000 4.75% 5.00% 4.00%
$50,000 to
less than
$100,000 3.50% 3.60% 3.00%
$100,000 to
less than
$250,000 2.75% 2.80% 2.40%
$250,000 to
less than
$500,000 2.25% 2.30% 2.00%
$500,000 to
less than
$1,000,000 1.25% 1.30% 1.00%
$1,000,000
and over -0-% -0-% -0-%
Waivers of Class C Contingent Deferred Sales Charge: The Class C
contingent deferred sales charge will be waived if the shareholder
requests a redemption for any of the following reasons(1)distributions
to participants or beneficiaries from Retirement Plans, if the
distributions are made (a)under a Systematic Withdrawal Plan, or (b)
following death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary; (2) redemptions from accounts
other than Retirement Plans following death or disability of the
shareholder, accompanied by evidence of a determination of disability
by the Social Security Administration, and (3) returns of excess
contributions to Retirement Plans.
Class Share Distinction: Once you decide that the Fund is an
appropriate investment for you, deciding which class of shares is best
suited to your needs depends on a number of factors which you should
discuss with your broker or financial advisor. Because a fund's
operating costs and the affect of the different types of sales charges
and 12(b)1 distribution fees that apply to a class of shares will
affect your investment results over time, how much you plan to
invest and how long you plan to hold your investment become very
important considerations. If your investment goals and objectives
change over time and you plan to purchase additional shares,
you should reevaluate those factors to see if you should consider
another class of shares. Your investment advisor will help you
determine which class of shares is best for you. Generally, an
investor who expects to invest less than $50,000 in any of the William
Penn Funds and who expects to make substantial redemptions after one
year but within six years of investment should consider purchasing
Class C Shares. Class C Shares have no initial sales charge, and after
one year, have no redemption penalty. Depending on your investment
time horizon, you may also prefer to balance purchases of A Share
investments with C Share investments in order to spread the cost of
investing over time. If you plan to invest more than $50,000 and your
investment horizon is six years or more, Class C shares might not be
as advantageous as Class A shares. This is because the annual asset
based Distribution Fee on Class C shares will have a greater impact on
your account over the longer term than the reduced front end sales
charge available for larger purchases of Class A shares. For example,
Class A shares might be more advantageous than Class C shares for
investments of more than $50,000 expected to be held for 5 years or
more, for investments over $250,000 expected to be held 3 years or
more, or investments over $500,000 for which an investor's time
horizon is expected to be longer than 2 or more years.
Account Registration: Guidelines are printed on the Application form
contained in this Prospectus. In the case of joint registrations,
joint tenancy with rights of survivorship (JTWROS) is assumed, unless
otherwise indicated.
Right of Accumulation: Reduced sales charges apply to any purchase of
shares in the William Penn family of funds except the William Penn
Money Market Portfolio (which does not impose a sales charge),
where the aggregate investment, including such purchase, is $50,000 or
more. If, for example, you previously purchased and still hold shares
of any eligible portfolio or combination thereof, with an aggregate
current market value of $40,000 and subsequently purchase shares of an
eligible portfolio having a current value of $20,000, the charge
applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. All present holdings of eligible portfolios may be
combined to determine the current offering price of the aggregate
investment in ascertaining the sales charge applicable to each
subsequent purchase. To qualify for reduced sales charges, at the
time of a purchase you or your dealer/advisor must notify Penn Square
Management Corporation. This may be accomplished by checking the
appropriate box on a New Account Application. The reduced charge is
subject to confirmation of your holdings through a check of
appropriate records.
Redemption Proceeds from other Mutual Funds and Commissioned
Investments: No sales charge will apply to any purchase of shares in
the Fund if the amount invested represents redemption proceeds from
another mutual fund or commissioned investment and the shareholder
previously paid a sales charge for such other mutual fund or
commissioned investment. In order to qualify for this privilege, (I)
William Penn Fund shares must be purchased within thirty days after
the redemption from the other mutual fund or commissioned investment,
and (ii) documentation of such redemption satisfactory to Penn Square
Management Corporation shall be required at the time of purchase.
Letter of Intent: A prospective shareholder may qualify for a reduced
sales load immediately by signing the non-binding Letter of Intent to
invest in one or more of the William Penn Family of Funds except Money
Market, over a thirteen month period an amount that would qualify for
a reduced sales charge. The shareholder or his dealer/advisor must
notify Penn Square Management when any investment is being made
pursuant to the Letter of Intent. Acceptable forms of Letters of
Intent are available from the Shareholder Services Department or on a
New Account Application. A Letter of Intent may be backdated 90 days,
to the date of purchase.
How to Transfer Shares
Shares of the Fund, where a certificate has been issued, may be
transferred by endorsing the certificate on the reverse side exactly
as the registered name appears on the face of the certificate.
Signatures must be guaranteed by a commercial bank, savings bank, or
broker/dealer. Shares of the Fund held in book or statement form may
be transferred by sending a letter to the Fund requesting transfer.
This letter must be signed by the registered owner(s) and the
signature(s) must be guaranteed.
How to Redeem Shares
Shareholders wishing to redeem certificated shares must send their
redemption request along with the share certificates directly to the
Fund. If shares are held in book or statement form, a signature
guaranteed letter requesting redemption must be sent directly to the
Fund. The Fund will redeem shares as of the date of receipt providing
the certificates and/or letter requesting redemption are in proper
delivery form. Alternatively, a telephone authorization form must be
completed in order for uncertificated shares to be redeemed by
telephone. Shares presented for redemption, either in certificate,
letter form or by telephone, prior to the close of the New York
Stock Exchange on any business day are redeemed at the net asset value
calculated at the close of the exchange that day, except that some
Class C shares may be subject to a 1.0% contingent deferred sales
charge. Checks for redemption proceeds will be mailed within three
business days. However, redemption checks will not be mailed until
all checks in payment for the shares redeemed have been cleared.
Letters requesting redemptions of book or statement shares must be
properly signed by the registered owner(s) with signature(s)
guaranteed. A certificate for shares presented for redemption must be
endorsed by the registered owner, with signature guaranteed only if
the redemption proceeds are to be paid to other than the registered
owner. Requests for IRA Transfer, Qualified Retirement Plan Transfer,
or Direct Rollover require signature guarantee only if the amount
involved exceeds $10,000.00. A signature guarantee is a widely
accepted way to protect you and the fund by verifying the signature on
your request. A signature guarantee may not be provided by a notary
public. The following institutions should be able to provide you with
a signature guarantee: a national or state bank, a federal savings and
loan association, a trust company or a member firm of a national stock
exchange. Shareholders who liquidate accounts may repurchase shares in
the fund at Net Asset Value within 60 days of redemption if they have
previously paid a sales charge. The shareholder (or agent) must notify
the Transfer Agent of his or her intention to take advantage of the 60
day repurchase option. The Fund imposes no charges for redemptions of
Class A shares. For Class C shares, redemptions within the first year
of purchase will bear a redemption charge of 1% of net assets. See
"Class C Shares" in "How to Buy Shares" section. However, redemptions
may be made through a broker/dealer and that broker/dealer may charge
a transaction fee.
Shareholder Services
Distribution Reinvestment: Dividends and/or capital gains distributed
by the Fund may be automatically reinvested in additional shares of
Penn Square Mutual Fund, or in shares of any portfolio of The William
Penn Interest Income Fund or the Scottish Widows International Fund
(see "Flexivest" below). The cost of shares purchased is calculated on
the date of distribution. There is no sales charge for the purchase
of shares through reinvestment. Dividends are distributed monthly and
capital gains, if any, are distributed in December. Any changes in
automatic reinvestment plans must be made in writing at least 10 days
before any distribution date. If no distribution election is made, the
Fund will assume automatic reinvestment. The automatic reinvestment
plans are more fully described in the Statement of Additional
Information. If you elect to receive dividends and distributions in
cash and the U.S. Postal Service cannot deliver the checks, or if the
checks remain uncashed for twelve months, the checks will be
reinvested into your account at the then current net asset
value.
Systematic Purchase Plan: Shareholders may establish a Systematic
Purchase Plan (SPP) by checking the appropriate box on a New Account
Application or by calling Shareholder Services for an appropriate
form. This Plan authorizes The William Penn Funds to debit a
Shareholder's designated checking or savings account at a bank or
savings bank on a regular basis in order to purchase additional Fund
shares. As Custodian of the Fund, CoreStates Bank acts as agent for
these transactions, and funds are sent directly from the Shareholder's
financial institution to CoreStates Bank for purchase of fund shares.
Purchases are made monthly or quarterly, on the 20th day of the month
or quarter, or the following business day if the 20th is not a
business day. The SPP is more fully described in the Statement of
Additional Information.
Systematic Withdrawal Plan: Shareholders may establish a Systematic
Withdrawal Plan (SWP) by checking the appropriate box on a New Account
Application or by calling Shareholder Services for the appropriate
form. A minimum account balance of $10,000 is required to establish
a SWP. With a SWP, a sufficient number of Fund shares are redeemed
each month or quarter from a Shareholder's account to provide the
Shareholder with a regular payment. Shares are redeemed on the 10th
day of each month or quarter (on the 15th day for IRA and Keogh
Plans), or the next business day, in order to provide for the
withdrawal payment, and share redemptions are calculated to the third
decimal. Although income and capital gains distributions will be
reinvested, continued withdrawals in excess of current income may
eventually exhaust principal, particularly in a period of declining
market prices. The fund reserves the right to terminate the Plan when
withdrawal payments are indefinitely suspended at the request of the
Plan participant.
Systematic Exchange Plan: Shareholders may establish a Systematic
Exchange Plan (SEP) by checking the appropriate block on the New
Account Application or by calling Shareholder Services for the
appropriate form. This plan authorizes The William Penn Funds to
exchange a fixed dollar amount from one portfolio to another on the
5th day of each month, or the next business day if the 5th is not a
business day. The Shareholder should understand the tax consequences
of such an exchange. The Plan may be terminated on written instruction
at least 10 days prior to the next scheduled exchange.
Retirement Plans: The Fund offers IRA Plans: including Simplified
Employee Pension Plans (SEP-IRA) and Salary Reduction Plans(SAR-SEP);
Profit Sharing; and Money Purchase Plans. There is a $250 minimum on
initial purchases for all retirement plans.
Flexivest: Shareholders may elect to have dividends and/or capital
gains automatically invested into another William Penn portfolio by
indicating the receiving portfolio on a New Account Application. For
existing accounts, shareholders may request the form by calling
Shareholder Services. The Plan may be terminated on written
instruction at least 10 days prior to the next dividend or capital
gain distribution payable date.
Exchange Privilege: As a shareholder of the William Penn Family of
Funds, you may exchange shares of Penn Square Mutual Fund for shares
of the Scottish Widows International Fund or any of the Portfolios of
The William Penn Interest Income Fund including the Money Market
Income Portfolio, Pennsylvania Tax-Free Income Portfolio, U.S.
Government Securities Income Portfolio, New York Tax-Free Income
Portfolio, without incurring an exchange fee. A sales charge will not
be incurred if the amount exchanged had previously incurred a sales
charge. Exchanges involve the redemption of shares, and a tax
liability may be incurred. For more complete information, including a
telephone authorization form and the Prospectus of Penn Square Mutual
Fund or the Scottish Widows International Fund, call our Shareholder
Services Department. For purposes of exchanging shares within the
William Penn Funds, all shares issued prior to November 15, 1995 are
designated Class A shares to distinguish them from the new Class C
shares. Shares of a particular class may be exchanged only for shares
of the same class in the other William Penn family of funds. For
example, you may exchange Class C shares of a Fund only for Class C
shares of another Fund and Class A shares for other Class A shares.
The exchange privilege is only available in states where the exchange
may legally be made.
Automated Clearing House (ACH)Transfers: Shareholders may have their
dividend, capital gain or systematic withdrawal plan checks
transferred directly into their checking or saving accounts by ACH.
There is no charge for this service. Please call Shareholder
Services if you wish to enroll in this program. This service may take
one month to activate and a check will be received in the interim.
General Information
Reports: Shareholders receive semi-annual and annual financial
statements and first and third quarter updates. Annual financial
statements are audited by Ernst & Young LLP, independent
auditors, whose selection is ratified by shareholders.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the days on which the New York Stock
Exchange and/or the Fund are closed for business are: Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, Christmas Day and New Year's Day.
Trustees
James E. Jordan, Chairman
Paul J. Lawler, Vice Chairman
Lee D. Arning
Gail M. Harrity
Emmett M. Murphy, CFA
John D. Tenhula, Ph.D.
Ferdinand Thun
Officers
James E. Jordan, President
Dennis J. Westley, CPA, V.P. & Treasurer
Sandra J. Houck, Secretary
Investment Advisor
Distributor
Transfer Agent and Dividend Disbursing Agent
Penn Square Management Corp.
2650 Westview Drive
Wyomissing, PA 19610
Independent Auditors
Ernst & Young LLP
Reading, PA
Counsel
Stevens & Lee
Reading, PA
Custodian
CoreStates Bank
WILLIAM PENN INTEREST INCOME FUND
2650 Westview Drive
Wyomissing, PA 19610
Statement of Additional Information
April 30, 1997
This Statement of Additional Information should be read
in conjunction with the Prospectus for the William Penn
Interest Income Fund (the "Fund") dated April 30, 1997,
and is incorporated by reference in its entirety into
that Prospectus. Because this Statement of Additional
Information is not itself a Prospectus, no investment
in shares of the Fund should be made solely upon the
information contained herein. Copies of the Prospectus
for the Fund may be obtained by calling the Shareholder
Services Department at the number below. Capitalized
terms used but not defined herein have the same
meanings as in the Prospectus.
Table of Contents
Page
Investment Objectives and Policies 2
Additional Purchase and Redemption Information 4
Management of the Fund 5
Additional Investment Information 8
Yield and Total Return Calculations 11
Additional Information Concerning Taxes 12
General Information 13
Independent Auditors and Financial Statements 15
Appendix 15
SHAREHOLDER SERVICES:
610-670-1031
800-523-8440
P.O. Box 1419
Reading, Pennsylvania 19603
Investment Objectives and Policies
The investment objectives and policies of each
Portfolio (the "Portfolio") of the William Penn
Interest Income Fund (the "Fund") are distinct and
separate from the other Portfolios. The following
information supplements the description of the
Portfolios' investment objectives and policies
contained in the Prospectus.
PORTFOLIO TRANSACTIONS
Penn Square Management Corporation serves as investment
advisor (the "Advisor") to the Fund. Pursuant to a
sub-advisory agreement, Miller, Anderson & Sherrerd LLP
(the "Sub-Advisor"), subject to the general control of
the Advisor and the Fund's Board of Trustees, is
responsible for, makes decisions with respect to, and
places orders for all purchases and sales of portfolio
securities for the Fund.
The Money Market Income Portfolio does not intend to
seek profits from short-term trading. Its annual
portfolio turnover rates will be relatively high, but
brokerage commissions are normally not paid on money
market instruments so that portfolio turnover is not
expected to have a material effect on the Portfolio's
net income.
The U.S. Government Securities Income Portfolio, the
Quality Income Portfolio, the New York and Pennsylvania
Tax-Free Income Portfolios will generally invest for
the long-term; therefore, the turnover in these
Portfolios will generally not exceed 100% during
periods of relatively stable market and economic
conditions. Portfolio turnover may vary greatly from
year to year as well as within a particular year, and
may also be affected by cash requirements for
redemptions of shares. Nevertheless, portfolio turnover
will not be a limiting factor in making investment
decisions.
All Portfolio transactions are under the control of the
Fund's Sub-Advisor. In selecting brokers and dealers,
it is the Sub-Advisor's policy to obtain the best
overall terms available. Such decisions shall take into
consideration factors deemed to be relevant such as the
breadth of the market and security, the price of the
security, the financial condition and execution
capability of the broker or dealer, and the
reasonableness of the commission, if any, for the
specific transaction. The Sub-Advisor may, subject to
the requirements of applicable law, cause the Fund to
pay a broker/dealer who furnishes brokerage and
research services a higher commission than that which
might be charged by another broker/dealer for effecting
the same transaction. Brokerage and research services
may include (i) advice, furnished either directly or
through publications or writings, as to the value of
securities, or the availability of securities or
purchasers or sellers of securities; (ii) analyses and
reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy or the
performance of accounts; or (iii) effecting securities
transactions or performing related functions (such as
clearance, settlement, and custody). Preference may
also be given to the broker/dealer who has previously
sold Fund shares if the broker/dealers under
consideration are all capable of obtaining the best
execution. The Sub-Advisor will periodically review the
commissions paid by the Fund, if any, to consider
whether the commissions paid over representative
periods of time appear to be reasonable in relation to
the benefits inuring to the Fund. It is possible that
certain of the supplementary research or other services
received will primarily benefit one or more other
investment companies or other accounts for which
investment advice is rendered. Conversely, the Fund may
be the primary beneficiary of research or services
received as a result of Portfolio transactions for such
other accounts or investment companies.
Investment recommendations for each Portfolio are made
independently from those for other Portfolios advised
by the Sub-Advisor that may invest in the same
securities. When purchases or sales of the same
security are made at substantially the same time on
behalf of such other Portfolio, transactions are
averaged as to price, and available investments
allocated as to amount in a manner that the Sub-Advisor
believes to be equitable to each Portfolio. In some
instances, this investment procedure may adversely
affect the price paid or received by a Portfolio or the
size of the position obtained for a Portfolio. To the
extent permitted by law, the Sub-Advisor may aggregate
the securities to be bought or sold for a Portfolio
with those to be bought or sold for other Portfolios in
order to obtain best execution.
OTHER INVESTMENT INFORMATION
In the Appendix to this Statement of Additional
Information are descriptions of the rating symbols used
by Standard & Poor's Corporation and Moody's Investors
Service, Inc. for debt securities in which the
Portfolios may invest. The Prospectus sets forth
certain investment limitations that may not be changed
with respect to a Portfolio without the affirmative
vote of the holders of the majority of the Portfolio's
outstanding shares. Similarly, the following investment
limitations may not be changed with respect to a
Portfolio without such a vote of shareholders. Each
Portfolio may not:
1. Purchase or sell real estate or real estate mortgage
loans, except that a Portfolio may invest in securities
that are secured by real estate or interests therein.
2. Make loans, except that a Portfolio may (a) purchase
or hold debt instruments in accordance with its
investment objective and policies, and (b) lend its
securities to banks, broker/dealers, and other
financial institutions consistent with any applicable
law or regulations.
3. Underwrite the securities of other issuers, except
to the extent that the acquisition and disposition of
certain securities directly from an issuer in
accordance with each Portfolio's investment objective
and policies might be deemed to be underwriting.
4. Purchase securities of companies for the purpose of
exercising control.
5. Acquire any investment company or investment company
security, except in accordance with Section 12(d) of
the Investment Company Act of 1940 and, in any event,
each Portfolio may not own (i) more than 3% of the
total outstanding voting stock of an investment
company; (ii) securities of any one investment company
which in the aggregate exceed 5% of the total assets of
the Fund; or (iii) securities of more than one
investment company which in the aggregate exceed more
than 10% of the Fund's total assets.
6. Purchase securities on margin, make short sales of
securities, or maintain a short position.
7. Purchase or sell commodities or commodity contracts.
8. Issue senior securities.
If a percentage restriction is satisfied at the time an
investment is made, the later increase or decrease in
such percentage resulting from a change in asset value
will not constitute a violation of the restriction. In
order to permit the sale of Fund shares in certain
states, the Fund may make commitments more restrictive
than the investment limitations and policies described
above. Should the Fund determine that any such
commitment is no longer in the best interest of the
Fund, it will revoke the commitment by terminating
sales of its shares in the states involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem shares of the
Money Market Income Portfolio, U.S. Government
Securities Income Portfolio, Quality Income Portfolio
and Pennsylvania and New York Tax-Free Income Portfolio
is included in the Prospectus (see "Shareholder
Services"). The issuance of shares is recorded on the
books of the Fund and share certificates are not issued
unless expressly requested in writing. Certificates
will not be issued for the Money Market Income
Portfolio, or for fractional shares.
As described in the Prospectus, the Fund offers two
classes of shares (Class A and Class C). See "How to
Buy Shares" for a discussion on the distinction between
the two.
As described in the Prospectus, shares of each
Portfolio may be purchased directly from the
Distributor or through securities dealers, financial
institutions, and other industry professionals. (Such
institutions and professionals are collectively
referred to as "Service Organizations.") Service
Organizations may impose minimum customer account and
other requirements in addition to those imposed by the
Fund and described in the Prospectus.
To change the bank or account designated to receive
redemption proceeds, a written request must be sent to
the transfer agent, Penn Square Management Corporation,
P.O. Box 1419, Reading, Pennsylvania 19603. Such
requests must be signed by each shareholder, with each
signature guaranteed by a bank, savings bank, or
broker/dealer. Guarantees must be signed by an
authorized signatory and "signature guaranteed" must
appear with the signature. The transfer agent may
request further documentation from corporations,
executors, administrators, trustees, or guardians, and
will accept other suitable verification arrangements
from foreign investors, such as consular verification.
Investors redeeming by a check drawn on the Money
Market Income Portfolio generally will be subject to
the same rules and regulations that the transfer agent
applies to checking accounts, although election of this
privilege creates only a shareholder-transfer agent
relationship with the transfer agent. Because dividends
accrue daily, checks should not be used to close an
account, as a small balance is likely to result.
New shareholders may complete the Telephone
Authorization Section of a New Account Application
which will enable them to redeem uncertificated shares
or make exchange requests by telephone. Forms are
available from the Shareholder Services Department for
existing shareholders. The instructions should be read
carefully before signing, because they authorize the
Fund to act upon a telephone instruction reasonably
believed to be from the shareholder.
The Distributor will not permit a shareholder to
exchange shares into a Portfolio that is then charging
a sales charge without (i) charging such shareholder
the applicable sales charge or (ii) ascertaining that
the shareholder is exempt from sales charges or (iii)
has previously paid a sales charge on the amount being
exchanged. This is to prevent abuses that might occur
by, for example, shareholders investing in the Money
Market Income Portfolio for a short time and then
exchanging into the Quality Income Portfolio.
Shareholders will receive a "credit" for previous sales
charges paid, and will not be charged a sales charge
with respect to shares being exchanged that resulted
from dividend reinvestment. To find out whether a sales
charge will be imposed on an exchange, contact the
Shareholder Services Department.
No sales charge will be charged to persons who are, and
have been for at least 90 days, trustees, directors,
officers or employees of the Fund or the Advisor, to
certain immediate relatives of such persons, or to any
trust, pension, profit sharing, or other benefit plan
for such persons. In addition, no sales charge will
apply to purchases of Fund shares by certain large
pension plans or "institutional investors" meeting
qualifications established from time to time by the
Trustees. These exemptions from sales charges have been
determined by the Trustees to be in the best interest
of the Fund.
The Fund may suspend the right of redemption or
postpone the date of payment for shares during any
period when (i) trading on a national securities
exchange on which securities in which the Fund has
invested are listed is restricted by applicable rules
and regulations of the Securities and Exchange
Commission; (ii) such an exchange is closed for other
than customary weekend and holiday closing; (iii) the
Securities and Exchange Commission has by order
permitted such suspension; or (iv) an emergency exists
as determined by the Securities and Exchange
Commission.
DETERMINATION OF NET ASSET VALUE
Information concerning the calculation of the Fund's
net asset value can be found in the Prospectus in the
section entitled "PURCHASE AND REDEMPTION OF SHARES."
MANAGEMENT OF THE FUND
The names of the Trustees of the Fund and their
principal occupations and affiliations for the past
five years are as follows:
TRUSTEES
Name and Position(s) with Fund
Principal Occupation During Past 5 Years
James E. Jordan* Chairman and Trustee
Chairman, Board of Trustees of Penn Square Mutual Fund
and Scottish Widows International Fund. President,
Chief Investment Officer and Director of Penn Square
Management Corporation. President of William Penn
Company. Director, Leucadia National Corp., and
Mezzanine Capital & Income Trust PLC, a British
investment trust company.
Lee D. Arning, Trustee
Trustee and Retired executive. Director and Treasurer,
The Lighthouse Inc., Vice Chairman of Burdette Tomlin
Memorial Hospital, Cape May Court House, N.J., Formerly
Vice Chairman, Chief Investment Officer and a Director
of USLIFE Corp. Trustee, Penn Square Mutual Fund and
Scottish Widows International Fund.
Gail M. Harrity, Trustee
Chief Operating Officer of the Philadelphia Museum of Art,
1996 to present. Deputy Director for Finance and Administration
of the Solomon R. Guggenheim Museum, 1989 to date. Assistant
Treasurer of the Metropolitan Museum of Art from 1982
to 1989. Trustee, Penn Square Mutual Fund and Scottish
Widows International Fund.
Paul J. Lawler, Vice Chairman and Trustee
Vice President for Finance of Rensselaer Polytechnic
Institute since 1985. Previously, Director of
Investment Planning and Assistant Vice President for
Finance, and Treasurer of Columbia University
(1976-1985). Trustee, Penn Square Mutual Fund and
Scottish Widows International Fund.
Emmett M. Murphy, CFA*, Trustee
General Partner, Threshold Investment LP, 1996.
Partner, Luther King Capital Management Corp. 1981 to
1995. Previously, Investment Consultant, Rodgers, Casey
& Barksdale (1979-1981). Trustee, Penn Square Mutual
Fund and Scottish Widows International Fund.
John D. Tenhula, PhD., Trustee
President and Chief Executive Officer of the Balch
Institute since 1991. Previously, Legal Officer, United
Nations High Commissioner for Refugees. Adjunct
Professor, School of International Affairs, Columbia
University from 1979 to date. Trustee, Penn Square
Mutual Fund.
Ferdinand Thun, Trustee
Formerly Director of Planned Giving for Lehigh
University since 1974. Managing Partner of Thun
Partnership since 1986. Trustee, Penn Square Mutual
Fund.
1996 Trustee Compensation
William Penn William Penn
Interest Income Fund
Name Fund Family*
James E. Jordan $ -0- $ -0-
Lee D. Arning 4,000 12,000
Gail M. Harrity 4,000 12,000
Paul J. Lawler 4,000 12,000
Emmett M. Murphy -0- -0-
John Tenhula 4,000 8,000
Ferdinand Thun 4,000 8,000
*The William Penn family of funds consists of the
following: Scottish Widows International Fund, Penn
Square Mutual Fund, and the William Penn Interest
Income Fund.
INVESTMENT ADVISOR AND SUB-ADVISOR
Penn Square Management Corporation serves as the Fund's
investment advisor (the "Advisor"). The Advisor has
agreed to provide investment advisory services as
described in the Prospectus and set forth in the
advisory agreement between the Fund and the Advisor.
The fees to be paid to the Advisor are set forth in the
Prospectus. If expenses borne by a Portfolio in any
fiscal year exceed the applicable expense limitations
imposed by state securities regulations, the Advisor
has agreed to reimburse a Portfolio for such excess
expenses up to the amount of its advisory fee;
provided, however, that to the extent required by such
state securities regulations, the Advisor has agreed to
effect such reimbursement regardless of the amount of
its advisory fee. Unless otherwise required by law,
such reimbursement would be accrued and paid on the
same basis that the advisory fee is accrued and paid by
a Portfolio.
The advisory agreement provides that the Advisor shall
not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection
with the performance of the advisory agreement, except
a less resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or
a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties or
from reckless disregard by it of its duties and
obligations thereunder.
Miller, Anderson & Sherrerd LLP (the "Sub-Advisor")
serves as an investment advisor for the Portfolios
pursuant to a sub-advisory agreement with the Advisor.
The Sub-Advisor furnishes advice with respect to what
securities should be purchased on a regular basis. The
Advisor will pay the Sub-Advisor fees as set forth in
the Prospectus.
DISTRIBUTOR
Penn Square Management Corporation acts as distributor
of Fund shares (the "Distributor"). Shares are sold on
a continuous basis by the Distributor as agent and the
Distributor has agreed to use its best efforts to
solicit orders for the sale of Fund shares. Copies of
the Prospectus and other sales literature may be
obtained by contacting the Distributor. (See Prospectus
section entitled "Shareholder Services.") The Fund has
a maximum Class A sales charge of 4.75% for all
Portfolios except the Money Market Income Portfolio, as
set forth in the Prospectus. Such sales charges will be
paid to the Distributor, who may in turn pay such sales
charge to dealers as a commission for generating sales.
DISTRIBUTION OF SHARES
Class A Shares: Pursuant to Rule 12b-1 promulgated
pursuant to the Investment Company Act of 1940 ("1940
Act"), the Fund has adopted a Distribution Plan (the
"Plan") which, together with the related Distribution
Agreement between the Fund and the Distributor (the
"Distribution Agreement"), is described in the
Prospectus. Under the Plan, the Distributor may be
reimbursed for expenses at an annual rate not exceeding
.50% of the respective Portfolio's net assets. Such
expenses may include payment to certain broker/dealers
and financial companies ("Service Organizations") that
provide distribution and administrative services to
their clients such as: (i) processing purchase and
redemption orders with the Distributor; (ii) providing
clients with a service that invests the assets of their
accounts in Portfolio shares pursuant to preauthorized
instructions; (iii) processing dividend payments from
the Fund on behalf of clients and assisting clients in
changing dividend options, account designations, and
addresses; (iv) arranging for bank wires; (v) providing
subaccounting services with respect to Portfolio
shares; and (vi) providing distribution services and
any other services as the Fund or the Distributor may
reasonably request.
A report of the amounts paid to the Distributor and
Service Organizations, and the purposes for which such
expenditures were incurred, must be made to the Board
of Trustees for its review at least quarterly. In
addition, the Plan provides that it may not be amended
to increase materially the costs that the Portfolio may
bear for distribution pursuant to the Plan without
shareholder approval and that other material amendments
of the Plan must be approved by a majority of the Board
of Trustees, and by a majority of the Trustees who are
neither "interested persons" (as defined in the 1940
Act) of the Fund nor have any direct or indirect
financial interest in the operation of the Plan or in
any related Distribution Agreement (the "Independent
Trustees"), by vote case in person at a meeting called
for the purpose of considering such amendments. (The
1940 Act requires that the incumbent Independent
Trustees be responsible for the selection and
nomination of persons to serve as Independent
Trustees.) The Plan and the related Distribution
Agreement have been approved, and are subject to annual
approval by, a majority of the Independent Trustees, by
vote cast in person at a meeting called for the purpose
of voting on the Plan. The Plan and the Distribution
Agreement are each terminable at any time by vote of a
majority of the Independent Trustees, or by vote of the
holders of a majority of the shares of a Portfolio, and
each will terminate automatically in the event of its
assignment. The Distribution Agreement is also
terminable by the Distributor.
Class C Shares: The Fund has adopted a Distribution
Plan for Class C shares to compensate the Distributor
for its services and costs in distributing Class C
shares. Under the Plan, the Fund pays the Distributor
an annual 12(b)1 Distribution Fee of 0.75% per year on
Class C shares. The Distributor also receives a Service
Fee of 0.25% per year. Both fees are computed on the
average annual net assets of Class C shares, determined
as of the close of each regular business day. The
distribution Fee allows investors to buy Class C shares
without a front end sales charge while permitting the
Distributor to compensate dealers who sell Class C
shares. The Distribution Fee and Service Fee increase
Class C expenses by 1.00% of average net assets per
year.
The Distributor pays sales commissions of 1.00% of the
purchase price to dealers from its own resources at the
time of the sale. The Distributor retains the
Distribution Fee during the first year shares are
outstanding to recoup the sales commission it pays, the
advances of service fee payments it makes, and its
financing costs. The Distributor plans to pay the
Distribution Fee as an ongoing commission to the dealer
on Class C shares that have been outstanding for a year
or more.
ADDITIONAL INVESTMENT INFORMATION
U.S. Government Securities: U.S. Government securities
are those which are issued by the U.S. Treasury and
backed by the full faith and credit of the U.S.
Government such as U.S. Treasury bills, U.S. Treasury
notes, and U.S. Treasury bonds. Securities issued by
the various agencies and instrumentalities of the U.S.
Government may or may not be backed by the full faith
and credit of the U.S. Government. Securities not
backed by the full faith and credit of the U.S.
Government may be supported by any of the following:
(i) the right of the issuer to borrow from the U.S.
Treasury; (ii) the discretionary authority of the
Treasury to purchase obligations of the agency; or
(iii) only by the credit of the agency or
instrumentality. For securities not backed by the full
faith and credit of the U.S. Government, the investor
must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim
against the U.S. Government itself in the event the
agency or instrumentality does not meets its
commitments.
Municipal Securities: The two principal classifications
of municipal securities are bonds and notes. Municipal
bonds, which are intended to meet longer term capital
needs, can be classified as either "general obligation"
or "revenue" (or "special tax") bonds. General
obligation bonds are secured by the issuer's pledge of
its full faith, credit, and taxing power for the
payment of principal and interest. Revenue or special
tax bonds are payable only from the revenues derived
from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or
other tax, but not from general tax revenues. The
payment of the principal and interest on industrial
development bonds (a form of revenue bond) is dependent
solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations
and the pledge, if any, of real and personal property
so financed as security for such payment.
Zero coupon obligations are purchased at substantial
discounts from their face value which represents
imputed interest if held until maturity.
Municipal notes, which may be either "general
obligation" or "revenue" securities, are intended to
fulfill short-term capital needs and generally have
original maturities not exceeding one year. They
include tax anticipation notes, revenue anticipation
notes, bond anticipation notes, construction loan
notes, and tax-exempt commercial paper. Anticipation
notes are issued in anticipation of the municipality
receiving taxes, bond proceeds, or other revenues;
construction loan notes are issued during the
construction phase of a project.
Mortgage-Backed Securities: Mortgage-backed securities
include pass-through securities, participation
certificates, and collateralized mortgage obligations
that may be issued by GNMA, FNMA, other
quasi-governmental agencies, or private issuers such as
banks. If such a security is purchased at a premium
because its fixed rate of interest exceeds current
levels, the premium is not guaranteed and a decline in
value of the security, especially as a result of
prepayments of the underlying mortgages, may result in
a loss of the premium. As prepayments and scheduled
principal payments on mortgage-backed securities are
received they must be reinvested at then prevailing
rates, which could be lower than the rate on the
original security.
Collateralized Mortgage Obligations: CMOs are
securities which are collateralized by mortgage
pass-through securities. Cash flows from the mortgage
pass-through are allocated to tranches in a
predetermined, specified order. Each tranche has a
"stated maturity"_the latest date by which the tranche
can be completely repaid, assuming no prepayments and
has an "average life"_the average of the time to
receipt of a principal payment weighted by the size of
the principal payment. The average life is typically
used as a proxy for maturity because the debt is
amortized, rather than being paid off entirely at
maturity, as would be the case in a straight debt
instrument.
Credit Analysis: The investment advisor or sub-advisor
will perform its own credit analysis of all securities
to be invested in by the Portfolios, except for U.S.
Government securities, which are presumed to be
riskless. In making its credit analysis, the advisor or
sub-advisor will rely to a significant extent on the
ratings assigned by Moody's and S&P for all rated
securities. While many securities carry identical
investment ratings, there are nevertheless quality
differences among them. Hence, the purpose of credit
analysis is to identify those securities within a
credit rating which represent improving financial
situations and, therefore, represent less risk.
Portfolio Turnover: Only the Money Market Income
Portfolio is expected to have a high portfolio turnover
due to the short maturities of the securities
purchased, although this should not increase costs
because brokerage commissions are not usually charged
on the purchase or sale of money market securities. The
rate of turnover for each of the Portfolios should not
exceed 100%; however, the specific rate will depend
upon market and other conditions, and will not by
itself be a limiting factor if the advisor believes
that Portfolio changes are necessary.
Repurchase Agreements: In order to minimize exposure,
the Fund will only enter into repurchase agreements
with federally insured banks having assets in excess of
$1 billion, and registered securities dealers
acceptable to the Fund's advisor.
Liquid Reserves: Each Portfolio may hold short-term,
interest bearing liquid reserves if the advisor
believes that it is advisable for temporary or
emergency purposes, or to maintain liquidity.
Lending of Securities: Each Portfolio may lend its
investment securities to qualified brokers, dealers,
banks, or other financial institutions for the purpose
of realizing additional income. Loans of securities
will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government
or its agencies. The collateral will equal at least
100% of the current market value of the loaned
securities.
Foreign Investments: The Quality Income Portfolio and
the New York and Pennsylvania Tax-Free Income
Portfolios are permitted to invest in foreign
securities, but such securities may not exceed 15% of
the value of the Portfolio's total net assets.
Futures Contracts, Options on Futures Contracts and
Options: Futures contracts provide for the sale by one
party and purchase by another party of a specified
amount of a specific security, at a specified future
time and price. An option is a legal contract that
gives the holder the right to buy or sell a specified
amount of the underlying security at a fixed or
determinable price upon the exercise of the option. A
call option conveys the right to buy and a put option
conveys the right to sell a specified quantity of the
underlying security.
Interest Rate and Currency Swaps: An interest rate swap
is an agreement to exchange the interest income
generated by one fixed-income instrument for the
interest income generated by another fixed-income
instrument. The payment streams are calculated by
reference to a specified index and agreed upon notional
amount. The term "specified index" includes fixed
interest rates and prices, interest rate indices,
fixed-income indices, stock indices and commodity
indices (as well as amounts derived from arithmetic
operation on these indices). For example, a Portfolio
may agree to swap the income stream generated by a
fixed rate instrument which it already owns for the
income stream generated by a variable rate instrument
owned by another party. The currency swaps in which the
Fund's Portfolios may enter will generally involve an
agreement to pay interest streams calculated by
reference to interest income linked to a specified
index in one currency in exchange for a specified index
in another currency. Such swaps may involve initial
and/or final exchanges that correspond to the agreed
upon notional amount.
The Portfolios will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in
a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving
or paying, as the case may be, only the net amount of
the two payments. A Portfolio's obligations under a
swap agreement will be accrued daily (offset against
any amounts owing to the Portfolio).
Forward Foreign Currency Exchange Contracts: The
Quality Income Portfolio may enter into forward foreign
currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange
rates in the purchase and sale of investment
securities. The Portfolio may not enter into such
contracts for speculative purposes. A forward foreign
currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may
be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at
the time of the contract. These contracts may be bought
or sold to protect the Portfolio to a limited extent
against adverse changes in exchange rates between
foreign currencies and the U.S. dollar. Such contracts,
which protect the value of the Portfolio's investment
securities against a decline in the value of a
currency, do not eliminate fluctuations caused by
changes in the local currency prices of the securities,
but rather, they simply establish an exchange rate at a
future date. Although such contracts tend to minimize
the risk of loss due to a decline in the value of the
hedged currency, likewise they tend to limit potential
gain if the value of such currency increases.
When-Issued Securities: The Portfolios, except the
Money Market Portfolio, may purchase securities on a
"when-issued" basis. In buying "when-issued"
securities, a Portfolio commits to buy securities at a
certain price even though the securities may not be
delivered for up to 90 days. No payment or delivery is
made by a Portfolio in a "when-issued" transaction
until the Portfolio receives payment or delivery from
the other party to the transaction. Although a
Portfolio receives no income from the above described
securities prior to delivery, the market value of such
securities is still subject to change. As a
consequence, it is possible that the market price of
the securities at the time of delivery may be higher or
lower than the purchase price.
YIELD AND TOTAL RETURN CALCULATIONS
The seven day yield in the Money Market Income
Portfolio for the period ending December 31, 1996, was
4.60% on an annualized basis, for an effective yield of
4.71%. The annualized yield is computed by accumulating
dividends paid during the seven day base period,
exclusive of capital changes, for a hypothetical
preexisting account in the Money Market Income
Portfolio having a balance of one share at the
beginning of the period. This total base period return
is multiplied by 365/7 to obtain the annualized yield.
The effective yield is calculated similarly but the
calculation assumes that the income earned by an
investment in the Money Market Income Portfolio is
reinvested.
The standardized thirty day yield for the Pennsylvania
Tax-Free Income Portfolio, Quality Income Portfolio,
New York Tax-Free Income Portfolio, and U.S. Government
Securities Income Portfolio for the period ended December
31, 1996, was 3.62%, 5.50%, 4.58%, and 5.07%, respectively;
Interest used in computing these yields is calculated
by determining the yield to maturity of each obligation
based on the market value of the obligation, including
accrued interest as of the last business day of the
month, or the purchase price plus accrued interest for
obligations purchased during the month. The yield to
maturity is divided by 360 and multiplied by the market
value of the obligation to determine interest income
for each day of the subsequent month. The net
investment income determined during the base period is
divided by the maximum offering price per share on the
last day of the thirty day base period times the
average number of shares outstanding during the base
period. The maturity of an instrument with a call
feature is the next call date on which the obligation
reasonably may be expected to be called. The coupon
rate of interest is used in lieu of the yield to
maturity in the case of a tax-exempt obligation issued
without original issue discount and having a current
market discount.
The capital changes excluded from the above
calculations are realized gains and losses from the
sale of securities and unrealized appreciation and
depreciation.
The Portfolios' quoted yields are not indicative of
future yields. The yields will depend upon factors such
as Portfolio maturity, the Portfolio expenses, and the
types of instruments held by a Portfolio.
The average annual return for the Pennsylvania Tax-Free
Income Portfolio, Quality Income Portfolio, and U.S.
Government Securities Income Portfolio for the year
ended December 31, 1996, was -1.95%, -0.05%, and
- -1.10%; and for the five years ended December 31, 1996
was 5.48%, 6.84%, and 6.50%, respectively. These
returns are based on a standard calculation which is
computed by finding the average annual compounded rates
of return that would equate a hypothetical investment
of $1,000 (subtracting the maximum sales load and
taking into account daily reinvestment) to the ending
redeemable value of the initial investment.
Additional Information Concerning Taxes
The following is a summary of certain additional tax
considerations generally affecting the Fund and its
shareholders which are not described in the Prospectus.
No attempt is made to present a detailed explanation of
the tax The following is a summary of certain
additional tax considerations generally affecting the
Fund and its shareholders which are not described in
the Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Fund
or its shareholders, and the discussions here and in
the Prospectus are not intended as a substitute for
careful tax planning. Investors are urged to consult
with their tax advisors with specific reference to
their own tax situation. Investors are also cautioned
that the discussions here and in the Prospectus are
based on the law and regulations which are in effect on
the respective dates of this Statement of Additional
Information and the Prospectus and that such laws and
regulations may subsequently be changed by legislative
or administrative action.
Interest on indebtedness incurred to purchase or carry
shares in the Fund may be wholly or partially
nondeductible for federal income tax purposes,
depending on an investor's personal tax situation. In
addition, interest on indebtedness incurred to purchase
or carry shares in the Pennsylvania Tax-Free Income
Portfolio will be nondeductible to the extent
attributable to the production of exempt-interest
dividends.
Information as to the tax status of dividends of the
Pennsylvania and New York Tax-Free Income Portfolios
will be provided annually showing, on an average basis,
that portion which is taxable and that portion which is
tax-exempt based on income received during the previous
year. Shareholders who have not been in the
Pennsylvania or New York Tax-Free Income Portfolios for
a full calendar year may have designated as tax-exempt
a percentage of income which is not equivalent to the
actual amount applicable to the period for which they
have held their shares.
Each Portfolio is required by law to withhold 31% of
reportable payments paid to shareholders who have not
certified, on a form supplied by the Portfolio, that
the taxpayer identification number provided is correct
and that the shareholder either is not currently
subject to backup withholding or is exempt from backup
withholding.
Gain or loss realized on the sale, exchange or
redemption of shares in the U.S. Government Securities
Income Portfolio, Money Market Income Portfolio, or the
Quality Income Portfolio (the "Taxable Portfolios") is
subject to the same rules of federal income taxation
that are applicable to equity securities generally,
except that any loss incurred on a taxable disposition
of such shares held for six months or less (other than
through a periodic redemption plan) will be treated as
a long-term capital loss to the extent of any
distributed or allocated undistributed long-term
capital gain during the period the shares were held.
Similarly, any loss on the taxable disposition of
shares in the Pennsylvania or New York Tax-Free Income
Portfolio held for six months or less (other than
through a periodic redemption plan) will be disallowed
to the extent of any exempt interest dividends
received. Applicable Treasury regulations require the
Fund to file an informational return with the Internal
Revenue Service to report each redemption of shares
held by a nonexempt shareholder (except for redemptions
by the Money Market Income Portfolio).
Because substantially all of the net investment income
of the Taxable Portfolios will arise from earned
interest, only a small portion, if any, of the dividend
distributions will be eligible for the 70% dividends
received deduction for corporations. Further, any such
portion which is otherwise eligible for the 70%
dividends received deduction may be reduced or
eliminated as to a particular corporate shareholder
depending on how long the Taxable Portfolios' shares
were held and the extent to which the acquisition of
such shares is deemed financed through indebtedness. In
addition, an amount taken as a dividends received
deduction may result in an upward adjustment in a
corporation's alternative minimum taxable income. An
individual shareholder is no longer entitled to the
$100 dividends received exclusion.
Each Portfolio intends to declare and pay dividends and
capital gains distributions so as to avoid the
imposition of a 4% federal excise tax on undistributed
earnings. To do so, each Portfolio expects to
distribute an amount not less than (i) 98% of its
calendar-year ordinary income, (ii) 98% of its capital
gains net income for the one-year period ending each
October 31 (unless an irrevocable election is made to
use a calendar year), and (iii) 100% of any
undistributed ordinary or capital gain net income from
the applicable prior twelve-month period. Dividends
declared in December with a December record date will
be deemed to have been paid by a Portfolio and received
by its shareholders on the record date, provided that
payment is made before February 1 of the following
year.
The Pennsylvania and New York Tax-Free Income
Portfolios and/or certain of their shareholders may
incur alternative minimum tax ("AMT") liability as a
result of recent legislation. Dividends attributable to
interest on certain "private activity" bonds (issued on
or after August 8, 1986) must now be included in
alternative minimum taxable income ("AMTI") for
purposes of calculating AMT liability. Further,
federally tax-free interest income from all other
obligations will increase the amount of AMTI (by
one-half of the amount of such income) for corporate
AMT purposes. In addition, the "Superfund Act" imposes
a deductible environmental tax of .12% on a
corporation's modified AMTI in excess of $2,000,000.
Exempt-interest dividends paid by the Pennsylvania and
New York Tax-Free Income Portfolios that create AMT
preferences for corporate shareholders will be subject
to such tax.
If, for any taxable year, the Fund does not qualify for
tax treatment afforded regulated investment companies,
all of its taxable income would be subject to federal
taxation at regular corporate rates (without any
deduction for distributions to shareholders), and
interest income earned on state and municipal
obligations by the Pennsylvania and New York Tax-Free
Income Portfolios, although not taxable to the
Portfolio, would be taxable to the shareholders of the
Portfolio when distributed as dividends.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is an open-end, diversified, management
investment company organized as a Pennsylvania common
law trust pursuant to a Declaration of Trust dated
April 14, 1987 (the "Trust"). Pursuant to the Trust,
the Board of Trustees is authorized to issue an
indefinite number of shares of beneficial interest and
to classify or reclassify any unissued shares by
setting or changing in any one or more respects, from
time to time before the issuance thereof, their
respective preferences, conversion or other rights,
voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of
redemption. The Trustees' power to classify or
reclassify any unissued shares includes the power to
classify or reclassify classes of shares and to divide
any class into one or more sub-classes. Accordingly,
the Trustees may, without shareholder approval,
authorize the issuance of shares in investment
portfolios in addition to the present Portfolios of the
Fund, each having its own investment objective and
policies.
As of the date of this Statement, the Trustees have
authorized the issuance of shares of beneficial
interest in the Money Market Income Portfolio, U.S.
Government Securities Income Portfolio, Quality Income
Portfolio, New York Tax-Free Income Portfolio and
Pennsylvania Tax-Free Income Portfolio. Each share in a
Portfolio represents an equal proportionate interest in
the Fund with each other Fund share and is entitled to
such dividends and distributions out of the Fund's
income as are declared at the discretion of the
Trustees. In the event of the liquidation or
dissolution of the Fund, shares of the Portfolio are
entitled to receive any assets belonging to the
Portfolio which are available for distribution.
The 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting
securities of an investment company such as the Fund
shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the
outstanding shares of each Portfolio affected by the
matter. A Portfolio is affected by a matter unless it
is clear that the interests of each Portfolio in the
matter are substantially identical or that the matter
does not affect any interest of the Portfolio. The
approval of an investment advisory agreement or any
change in a fundamental investment policy would be
effectively acted upon with respect to the Portfolio
only if approved by a majority of the outstanding
shares of such Portfolio. Conversely, the ratification
of the appointment of independent public auditors, the
approval of principal underwriting contracts, and the
election of trustees may be effectively acted upon by
shareholders of the Fund voting without regard to
class.
The Fund shares have no preemptive rights and only such
conversion or exchange rights as set forth in the
Prospectus or as the Trustees may grant in their
discretion. When issued for payment as described in the
Prospectus, the Fund shares will be fully paid and
non-assessable. For information concerning possible
restrictions upon the transferability of Fund shares
and redemption provisions with respect to such shares,
see "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION."
Shareholders are entitled to one vote for each share
held, will vote in the aggregate and not by Portfolio
except as otherwise required by the 1940 Act or when
the matter to be voted upon affects only the interests
of the shareholders of a particular Portfolio. As a
Pennsylvania common law trust, the Fund is not required
to, and does not intend to, hold annual shareholder
meetings.
In this Statement of Additional Information and the
Prospectus, any reference to a required majority
shareholder vote of the Fund or of a Portfolio means
the lesser of (a) 67% of the shares of the Fund
(irrespective of class) or of the particular Portfolio
represented at a meeting at which the holders of more
than 50% of the outstanding shares of the Fund or
Portfolio are present in person or by proxy, or (b)
more than 50% of the outstanding shares of the Fund
(irrespective of class) or of the Portfolio.
REPORTS
Shareholders will receive unaudited semi-annual reports
and quarterly updates describing the Fund's investment
operation and annual financial statements audited by
independent auditors.
COUNSEL
The law firm of Stevens & Lee serves as counsel to the
Fund and will pass upon the legality of the shares
offered hereby. Stevens & Lee has offices at 607
Washington Street, Reading, Pennsylvania 19601. Stevens
& Lee also serves as counsel to Penn Square Management
Corporation, the distributor and advisor of the William
Penn family of funds registered investment companies
also managed by Penn Square Management Corporation.
Independent Auditors and Financial Statements
Ernst & Young LLP, 875 Berkshire Blvd., Reading,
Pennsylvania, are the Fund's independent auditors
providing audit and tax return preparation services and
assistance and consultation in connection with the
review of various SEC filings. The financial statements
incorporated by reference herein have been so
incorporated, and the financial highlights included in
the Prospectus have been so included, in reliance upon
the report of Ernst & Young LLP given on the authority
of said firm as experts in accounting and auditing.
The financial statements of the Fund and the report of
the independent auditors are included in the Fund's
Annual Report for the period ended December 31, 1996.
The following financial statements appearing in the
Annual Report are incorporated herein by reference:
Statement of Investments, as of December 31, 1996
Statement of Assets and Liabilities, as of December 31, 1996
Statement of Operations, for the Year Ended December 31, 1996
Statements of Changes in Net Assets, for the Years Ended
December 31, 1996 and December 31, 1995
Notes to Financial Statements, as of December 31, 1996
Appendix
DESCRIPTION OF RATINGS
Bond ratings apply to long-term debt obligations,
generally those with maturities longer than three
years. The following summarizes the highest four
ratings used by Standard & Poor's Corporation for
bonds:
AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA
issues only in small degree.
A - Debt rated A has a strong capacity to pay interest
and repay principal, although it is somewhere more
susceptible to the adverse effects of change in
circumstances and economic conditions than bonds in
higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds
in this category than in higher rated categories.
To provide more detailed indications of credit quality,
the "AA" through "B" ratings may be modified by the
addition of a plus or minus sign to show relative
standing within these major categories.
Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal
in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse
conditions. The rating C is reserved for income bonds
on which no interest is being paid. Bonds rated D are
in default, and payment of principal and/or interest is
in arrears.
The following summarizes the highest four ratings used
by Moody's Investors Service, Inc. for bonds:
Aaa -Bonds that are rated Aaa are judged to be of the
best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered as
medium-grade obligations: i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with
respect to corporate bonds rated Aa and A. The modifier
1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier
2 indicates a midrange ranking; and the modifier 3
indicates that the bond ranks in the lower end of its
generic rating category.
Bonds which are rated Ba are judged to have speculative
elements. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds
in this class. Bonds which are rated B generally lack
characteristics of a desirable investment. Assurance of
interest and principal payments or maintenance of other
terms of the contract over any long period of time may
be small.
Standard & Poor's uses the ratings SP-1, SP-2 and SP-3
for short-term note issues (generally due in three
years or less). SP-1 means the issuer has a strong or
very strong capacity to pay principal and interest
(SP-1 + indicates overwhelming safety); SP-2 signifies
satisfactory capacity. Both SP-1 and SP-2 are
considered high quality.
The following are the two highest ratings used by
Moody's for short-term notes (generally due in three
years or less) and variable rate demand obligations:
MIG-1/VMIG-1_Obligations bearing these designations are
of the best quality. There is present strong protection
by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for
refinancing, or both.
MIG-2 Obligations bearing these designations are of
high quality, with ample margins of protection although
not so large as the preceding group.
Commercial paper (obligations with an original maturity
of one year or less) rated A-1 by Standard & Poor's
indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those
issuers determined to possess overwhelming safety
characteristics are denoted A-1 +. Issuers rated A-2
have a slightly smaller degree of safety than those
rated A-1, but their commercial paper is still
considered to be high quality.
The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Issuers rated Prime-1 (or
related supporting institutions) are considered to have
a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a
strong capacity for repayment of short-term
obligations, such that their commercial paper is also
considered to be high quality.
DESCRIPTION OF RATINGS
Bond ratings apply to long-term debt obligations,
generally those with maturities longer than three
years. The following summarizes the highest four
ratings used by Standard & Poor's Corporation for
bonds:
AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA
issues only in small degree.
A - Debt rated A has a strong capacity to pay interest
and repay principal, although it is somewhere more
susceptible to the adverse effects of change in
circumstances and economic conditions than bonds in
higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds
in this category than in higher rated categories.
To provide more detailed indications of credit quality,
the "AA" through "B" ratings may be modified by the
addition of a plus or minus sign to show relative
standing within these major categories.
Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal
in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse
conditions. The rating C is reserved for income bonds
on which no interest is being paid. Bonds rated D are
in default, and payment of principal and/or interest is
in arrears.
The following summarizes the highest four ratings used
by Moody's Investors Service, Inc. for bonds:
Aaa -Bonds that are rated Aaa are judged to be of the
best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered as
medium-grade obligations: i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with
respect to corporate bonds rated Aa and A. The modifier
1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier
2 indicates a midrange ranking; and the modifier 3
indicates that the bond ranks in the lower end of its
generic rating category.
Bonds which are rated Ba are judged to have speculative
elements. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds
in this class. Bonds which are rated B generally lack
characteristics of a desirable investment. Assurance of
interest and principal payments or maintenance of other
terms of the contract over any long period of time may
be small.
Standard & Poor's uses the ratings SP-1, SP-2 and SP-3
for short-term note issues (generally due in three
years or less). SP-1 means the issuer has a strong or
very strong capacity to pay principal and interest
(SP-1 + indicates overwhelming safety); SP-2 signifies
satisfactory capacity. Both SP-1 and SP-2 are
considered high quality.
The following are the two highest ratings used by
Moody's for short-term notes (generally due in three
years or less) and variable rate demand obligations:
MIG-1/VMIG-1_Obligations bearing these designations are
of the best quality. There is present strong protection
by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for
refinancing, or both.
MIG-2 Obligations bearing these designations are of
high quality, with ample margins of protection although
not so large as the preceding group.
Commercial paper (obligations with an original maturity
of one year or less) rated A-1 by Standard & Poor's
indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those
issuers determined to possess overwhelming safety
characteristics are denoted A-1 +. Issuers rated A-2
have a slightly smaller degree of safety than those
rated A-1, but their commercial paper is still
considered to be high quality.
The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Issuers rated Prime-1 (or
related supporting institutions) are considered to have
a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a
strong capacity for repayment of short-term
obligations, such that their commercial paper is also
considered to be high quality.
Trustees
James E. Jordan, Chairman
Paul J. Lawler, CFA, Vice Chairman
Lee D. Arning
Gail M. Harrity
Emmett M. Murphy, CFA
John D. Tenhula, Ph.D.
Ferdinand Thun
Officers
James E. Jordan, President
Dennis J. Westley, CPA, V.P. & Treasurer
Sandra J. Houck, Secretary
PART C
OTHER INFORMATION
Item 24 Financial Statements and Exhibits
(a) Financial Statements
(1) The Prospectus contains the Condensed
Financial Information as of December
31, 1996 under Financial Highlights.
(2) The following financial statements,
each as of December 31, 1996, are
Incorporated by reference into the
Statement of Additional Information
From the Registrant's 1996 Annual
Report:
Statement of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
(b) Exhibits:
(1) Consent of Independent Accountants
(2) All other exhibits are incorporated
By reference to Registrant's
Form N1-A effective October 1, 1987
And registered under File No. 14609
Item 25 Persons Controlled by or Under Control with Registrant
Inapplicable
Item 26 Number of Holders of Securities
As of February 21, 1997, the Registrant's Portfolios
had the following numbers of shareholders of record
in both classes of shares (class A and class C):
(1) Money Market Income Portfolio-1,522; (2) Quality
Income Portfolio-867; (3) U.S. Government Securities
Income Portfolio-1,121; (4) Pennsylvania Tax-Free
Income Portfolio-2,992; and (5) New York Tax-Free
Income Portfolio-9.
Item 27 Indemnification
Indemnification of Registrant's principal Under-
writer against certain losses is provided in Section
11 of the Distribution Agreement.
The Declaration of Trust provides for indemnification
of Trustees as set forth in Section 13 thereof.
Registrant will comply with Rule 484 under the
Securities Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted to trustees,
officers, and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise
Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnifi-
cation is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by registrant of expenses
incurred or paid by a director, officer or controlling
person of Registrant of expenses incurred or paid by
a director, officer or controlling person of Registrant
in the successful defense of any action, suit or pro-
ceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities
being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28 Business and Other Connections of Investment Advisor
To Registrant's knowledge, none of the directors or
officers of Penn Square Management Corporation,
except those set forth below, is, or has been at any
time during the past two calendar years, engaged in
any other business, profession, vocation or employ-
ment of a substantial nature. Set forth below are
the names and principal businesses of the directors
and certain of the senior executive officers of Penn
Square Management Corporation who are or have been
engaged in any other business, profession, location
or employment of a substantial nature.
Name Position with
Penn Square Management
Corporation
James E. Jordan President and Director
John W. Jordan, II Director
David W. Zalaznick Director
Mr. James Jordan is an executive with, and Messrs.
John Jordan and David Zalaznick are partners of The
Jordan Company, New York, NY. The Jordan Company is
a private investment banking partnership.
Item 29 Principal Underwriter
(a) Penn Square Management Corporation acts as
distributor for and investment advisor to the
William Penn Interest Income Fund and the
Scottish Widows International Fund.
(b) The Directors and executive officers of Penn Square
Management Corporation are as follows:
Name and Principal Positions and Offices Positions and Offices
Business Address with Penn Square with Registrant
Management Corporation
James E. Jordan President & Director Chairman, President
And Trustee
Dennis J. Westley Sr. V.P. Vice President &
Finance & Administration Treasurer
Sandra J. Houck Secretary Secretary
Kevin J. Mailey Sr. V.P. for Marketing None
John W. Jordan II Director None
David W. Zalaznick Director None
The principal business address for each of the above is 2650
Westview Drive, Wyomissing, PA 19610
(C) Inapplicable
Item 30 Location of Accounts and Records
(1) Penn Square Management Corporation, 2650 Westview
Drive, Wyomissing, PA 19610 (records relating to
Its functions as distributor, transfer agent,
dividend paying agent, investment advisor, and
Registrant's Declaration of Trust).
(2) CoreStates Bank, P. O. Box 7618, Philadelphia,
PA 19101 (records relating to its function as
custodian)
Item 31 Management Services
None
Item 32 Undertakings
The Registrant undertakes to furnish to any person to
whom a prospectus is delivered a copy of Registrant's
latest annual report upon request and without charge.
THE WILLIAM PENN FUNDS
WILLIAM PENN INTEREST INCOME FUND PORTFOLIOS
U.S. Government Securities Income
Quality Income
New York Tax-Free Income
Pennsylvania Tax-Free Income
Money Market Income
December 31, 1996
ANNUAL REPORT
William Penn Interest Income Fund
Annual Report 1996
January 14, 1997
Dear Shareholders:
Performance information for the William Penn Interest
Income Fund portfolios for 1996 is shown on page 2 of
this Report. Returns as always are shown on a total rate
of return basis, which incorporates both the interest
earned, or yield, of a fund, as well as any capital
appreciation or depreciation realized during the period,
net of all expenses. As you can see, almost all of the
portfolios significantly outperformed their Lipper peer
fund groups in 1996, as indeed they have generally done
since inception. Also during 1996, both the U.S.
Government Securities Fund and the Quality Income Fund
appeared several times among the "Top 15" funds in the
Wall Street Journal's Mutual Fund Scorecard; the
Government Fund appears there again today.
Compared to the sizeable rates of return from
fixed-income investments in 1995, those of 1996 may seem
paltry, but in fact, they reflect the continuing good
news on inflation - that it remains relatively low and
shows no imminent danger of igniting in 1997. The economy
in general appears to be moving along at a 2-3% growth
rate, which is the desired "sustainable,
non-inflationary" rate. Moreover, the federal deficit
should show another substantial decline in 1997 - the
fifth such decline in a row - and Congress and the
Administration seem committed to achieving a balanced
budget and fixing the structural funding problems of
Medicare and Social Security. Finally, and importantly,
the international environment also remains favorable
toward U.S. bonds. European and Japanese economies are
weak, and consequently, their interest rates are low,
which makes our yields attractive to foreign investors.
All of this would argue for interest rates to remain
stable this year, and possibly decline a bit. There are,
however, concerns that cannot be ignored. At current
rates of inflation, "real" interest rates (long-term
rates less the inflation rate) are moderately attractive
at around 3.50%, but this rate is below its average for
the past 15 years. Furthermore, the U.S. labor market is
tight, which historically would have signaled general
wage increases and consequent inflationary pressures. Our
managers, however, feel that even after the year-end 1996
bond rally, bonds still offer good value. Thus, we begin
the new year with our usual guarded optimism.
With best regards,
Sincerely yours,
James E. Jordan
Chairman
Portfolio Highlights: December 31, 1996
Portfolio
U.S.
GovernmentNew YorkPennsylvaniaMoney
SecuritiesQualityTax-FreeTax-FreeMarket
IncomeIncomeIncomeIncomeIncomeIncome
Total Net
Assets$38,853,499$31,611,283$256,070$131,378,649$18,676,376
Class A:
Shares
Outstanding3,655,9992,961,21925,17911,755,48318,676,376
Net Asset Value Per Share$10.58$10.49$10.17$11.04$1.00
Maximum Offering Price Per
Share$11.11$11.01$10.68$11.59$1.00
(Reduced for purchases of $50,000 or more)
Class C:
Shares Outstanding
15,930 52,266 -0- 149,862 n/a
Net Asset Value & OfferingPrice/Share
$10.56 $10.47 $10.17 $11.03 n/a
Average Portfolio Maturity
8.6 years 8.5 years 8.8 years 9.3years 15 days
Average Portfolio Duration*
5.1 years 4.9 years 5.1 years 5.1years 15 days
One Year Ended 12/31/96
3.83% 4.93% 5.16%(1) 2.94% 4.83%
Lipper Comparative Averages
1.72% 3.19% n/a 3.52% 4.80%
Five Years Ended 12/31/96
43.85% 46.14% n/a 37.08% 20.99%
Lipper Comparative Averages
33.20% 49.12% n/a 40.13% 21.42%
One Year Ended 12/31/96***-1.10%-0.05%n/a-1.95%4.83%
Five Years Ended 12/31/96***6.50%6.84%n/a5.48%3.88%
Five Years Ended 12/31/96**7.54%7.88%n/a6.51%3.88%
Lipper Comparative Averages5.90%8.32%n/a6.98%3.96%
Source of return information: Lipper Analytical
Service
(1) For the three quarters ended 12/31/96.
* Weighted average time to receipt of total return
objective.
** Excludes initial sales charge of 4.75%.
***Adjusted to reflect initial maximum sales charge of
4.75%, except Money Market Portfolio.
Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so
that an investor's shares, when redeemed, may be worth
more or less than their original cost.
This report is for the information of shareholders of
William Penn Interest Income Fund. It must not be
distributed to other than such shareholders unless it has
been preceeded by, or is accompanied by, a Prospectus by
which all offerings of the Fund's shares are made. Class
A offering price includes a maximum sales charge of
4.75%.
Summary of Investments: December 31, 1996
Portfolio
Average
% of NetStandard & Poor's
CategoryAssetsMarket ValueRating
U.S. Government Securities Income Portfolio
Government National Mortgage Association43.4%$
16,867,022Agency
Federal National Mortgage Association21.5%8,362,250Agency
United States Treasury Obligations18.2%7,080,782Treasury
Resolution Trust Corporation9.7%3,767,941Agency
Asset-Backed Securities
5.0% 1,955,454AAA
Federal Home Loan Mortgage Corp.5.0%1,945,364Agency
Small Business Administration and
CMO's2.9%1,079,076Agency
Total Investments105.7%41,057,889
Short-term Investment43.6%16,953,865AAA
Other assets less liabilities -49.3%(19,158,255)
TOTAL NET ASSETS100.0%$ 38,853,499Agency
Quality Income Portfolio
Mortgage-Backed Securities66.2%$ 20,926,311Agency
United States Treasury Obligations22.9%7,232,376Treasury
Corporate Bonds9.4%2,966,024BBB
Foreign Bonds (Yankee)1.2%394,907BB
Total Investments99.7%31,519,618
Short-term Investment34.4%10,860,474AAA
Other assets less liabilities -34.1%(10,768,809)
TOTAL NET ASSETS100.0%$ 31,611,283AA+
New York Tax-Free Income Portfolio
General Obligation Bonds63.3%$ 162,062AA+
Revenue Bonds29.5%75,548AA+
Total Investments92.8%237,610
Short-term Investment5.9%15,127AAA
Other assets less liabilities1.3%3,333
TOTAL NET ASSETS100.0%$ 256,070AA+
Pennsylvania Tax-Free Income Portfolio
General Obligation Bonds41.0%$ 53,831,166AA+
Revenue Bonds38.5%50,578,316AA+
Zero Coupon Debentures19.1%25,043,068AAA
Total Investments98.6%129,452,550
Short-term Tax-Free Investment0.5%744,326AAA
Other assets less liabilities0.9%1,181,773
TOTAL NET ASSETS100.0%$131,378,649AA+
Money Market Income Portfolio
Commercial Paper82.7%$ 15,455,831A-1
Short-term Investment16.3%3,035,234AAA
Total Investments99.0%18,491,065
Other assets less liabilities1.0%185,311
TOTAL NET ASSETS100.0%$ 18,676,376AA+
U.S. Government Securities Income
Portfolio Investments: December 31, 1996
Standard
PrincipalMaturityInterestMarket& Poor's
AmountDateRateValueRating
UNITED STATES TREASURY$ 1,000,00019975.100%$
966,972Treasury
BONDS and STRIP -
18.2%2,000,00019975.150%1,926,044Treasury
2,000,00019975.220%1,917,600Treasury
(1) 1,700,00019997.125%1,746,752Treasury
425,00020208.750%523,414Treasury
7,125,0007,080,782
GOVERNMENT33,0342011-201216.000%37,780Agency
NATIONAL MORTGAGE324,1062011-201215.000%369,890Agency
ASSOCIATION - 43.4%59,598201214.500%66,771Agency
10,820201114.000%12,316Agency
25,504201413.750%26,764Agency
17,516199913.500%18,275Agency
318,4491999-201513.000%348,024Agency
111,7111999-201512.750%120,312Agency
421,3261999-201412.500%460,764Agency
90,0072013-201512.250%96,224Agency
766,5141999-201512.000%867,937Agency
77,9042013-201511.750%88,009Agency
2,058,4741999-202011.500%2,330,042Agency
580201511.250%624Agency
87,9922010-201711.000%98,613Agency
192,4641997-200110.500%206, 390Agency
4,050,00020258.000%4,152,466Agency
7,500,0002022-20267.500%7,565,821Agency
16,145,99916,867,022
FEDERAL HOME LOAN4,171201115.500%4,707Agency
MORTGAGE CORP. - 5.0%8,990201114.750%10,146Agency
139,5402011-201214.500%157,284Agency
562201214.000%632Agency
45,812201113.750%51,439Agency
17,399201313.500%19,512Agency
63,757201413.250%71,406Agency
70,7331999-201513.000%73,349Agency
9,390201312.750%10,486Agency
27,3652000-201212.500%30,509Agency
12,011200012.000%12,496Agency
118,979201111.750%132,997Agency
11,123201711.000%12,436Agency
1,350,00020267.500%1,357,965Agency
1,879,8321,945,364
(1) A portion of this security has been segregated by the
custodian to cover margin or segregation requirements on
open future contracts.
U.S. Government Securities Income
Portfolio Investments: December 31, 1996 (Continued)
Standard
PrincipalMaturityInterestMarket& Poor's
AmountDateRateValueRating
FEDERAL$ 7,801201215.000%$ 8,832Agency
NATIONAL MORTGAGE48,326201214.500%54,595Agency
ASSOCIATION - 17.7%6,573201414.000%7,410Agency
4,471201413.750%5,034Agency
274,962201413.500%309,302Agency
47,6412000-201513.000%53,388Agency
118,2492010-201512.750%132,264Agency
10,370201312.500%11,577Agency
21,4892005-201312.250%23,912Agency
11,4611998-201212.000%12,711Agency
6,236201511.750%6,884Agency
6,375,0002024-20267.000%6,281,915Agency
6,932,5796,907,824
COLLATERALIZED
MORTGAGE OBLIGATIONS - 5.9%
Donaldson Lufkin Jenrette 473,17220037.400%480,743AAA
Morgan Stanley Mortgage Trust 28
8300,00020189.400%312,185AAA
FNMA Tr 90-1185303,726202027.590%462,977Agency
FNMA Tr 92-33S250,000202213.470%271,867Agency
FNMA Tr 91 7J1,065,00020210.000%719,582Agency
2,391,8982,247,354
ASSET - BACKED
SECURITIES - 5.0%
First Merchant Auto 96 C A2300,00020016,150%298,560AAA
CPS Auto GT 96 3 A200,00020026.300%200,031AAA
Preferred Mortgage 96 2 A2325,00020056.320%324,383AAA
First Plus 96 4 A3250,00020096.280%249,975AAA
Delta Funding 96 3 A2300,00020116.525%298,980AAA
First Union 96 2 A2300,00020116.460%299,340AAA
Champion HEL Tr 96 4 A2275,00020116.660%284,185AAA
1,950,0001,955,454
OTHER - 10.4%
SBA359,3012000-20037.625%286,148Agency
Resolution Trust Funding
Corp.3,150,00001/15/218.625%3,767,941Agency
3,509,3014,054,089
SHORT-TERM INVESTMENT - 43.7%
Commercial Paper:
Barclays US Funding1,250,00001/09/975.400%1,248,313
A-1+
John Deere1,250,00001/02/975.420%1,244,166A-1
General Electric Credit
Corp1,250,00001/06/975.310%1,249,058 A-1+
International Business
Machines1,250,00001/06/975.330%1,240,376A-1
Ford Motor Credit Corp1,250,00001/15/975.400%1,243,275A-1
Beneficial1,250,00001/16/975.420%1,241,531A-1
Gannett1,250,00001/17/975.370%1,246,830
A-1+
Xerox1,250,00001/22/975.650%1,245,684A-1
Sony Capital Corp1,250,00001/22/975.520%1,245,783A-1
Panasonic Financial1,250,00001/27/975.550%1,244,842A-1
Daimler Benz1,250,00001/28/975.480%1,244,672A-1
Other:
Corefund Treasury
Reserve3,259,33501/02/974.840%3,259,335AAA
17,009,33516,953,865
TOTAL INVESTMENTS (Cost $56,974,195) - 149.3%58,011,754
Cash and receivables less liabilities - (49.3%)
(19,158,255)
TOTAL NET ASSETS _ 100%$38,853,499
Bond ratings are unaudited.
See notes to financial statements.
Quality Income Portfolio
Investments: December 31, 1996
Standard
PrincipalMORTGAGE-BACKEDMaturityInterestMarket& Poor's
AmountSECURITIES - 66.2%DateRateValueRating
$ 250,000Town & Country Funding Corp.08/15/985.850%$
245,350NR
200,000FNMA TBA January09/09/997.000%189,940Agency
189,269Donaldson Lufkin Jenrette A1
CMO06/18/037.400%192,297AAA
274,304Donaldson Lufkin Jenrette
Mortgage07/15/037.200%280,969AAA
100,000ALPS 94 1 CL A409/15/047.800%102,380AA
198,985ALPS 94 1 CL C209/15/049.350%205,452BBB
150,000American Southwest 1995 C1
A1B11/17/047.400%154,890AAA*
4,966Security Pacific Home Equity
A203/10/068.900%4,985AAA
110,000Merrill Lynch 1996 C2 A204/25/066.820%111,111AAA
32,069Resolution Trust Funding
Corp.03/15/078.000%32,195Agency
9,313Resolution Trust Funding
Corp.05/25/078.000%9,349Agency
197,213Nomura Asset Securities08/13/077.100%200,526AAA
24,121GNMA PL #03501402/15/1011.000%27,188Agency
28,657GNMA PL #03836302/15/1011.000%32,301Agency
28,699GNMA PL #04169107/15/1011.000%32,348Agency
150,000 Cityscape Home Equity Loan 96 2
A504/25/118.100%155,010AAA
13,672GNMA PL #07079607/15/1311.500%15,587Agency
45,166GNMA PL #11949904/15/1511.500%51,357Agency
18,783GNMA PL #12346005/15/1511.500%21,357Agency
176,584FNMA PC 07625106/01/1512.000%201,911Agency
20,598GNMA PL #12994807/15/1511.500%23,422Agency
170,248Scotia Pacific Holding
Company07/20/157.950%170,796BBB
23,752FHLMC GP 27396412/01/1511.500%26,778Agency
49,408GNMA PL #14610701/15/1611.000%55,573Agency
156,864Mobile Energy Services01/01/178.665%163,130BBB-
186,089FHLMC GP 17026011/01/1711.000%208,070Agency
590GNMA PL #26771203/15/1910.500%654Agency
191,157FNMA PC #22181205/01/1911.000%214,493Agency
97,126ALPS 19 C1 B03/15/196.480%97,611A
95,000FNMA TR 89 22 G05/25/1910.000%105,289Agency
8,922GNMA PL #27805306/15/1910.500%9,904Agency
75,000Dillon Reed Structured
Finance08/15/199.350%67,770BB-
26,947GNMA PL #26108408/15/1910.500%29,913Agency
26,776GNMA PL #26121711/15/1910.500%29,757Agency
45,354GNMA PL #28409604/15/2010.500%50,361Agency
3,558GNMA PL #28716908/15/2010.500%3,951Agency
30,652GNMA PL #29333008/15/2010.500%34,036Agency
25,000American Housing Trust CMO09/25/209.515%25,735A
193,296FHLMC GP 55492212/01/2010.500%213,591Agency
44,529GNMA PL #30213201/15/2110.500%49,460Agency
350,000Resolution Trust Funding
Corp.01/15/218.625%418,661Agency
45,000FNMA TR 9203/25/2213.470%48,936Agency
132,539FNMA PC 19057304/01/2210.500%147,208Agency
164,545FNMA PC 30315705/01/2210.000%181,496Agency
200,000FNMA TR 96 34C Principal
Only03/25/235.854%98,514Agency
1,375,000FGLMC TBA JANUARY07/15/237.500%1,383,113Agency
296,303FNMA TR 249 Principal
Only10/25/236.565%189,634Agency
125,000FHLMC 1911 PO11/15/236.000%59,038Agency
110,000FHLMC Ser 1632 Inv Fltr11/15/235.550%87,527Agency
97,589FNMA TR 254 Principal
Only01/01/245.989%67,612Agency
97,619FHLMC GP #C0033703/01/247.000%95,910Agency
218,459FHLMC GP #D5150504/01/247.000%214,636Agency
128,248FNMA 260 Principal Only04/01/246.108%87,254Agency
200,000GE Capital Mortgage Co. 94-27
607/25/246.500%176,200AAA
121,317GE Capital TR 94-24 A407/25/247.000%112,918AAA
150,000Capstead Securities IV
94-6A09/25/247.000%139,254AAA
150,000Chase Commercial CMO09/25/247.000%149,175AAA
341,907FHLMC GP #G00576 12/01/247.000%335,924Agency
125,000GNMA TBA January06/15/2510.000%137,969Agency
150,000Advanta Mtge Loan Trust Ser 96-2
A511/25/258.080%154,890AAA
148,825Independent National Mortgage
Corp.11/25/257.500%146,399AAA
68,977Resolution Trust Funding
Corp.01/25/268.650%70,653Agency
148,766General Electric Capital Mortgage
Sec.02/25/267.000%141,994AAA
2,600,000GNMA TBA JANUARY03/15/267.500%2,621,060Agency
175,000Merrill Lynch 1996 C1 A303/25/267.420%180,985AAA
235,220Rural Housing Tr 1987 CMO04/01/263.330%219,696A-
175,000BSMSI 96-9 AI 1106/15/268.000%179,428AAA
950,000FNMA TBA JANUARY06/15/267.000%934,230Agency
150,000RAST 96 A11 A906/25/267.750%151,620AAA
150,000Residential Accredit Loan 96 -
QS708/25/267.900%152,283AAA
125,000ASC 96 D310/13/267.400%129,225AAA
149,626LB Commercial Conduit Mortgage
Trust10/25/267.416%153,950AAA*
125,000ASC 96 MD6 A 1C11/13/267.040%125,288AAA
3,825,000FHLMC GOLD TBA
JANUARY11/15/267.500%3,847,568Agency
1,850,000FNMA TBA JANUARY11/15/267.000%1,819,290Agency
934,249GNMA TBA JANUARY11/20/266.000%940,088Agency
150,000Residential Accredit Loan 96
QS711/25/268.000%153,795AAA
681,750GNMA TBA JANUARY12/20/266.000%686,224Agency
100,000MIDL 96 C2 A201/25/277.233%101,500AAA*
38,380Ryland Mortgage CMO III 903/29/308.366%38,369A-
Total Mortgage Backed Securities20,926,311
*Moody's bond rating. Standard & Poor's not available.
Quality Income Portfolio
Investments: December 31, 1996 (Continued)
Standard
PrincipalMaturityInterestMarket& Poor's
AmountCORPORATE BONDS - 9.4%DateRateValueRating
$ 225,000Wells Fargo MTN01/28/975.875%$ 225,022A-
225,000Caterpillar Financial MTN06/20/976.150%225,278A
99,000Blue Bell Funding05/01/9911.850%100,733B+
195,000Comcast Cellular B03/05/007.095%141,375BB-
105,000Federated Department Stores,
Inc.10/15/028.125%107,657BB-
100,000Owens Illinois Corp.12/01/0311.000%111,750BB
231,000Southland Corporation12/15/035.000%192,308BB+
90,000RJR Nabisco Inc.04/15/048.750%91,261BBB-
115,000Rogers Cable Systems LTD03/15/0510.000%123,338BB+
150,000Comcast Corporation05/15/059.375%156,375BB-
150,000Lenfest Communications11/01/058.375%145,688BB+
175,000MFS Communications Inc.01/15/068.414%129,719B
150,000Philip Morris Company02/01/066.375%141,815A
105,000National Power Corporation12/15/067.875%105,168BB
135,000Digital Equipment Corp.11/01/128.625%132,263BB+
120,000Republic of Columbia02/15/168.700%119,649BBB-
150,000Dillon Reed Structured
Finance08/15/187.430%113,340BB-
100,000Rhone-Poulenc Rorer Inc.01/05/218.620%108,560BBB+
75,000Tele-Communications06/15/229.875%79,712BBB-
205,000Paramount Communications08/01/228.250%192,795BB+
230,000Tele-Communications01/15/239.250%222,218BBB-
Total Corporate Bonds 2,966,024
Quality Income Portfolio
Investments: December 31, 1996 (Continued)
Standard
PrincipalU.S. TREASURYMaturityInterestMarket& Poor's
AmountOBLIGATIONS - 22.9%DateRateValueRating
$ 1,750,000U.S. Treasury Note04/15/997.000%$
1,789,377Treasury
2,450,000U.S. Treasury Note
(1)09/30/997.125%2,517,377Treasury
1,025,000U.S. Treasury
Note02/15/057.500%1,096,751Treasury
1,485,000U.S. Treasury Bond
08/15/208.750%1,828,871Treasury
Total U.S. Treasury Obligations7,232,376
FOREIGN BONDS (Yankee) - 1.2%
250,000United Mexican States12/31/196.250%183,438BB
335,000Argentina Par Bonds03/31/235.083%211,469BB-
Total Foreign (Yankee)394,907
SHORT-TERM INVESTMENT - 34.4%
Commercial Paper:
1,000,000John Deere Credit Corp.01/02/975.420%995,333A-1
1,000,000Prudential Funding01/06/975.320%993,793A-1+
1,000,000Xerox Credit Corp.01/07/975.370%995,839A-1
1,000,000International Business
Machines01/09/975.330%993,338A-1
1,000,000General Electric Credit
Corp.01/13/975.400%994,000A-1+
1,000,000Gannett Corp.01/14/975.370%994,799A-1+
1,000,000Ford Motor Credit Corp.01/15/975.400%994,620A-1
1,000,000Weyerhaeuser Mortgage
Company01/16/975.380%997,609A-1
1,000,000Daimler Benz Corporation01/28/975.480%995,737A-1
1,000,000Beneficial Corp.12/05/975.430%994,569A-1
Other:
910,839CoreFund Treasury Reserve01/02/974.840%910,837AAA
Total Short-Term Investments (at cost)10,860,474
TOTAL INVESTMENTS (Cost $42,126,906) - 134.1% 42,380,092
Cash and receivables, less liabilities - (34.1%)
(10,768,809)
TOTAL NET ASSETS_100%$31,611,283
(1) A portion of this security has been segregated by the
custodian to cover segregation requirements on
open futures contracts.
Bond ratings are unaudited.
See notes to financial statements.
New York Tax-Free Income
Portfolio Investments: December 31, 1996
Standard
PrincipalCallMaturityInterestMarket& Poor's
Amount REVENUE BONDS - 29.5% (Insuring
Agent)DateDateRateValueRating
$ 5,000United Nations Development
CorporationN/A07/01/025.700%$ 5,245A*
10,000Metropolitan Transportation NY Commut
(FGIC)N/A07/01/034.875%10,184AAA
10,000New York State Project Finance
AgencyN/A11/01/034.600%10,005AAA
10,000New York State Environmental
PCRN/A12/15/034.200%9,782AAA
10,000New York State Power
Authority01/01/0301/01/044.700%10,024AA-
10,000Suffolk County New YorkN/A02/01/044.700%10,006AAA
5,000New York State DormitoryN/A07/01/044.900%5,072AAA
5,000New York State Thruway Authority
(MBIA)N/A04/01/055.100%5,104AAA
10,000New York State UDC
(MBIA)04/01/0604/01/075.125%10,126AAA
Total Revenue Bonds75,548
GENERAL OBLIGATION BONDS - 63.3% (Insuring Agent)
5,000New York City Municipal Assistance
Corp.N/A07/01/024.700%5,056A+
10,000New York CityN/A08/15/025.700%10,319BBB+
10,000Cattaraugus CountyN/A06/01/045.200%10,360AAA
10,000Marathon School District
(FGIC)N/A06/15/045.250%10,393AAA
10,000Cobleskill School District
(FGIC)N/A06/15/045.100%10,300AAA
10,000Long Beach School
DistrictN/A06/01/065.300%10,344AAA
10,000Miller PlaceN/A10/15/065.300%10,394AAA
10,000Brookhaven NY GO (FGIC)N/A11/15/025.100%10,217AAA
10,000Lancaster Town (FSA)N/A06/01/075.300%10,323AAA
10,000Hamburg NY (FGIC) CSDN/A06/01/075.300%10,348AAA
10,000Mamaroneck TownshipN/A06/15/075.000%10,138AAA*
10,000Kenmore (MBIA)N/A10/15/076.350%11,159AAA
10,000Westchester CountyN/A05/01/086.600%11,324AAA
10,000W Islip School District
(AMBAC)N/A07/15/085.700%10,536AAA
10,000Nassau County NY Gen Obligation
(FGIC)N/A05/01/095.000%9,855AAA
10,000Cohoes New York (MBIA)N/A06/01/126.500%10,996AAA
Total General Obligation Bonds162,062
OTHER - 5.9%
15,127Dreyfus New York Municipal Cash
Management3.80%01/02/9715,127
Total Other15,127
TOTAL INVESTMENTS (Cost $248,492) - 98.7%252,737
Cash and receivables, less liabilities - 1.3%3,333
TOTAL NET ASSETS - 100%$ 256,070
Bond ratings are unaudited.
*Moody's bond rating. Standard & Poor's rating not
available.
See notes to financial statements.
Pennsylvania Tax-Free Income
Portfolio Investments: December 31, 1996
Standard
PrincipalCallMaturityInterestMarket& Poor's
Amount REVENUE BONDS - 38.5% (Insuring
Agent)DateDateRateValueRating
$ 750,000Northampton County PA Higher
EducationN/A09/01/976.400%$ 762,170A+
245,000Philadelphia Justice Lease
(MBIA)N/A11/15/976.250%250,407AAA
900,000Wyoming Valley Sanitation
AuthorityN/A11/15/973.500%898,821AAA
500,000Philadelphia School District
(AMBAC)N/A07/01/996.700%529,495AAA
120,000Scranton - Lackawanna Health & Welfare
(MBIA)07/01/9807/01/997.250%126,550AAA
1,000,000Philadelphia Water & Sewer
AuthorityN/A08/01/997.400%1,067,090BBB
1,000,000University of Pittsburgh
(MBIA)N/A04/01/006.400%1,062,920AAA
500,000City of Philadelphia Gas Works
N/A06/15/007.400%540,925BBB
680,000Washington County-Shadyside Hosp.
(AMBAC)06/15/0012/15/007.000%747,408AAA
500,000Pennsylvania Industrial Development
AuthorityN/A01/01/016.800%547,605A-
1,000,000Manheim Central School District
(FGIC)N/A03/01/016.400%1,073,740AAA
745,000Cocalico School District
(MBIA)N/A03/01/016.400%802,022AAA
500,000Schuylkill County Redevelopment Authority
(ETM)N/A06/01/016.650%543,645AAA
750,000PA State Higher Education Authority
(MBIA)06/15/0006/15/016.800%808,095AAA
305,000Westmoreland County Municipal Authority
(MBIA)07/01/0007/01/016.800%334,161AAA
500,000Seneca Valley School District
(MBIA)07/01/9907/01/016.250%522,275AAA
1,500,000City of Philadelphia Gas
WorksN/A07/01/015.800%1,550,880BBB
750,000Harrisburg Water Authority
(FGIC)N/A07/15/016.650%814,238AAA
390,000Philadelphia Hospital Authority - St. Agnes
Med.N/A08/15/016.750%425,549AA*
1,000,000Pittsburgh Water & Sewer Authority
(FGIC)N/A09/01/016.500%1,085,450AAA
500,000Erie Prison (MBIA)N/A11/01/016.450%545,290AAA
500,000Pennsylvania Public School Auth
(MBIA)N/A04/01/026.500%546,500AAA
750,000Pennsylvania Intergovernmental Co-op
AuthorityN/A06/15/026.000%799,020AAA
200,000Delaware River Joint Toll
Authority07/01/9807/01/027.400%213,544A*
175,000Harrisburg Water
Authority07/15/0107/15/026.800%191,655AAA
400,000Berks County PA Municipal
Authority09/01/9709/01/026.300%406,736AAA
710,000Hatboro School
District09/01/9909/01/026.650%746,622AA-
1,000,000PA State Turnpike Commission
(MBIA)N/A12/01/025.450%1,043,550A
2,850,000Washington County - West Penn Power
Co.03/01/0203/01/034.950%2,814,090A
150,000Philadelphia Municipal Authority
(FGIC)04/01/9804/01/037.500%159,162AAA
590,000Allegheny County Sanitary Authority
(FGIC)06/01/9912/01/037.250%630,775AAA
370,000McKean Industrial Development
Authority04/01/0204/01/046.875%372,461BB-
840,000Montgomery County Hospital
(AMBAC)N/A06/01/044.500%815,724AAA
500,000PennsylvaniaConvention Center
(FGIC)N/A09/01/046.250%525,070BBB-
1,000,000University of
Pittsburgh06/01/9706/01/058.375%1,038,880A
850,000PA Intergovernmental Co-op Authority
(FGIC)N/A06/15/057.000%975,503AAA
1,500,000Philadelphia Waste
(FGIC)N/A06/15/055.200%1,475,820AAA
425,000Delaware County Industrial Dev
Authority12/01/0312/01/057.900%444,673A+
500,000University of Pennsylvania Health
ServicesN/A01/01/066.000%537,760AA
500,000Northern Cambria School District
(AMBAC)01/15/0001/15/077.100%538,585AAA
450,000Pennsylvania Housing Finance
Agency10/01/9710/01/077.900%463,046AA+
705,000Bucks County Water & Sewer Authority
(FGIC)N/A02/01/085.500%728,618AAA*
325,000Allegheny County Hospital Authority
(MBIA)N/A03/01/087.600%344,347AAA
1,000,000Philadelphia Hospital
Authority07/01/0507/01/0810.875%1,308,070AAA*
250,000Philadelphia Hospital Authority
(AMBAC)08/15/0008/15/087.750%278,095AAA
3,465,000Allegheny County Hospital Authority
(Escrow)N/A07/01/096.625%3,879,206AAA
280,000Pittsburgh Stadium Authority
(Escrow)N/A04/01/116.500%293,524AAA
2,500,000Grandview SaversN/A07/03/123.700%2,500,000AAA
1,000,000West View Municipal Special Obligation
(ETM)N/A11/15/149.500%1,451,370AAA
1,000,000PA State Turnpike Commission
(MBIA)06/01/1106/01/156.000%1,029,390AAA
1,000,000Harrisburg Water Authority
(FGIC)07/15/0107/15/157.000%1,103,300AAA
1,000,000Pennsylvania Convention Center
(FGIC)N/A09/01/166.700%1,136,500AAA
2,550,000Philadelphia Municipal
Authority07/15/9707/15/177.875%2,656,004AAA
400,000Washington County (ETM)N/A12/15/187.875%489,480AAA
2,200,000York City SaversN/A07/01/213.540%2,200,000AAA
400,000York City SaversN/A07/01/213.900%400,000AAA
1,000,000Pennsylvania Housing Finance
Agency10/01/0610/01/275.400%1,002,500AA+
Total Revenue Bonds50,578,316
*Moody's bond rating. Standard & Poor's rating not
available.
Pennsylvania Tax-Free Income
Portfolio Investments: December 31, 1996 (Continued)
Standard
PrincipalGENERAL OBLIGATION BONDS - 41.0%
CallMaturityInterestMarket& Poor's
Amount(Insuring Agent)DateDateRateValueRating
$ 690,000Allegheny County GON/A02/15/977.300%$
693,028AA
2,000,000State of PennsylvaniaN/A05/01/974.100%
2,003,200AA-
480,000Penn Manor School District (FGIC)N/A06/01/973.650%
479,899AAA
2,500,000PA Intergovernmental Co-op
AuthorityN/A06/15/974.000%2,504,850AAA
500,000Pennsylvania State University
(ETM)N/A07/01/996.300% 524,555AA-
500,000Allegheny County (MBIA)N/A04/01/006.800%537,650AAA
500,000State of
Pennsylvania11/01/9911/01/016.875%542,360AAA
500,000Allentown School District
(AMBAC)N/A11/01/016.500%540,940AAA
1,035,000Chester County08/01/0112/15/016.400%1,117,800AA*
500,000Pennsylvania State University-Ser
1993AN/A03/01/024.700%503,845AA-
1,000,000Schuylkill County
(FGIC)06/01/0106/01/026.750%1,107,300AAA
1,170,000City of Bethlehem
(AMBAC)N/A06/01/026.150%1,262,418AAA
250,000Pennsylvania State
University07/01/9907/01/026.750%269,550A1*
1,505,000Pennsylvania State University-Ser
1992AN/A08/15/025.200%1,558,247AA-
1,105,000Cornell School
DistrictN/A09/01/026.000%1,172,836A
500,000City of Bethlehem
(AMBAC)04/15/0109/01/026.750%544,205AAA
460,000Pennsylvania State University-Ser
1993AN/A03/01/034.800%464,126AA-
955,000Johnstown School District Pre
8705/01/9705/01/037.250%965,992AAA
800,000City of PhiladelphiaN/A05/15/035.125%818,712AAA
1,000,000PA Certificates of Participation
(AMBAC)N/A07/01/035.000%1,014,400AAA
1,300,000Philadelphia School District
(MBIA)N/A07/01/035.200%1,340,443AAA
1,860,000City of Philadelphia
(FGIC)N/A11/15/035.400%1,936,706AAA
2,000,000Hempfield Area School
DistrictN/A10/15/044.600%1,981,800AAA
300,000City of Philadelphia
(FGIC)N/A11/15/046.250%329,454AAA
325,000Philadelphia HospitalN/A07/01/056.150%331,458BBB+
1,700,000State of Pennsylvania
(FGIC)N/A05/15/065.375%1,754,213AAA
1,375,000Philadelphia Hospital
(MBIA)N/A07/01/065.000%1,362,708AAA
80,000Ringgold School District
(MBIA)08/01/0108/01/067.200%87,502AAA
2,160,000chartiers Valley School District
(Escrow)N/A03/01/076.150%2,329,106AAA
1,250,000North Penn School District
(Escrow)N/A03/01/076.200%1,323,888AAA*
1,575,000State ofPennsylvania
N/A07/01/076.000%1,697,110AAA
1,000,000Westmoreland County Special Oblig
(ETM)07/01/0207/01/072.000%742,230AAA
2,245,000Shaler School District
(ETM)N/A04/15/086.250%2,323,822AAA
3,500,000Reading Hospital
(MBIA)N/A10/01/085.500%3,551,135AAA
1,750,000PA Housing Finance
Authority04/01/0610/01/085.350%1,779,453AA+
500,000Allegheny County
(MBIA)04/01/0004/01/097.300%530,815AAA
1,000,000Westmoreland County Special
Oblig.(ETM)N/A07/01/109.125%1,210,820AAA
2,500,000Philadelphia Hospital
SaversN/A03/06/123.587%2,500,000AAA
580,000Pennsylvania Housing Financial
Agency04/01/0610/01/125.550%559,306AA+
1,700,000Pennsylvania State Univ
(Prerefunded)07/01/0107/01/167.000%1,902,181A*
1,000,000PA Housing Finance
Authority04/01/0610/01/165.375%1,013,410AA+
905,000Philadelphia Municipal
Auth-Prerefunded04/01/0004/01/187.800%998,296AAA
95,000Philadelphia Municipal
Auth-Prerefunded04/01/9804/01/187.800%101,147AAA
1,000,000PA Housing Finance
Authority04/01/0604/01/205.650%1,018,250AA+
2,500,000Pennsylvania Housing Finance Auth
Saver10/01/0110/01/234.160%2,500,000AA+
Total General Obligation Bonds53,831,166
*Moody's bond rating. Standard & Poor's rating not
available.
Pennsylvania Tax-Free Income
Portfolio Investments: December 31, 1996 (Continued)
Standard
PrincipalZERO COUPON
DEBENTURESCallMaturityInterestMarket& Poor's
AmountAND OTHER - 19.1% (Insuring
Agent)DateDateRateValueRating
$1,000,000City of Philadelphia Gas
WorksN/A01/01/014.600%$ 833,670AAA
800,000Mill Creek Township School District
(FGIC)N/A08/15/024.890%609,712AAA
400,000North Hills School
DistrictN/A07/15/044.940%276,876AAA
490,000Penn Hills (AMBAC)N/A06/01/065.290%299,684AAA
650,000Philadelphia Water & Sewer Authority
(MBIA)N/A10/01/065.450%384,794AAA
500,000Penn Hills (AMBAC)N/A12/01/065.290%297,920AAA
560,000Penn Hills (AMBAC)N/A06/01/075.390%321,793AAA
1,000,000Reading School District
(MBIA)N/A07/15/075.290%576,800AAA
500,000Reading School District
(MBIA)N/A07/15/085.540%266,145AAA
1,000,000Philadelphia Water & Sewer Authority
(MBIA)N/A10/01/085.500%528,600AAA
1,115,000Reading School District
(MBIA)N/A03/01/105.710%531,298AAA
100,000Canon School DistrictN/A03/01/105.710%47,650AAA
1,465,000Penn Hills (AMBAC)N/A12/01/105.710%669,212AAA
445,000Montour School DistrictN/A01/01/115.760%200,953AAA
500,000Northampton County - City of
EastonN/A12/01/115.760%214,335AAA
700,000Northampton County - City of
EastonN/A06/01/125.810%289,492AAA
2,500,000Westmoreland County Special Obligation
(ETM)N/A08/15/125.800%1,023,350AAA
1,080,000Northeastern York County School
DistrictN/A09/01/125.810%440,294AAA
685,000Aliquippa School DistrictN/A06/01/136.000%259,540A
2,650,000Penn Hills (AMBAC)N/A06/01/136.510%925,751NR
945,000Penn Hills (AMBAC)N/A12/01/136.510%319,722NR
585,000Aliquippa School DistrictN/A06/01/146.020%208,219A
495,000Shenandoah Valley School
DistrictN/A08/01/146.020%174,453A
1,220,000Steel Valley School
DistrictN/A11/01/146.110%417,094A
1,260,000Butler School
DistrictN/A12/01/145.910%443,785AAA
555,000Shenandoah Valley School
DistrictN/A08/01/156.020%184,338A
750,000Valley View School District
(FGIC)N/A11/15/155.960%247,575AAA
590,000Shenandoah Valley School
DistrictN/A08/01/166.020%184,676A
1,000,000McKeesport School District
FSAN/A10/01/165.960%313,520AAA
750,000Valley View School District
(FGIC)N/A11/15/165.960%233,453AAA
3,800,000Exeter School District
(FGIC)N/A05/15/175.960%1,148,626AAA
1,200,000McKeesport School District
(FSA)N/A10/01/175.960%354,756AAA
1,500,000Valley View School District
(FGIC)N/A11/15/175.960%440,280AAA
150,000Center Township Sewer Auth Ser A
(MBIA)N/A04/15/185.930%43,232AAA
3,800,000Exeter School District
(FGIC)N/A05/15/185.960%1,083,114AAA
500,000Montour School DistrictN/A07/01/185.960%145,665AAA
2,210,000Elizabeth School District
(MBIA)N/A09/01/185.740%648,458AAA
1,440,000McKeesport School District
(FSA)N/A10/01/185.960%401,429AAA
920,000Dauphin (MBIA)N/A10/01/185.930%258,097AAA
1,500,000Valley View School District
(FGIC)N/A11/15/185.960%415,170AAA
3,800,000Exeter School District
(FGIC)N/A05/15/195.960%1,021,326AAA
2,210,000Elizabeth School District
(MBIA)N/A09/01/195.760%610,093AAA
2,000,000McKeesport School District
(FSA)N/A10/01/195.960%525,740AAA
1,500,000Valley View School District
(FGIC)N/A11/15/195.960%391,485AAA
2,210,000Elizabeth School District
(MBIA)N/A09/01/205.810%569,804AAA
1,000,000McKeesport School District
(FSA)N/A10/01/206.010%245,040AAA
3,000,000Berks CountyN/A11/15/205.960%738,300AAA
2,210,000Elizabeth School District
(MBIA)N/A09/01/215.760%544,588AAA
1,010,000Mars School District
(FGIC)N/A09/01/225.960%237,239AAA
1,375,000McKeesport School District
(FSA)N/A10/01/216.010%317,556AAA
435,000Mars School District
(FGIC)N/A09/01/225.960%96,348AAA
2,210,000Elizabeth School District
(MBIA)N/A09/01/225.760%514,510AAA
2,210,000Elizabeth School District
(MBIA)N/A09/01/235,760%486,112AAA
2,210,000Mars School District
(FGIC)N/A09/01/235.960%461,581AAA
2,170,000Elizabeth School District
(MBIA)N/A09/01/245.810%444,937AAA
2,210,000Mars School District
(FGIC)N/A09/01/245.960%435,237AAA
2,210,000Mars School District
(FGIC)N/A09/01/255.960%410,419AAA
1,880,000Mars School District
(FGIC)N/A09/01/265.960%329,222AAA
Total Zero Coupon Debentures25,043,068
SHORT-TERM INVESTMENT _ .5 %
744,326CoreStates Short-Term Tax Exempt
Fund07/01/963.270%744,326AAA
Total Short-Term Investment744,326
TOTAL INVESTMENTS (Cost $126,686,748)- 99.1%130,196,876
Cash and receivables, less liabilities - .9%1,181,773
TOTAL NET ASSETS_100%$131,378,649
Bond ratings are unaudited.
See notes to financial statements. NR not rated.
Money Market Income Portfolio
Investments: December 31, 1996
Standard
PrincipalMaturityInterestMarket& Poor's
AmountCOMMERCIAL PAPER - 82.7%DateRateValueRating
$ 500,000American General Finance Corp.01/06/975.31%$
499,558A-1+
500,000JP Morgan & Co.01/06/975.37%499,552 A-1+
500,000Coca Cola Co.01/07/975.45%499,622A-1+
500,000Gannett Corp.01/07/975.35%499,480A-1+
500,000Raytheon Corp.01/07/975.29%499,486 A-1+
500,000Cargill Inc.01/08/975.38%499,402A-1+
500,000General Electric Credit
Corp.01/08/975.31%499,410A-1+
500,000Prudential Funding01/08/975.37%499,403A-1+
500,000American Express Credit
Corp.01/09/975.32%499,335A-1
500,000Norwest Financial Corp.01/09/975.32%499,409A-1+
500,000Barclays US Funding01/10/975.39%499,251 A-1+
500,000John Deere Credit Corp.01/10/975.37%499,254 A-1
500,000Ford Motor Credit Corp.01/13/975.31%499,041A-1
500,000Household Financial01/13/975.32%497,500A-1
500,000Weyerhaeuser Mtg.01/14/975.38%498,954 A-1+
500,000Pitney Bowes Corp.01/15/975.36%498,883 A-1+
500,000CIT Group Holdings01/16/975.37%497,500A-1
500,000Motorola Credit Corp.01/16/975.35%498,737A-1+
500,000Monsanto Co.01/17/975.38%498,730A-1+
500,000Walt Disney Corp.01/21/975.35%498,440A-1+
500,000MetLife Funding 01/21/975.37%498,359A-1+
500,000Xerox Corp. 01/22/975.35%498,291A-1
500,000HJ Heinz Co.01/24/975.33%498,223A-1
500,000Panasonic Finance01/24/975.58%498,295A-1+
500,000US West01/24/975.38%498,207A-1+
500,000Daimler Benz01/29/975.53%497,926A-1+
500,000IBM Credit Corp.01/30/975.38%497,758A-1
500,000Commerz Banc01/31/975.50%497,632A-1+
500,000DuPont Corp.02/04/975.35%497,399A-1+
500,000Bellsouth Corp.02/13/975.50%496,639A-1+
500,000Case Equipment Corp.02/20/975.65%496,155A-
Total Commercial Paper15,455,831
OTHER - 16.3%
3,035,234CoreFund Treasury
Reserve01/02/974.840%3,035,234AAA
Total Other3,035,234
TOTAL INVESTMENTS (Cost $18,491,065) - 99.0%18,491,065
Cash and receivables, less liabilities - 1.0%185,311
TOTAL NET ASSETS_100%$18,676,376
Bond ratings are unaudited.
See notes to financial statements.
Statements of Assets and Liabilities
December 31, 1996
Portfolio
U.S.
GovernmentNew YorkPennsylvaniaMoney
SecuritiesQualityTax-FreeTax-FreeMarket
IncomeIncomeIncomeIncomeIncome
Assets
Investments at cost$56,974,195
$42,126,906$248,492$126,686,748$18,491,065
Investments at market
value$58,011,754$42,380,092$252,737$130,196,876$18,491,
065
Cash172,400
Accrued interest333,776332,8743,4381,717,44114,538
Receivable for fund shares sold29,8171,410,10512,530
Total
Assets58,375,34744,123,071256,175131,926,84718,678,003
Liabilities
Investments purchased19,407,75012,409,32893,293
Accrued expenses114,098102,460105454,9051,627
Total Liabilities19,521,84812,511,788105548,1981,627
Net
Assets$38,853,499$31,611,283$256,070$131,378,649$18,676
,376
Class A:
Shares
Outstanding3,655,9992,961,21925,17911,755,48318,676,376
Net Asset Value Per Share$10.58$10.49$10.17$11.04$1.00
Offering Price Per Share$11.11$11.01$10.68$11.59$1.00
Class C:
Shares Outstanding15,93052,266-0-149,862n/a
Net Asset Value and
Offering Price Per Share$10.56$10.47$10.17$11.03n/a
Net Assets Consists Of:
Capital paid-in (a)
Class
A$38,239,325$31,511,051$251,825$126,271,472$18,676,376
Class C168,832545,176-0-1,658,481-0-
38,408,15732,056,227251,825127,929,95318,676,376
Undistributed net realized
(loss) from
investments(585,852)(740,390)-0-(61,432)-0-
Net unrealized appreciation
on investments1,031,194295,4464,2453,510,128-0-
$38,853,499$31,611,283$256,070$131,378,649$18,676,376
(a) At December 31, 1996, there were an unlimited number
of shares of beneficial interest of $0.01 par value
authorized.
See notes to financial statements.
Statements of Operations
Year ended December 31, 1996
Portfolio
U.S.
GovernmentNew YorkPennsylvaniaMoney
SecuritiesQualityTax-FreeTax-FreeMarket
IncomeIncome Income*IncomeIncome
Investment Income
Interest$ 2,921,775$ 2,001,368$ 7,373$ 7,867,257$
843,122
Expenses
Advisor fees280,365200,442958833,85878,420
Custodian fees56,02021,97828472,6138,901
Distribution and service fees56,64240,576552173,70841,102
Class A86,13646,064112254,423-
Class C8633,932-10,665-
Filing fees5,1453,520414,7011,679
Insurance and miscellaneous2,8622,056118,560998
Legal and auditing7,2524,9862020,7072,424
Postage and mailing6,5474,6432119,3142,327
Printing2,2951,64686,8732,895
Transfer agent fees63,11145,574223188,87223,519
Trustees fees4,6183,3611714,0281,715
Gross Expenses571,856378,7782,2101,618,322163,980
Less: fees waived and
expenses reimbursed (142,619)
(145,661) (2,210) (523,723) (62,460)
Net Expenses429,237233,117-0-1,094,599101,520
Net Investment
Income2,492,5381,768,2517,3736,772,658741,602
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from:
investment transactions76,226446,812-0-(82,525)-0-
future contracts (1,349)
(27,586)
Net unrealized appreciation
(depreciation) of:
future contracts (6,365)
79,117
investments (1,097,224)
(776,867)4,245(2,919,813)-0-
Net realized and unrealized gain
(loss) on investments (1,028,712)
(278,524)4,245(3,002,338)-0-
Net Increase in Net Assets
Resulting From Operations $1,463,826$1,489,727$
11,618$3,770,320$741,602
*Period from April 1, 1996, (inception) to December
31,1996.
See notes to financial statements.
Statements of Changes in Net Assets
U.S. Government SecuritiesQuality
Income PortfolioIncome Portfolio
Year ended December 31Year ended December 31
1996199519961995
Operations
Net investment income$2,492,538$ 3,006,793$1,768,251$
1,944,877
Net gain (loss) from investment
transactions74,8771,819,782419,226289,983
Net unrealized appreciation
(depreciation) of investments
(1,103,589) 3,505,370
(697,750)2,791,510
Net increase in net assets
resulting from
operations1,463,8268,331,9451,489,7275,026,370
Distribution to Shareholders
Dividends from net investment income
(2,492,080) (3,005,426) (1,767,265)
(1,965,581)
Distributions from net realized gain
from investment transactions-0- -0--0- -0-
Total distributions to shareholders
(2,492,080) (3,005,426) (1,767,265)
(1,965,581)
Capital Share Transactions
Class A:
Shares sold2,744,4554,371,4966,081,2903,549,961
Reinvested dividends1,507,3341,720,2541,145,0411,322,097
Shares redeemed
(12,256,686) (7,581,167) (5,559,246)
(5,254,514)
Net increase (decrease) from Class A(8,004,897)
(1,489,417)1,667,085 (382,456)
Class C:
Shares sold163,58620,500387,530253,329
Reinvested dividends
4,72712516,606928
Shares redeemed
(20,106)-0- (113,217)-0-
Net increase from Class C148,20720,625290,919254,257
Increase (decrease) in net assets
(8,884,944)3,857,7271,680,4662,932,590
Net Assets
Beginning of year47,738,44343,880,71629,930,81726,998,227
End of year
$38,853,499$47,738,443$31,611,283$29,930,817
Fund Share Transactions
Class A:
Shares sold262,020429,339586,715350,479
Reinvested dividends144,293166,074110,724130,142
Shares redeemed
(1,167,532) (731,101) (537,624)
(516,398)
Net share increase (decrease) from Class A
(761,219) (135,688) 159,815 (35,777)
Class C:
Shares sold15,4921,92237,43724,071
Reinvested dividends454121,60988
Shares redeemed
(1,950)-0- (10,939)-0-
Net share increase from Class C13,9961,93428,10724,159
See notes to financial statements.
Statements of Changes in Net Assets
New York Tax-FreePennsylvania Tax-FreeMoney Market
Income Portfolio*Income PortfolioIncome Portfolio
Year ended December 31Year ended December 31Year ended
December 31
199619951996199519961995
$ 7,373 N/A$ 6,772,658$ 6,482,752$ 741,602$
508,018
- -0- (82,525)525,193-0--0-
4,245 (2,919,813)9,575,094-0--0-
11,6183,770,32016,583,039741,602508,018
(7,373) (6,772,658)
(6,482,752) (741,602) (508,018)
- -0--0- (435,201)-0--0-
(7,373) (6,772,658)
(6,917,953) (741,602) (508,018)
270,45323,623,23730,485,67229,466,82317,131,285
6,5703,094,9483,613,031678,310461,395
(25,198)(17,787,078) (11,926,396)
(23,510,154) (14,566,048)
251,8258,931,10722,172,3076,634,9793,026,632
- -0-1,691,259164,683n/an/a
30,933532
(228,926)-0-
- -0-1,493,266165,215n/an/a
256,0707,422,03532,002,6086,634,9793,026,632
- -0-123,956,61491,954,00612,041,3979,014,765
$ 256,070$131,378,649$123,956,614$18,676,376$12,041,397
27,0622,141,1992,787,11829,466,82317,131,285
650281,325327,181678,310 461,395
(2,533) (1,617,410)
(1,085,168) (23,510,154) (14,566,048)
25,179805,1142,029,1316,634,9793,026,632
- -0-153,11414,622n/an/a
2,81447
(20,735)-0-
- -0-135,19314,669n/an/a
*Period from April 1, 1996 (inception) to December 31,
1996.
Financial Highlights
For the years ended December 31, 1996, 1995, 1994, 1993,
1992, 1991, 1990, 1989, 1988, and from October 12, 1987,
(Commencement of Operations) to December 31, 1987.
U.S. Government Securities Income Portfolio Class A
For a share outstanding throughout the indicated period.
19961995199419931992 19911990198919881987
Net Asset Value: Beginning of
period$10.80$9.64$10.79$10.50$10.57$10.28$10.25$9.90$10
.07$10.00
Investment Operations:
Net investment
income0.6030.6600.7460.8600.9070.9490.8540.8350.7940.128
Net realized and unrealized gain (loss)
on
investments(0.220)1.160(1.150)0.310(0.070)0.2900.0300.5
40(0.140)0.070
Total from Investment
Operations0.3831.820(0.404)1.1700.8371.2390.8841.3750.6
540.198
Distributions:
Dividends from net investment
income(0.603)(0.660)(0.746)(0.860)(0.907)(0.949)(0.854)
(0.835)(0.794)(0.128)
Distributions from net realized gains
on investments-0--0--0-(0.020)-0--0--0-(0.190)(0.030)-0-
Total
Distributions(0.603)(0.660)(0.746)(0.880)(0.907)(0.949)
(0.854)(1.025)(0.824)(0.128)
Net Asset Value: End of
period$10.58$10.80$9.64$10.79$10.50$10.57$10.28$10.25$9
.90$10.07
Total Return: (excluding sales
charge)3.8%19.4%(3.8%)11.4%8.4%12.7%9.0%14.1%6.3%2.0%
Net assets, end of period ($
thousands)38,68547,71743,88150,18837,87124,5562,3721,21
41,264257
Ratio of gross expenses to average net
assets1.33%1.29%n/an/an/an/an/an/an/an/a
Ratio of net expenses to average net
assets1.00%1.00%1.00%1.00%1.05%0.71%-0--0--0-0.42%
Ratio of net investment income to average
net assets5.78%6.40%7.36%7.84%8.60%10.10%8.22% 8.12%
7.89%5.57%
Portfolio turnover
rate478.4%227.8%122.6%111.9%41.9%84.4%212.3% 274.2%
22.2%-0-
Quality Income Portfolio Class A
For a share outstanding throughout the indicated period.
19961995 19941993 1992 19911990 19891988 1987
Net Asset Value: Beginning of
period$10.59$9.52$10.70$10.55$10.55$9.66$9.75$9.83$10.0
8$10.00
Investment Operations:
Net investment
income0.5920.6860.7390.9160.8170.8250.8350.8800.8830.135
Net realized and unrealized gain (loss)
on
investments(0.100)1.070(1.170)0.410-0-0.890(0.090)0.120
(0.211)0.080
Total from Investment
Operations0.4921.756(0.431)1.3260.8171.7150.7451.0000.6
720.215
Distributions:
Dividends from net investment
income(0.592)(0.686)(0.739)(0.916)(0.817)(0.825)(0.835)
(0.880)(0.883)(0.135)
Distributions from net realized gains
on
investments-0--0-(0.009)(0.260)-0--0--0-(0.200)(0.039)-0-
Total
Distributions(0.592)(0.686)(0.748)(1.176)(0.817)(0.825)
(0.835)(1.080)(0.922)(0.135)
Net Asset Value: End of
period$10.49$10.59$9.52$10.70$10.55$10.55$9.66$9.75$9.8
3$10.08
Total Return: (excluding sales
charge)4.9%19.1%(4.2%)12.9%8.2%19.0%7.9%10.1%6.6%2.2%
Net assets, end of period ($
thousands)31,06429,67526,99827,11115,5273,5722,4721,504
1,246284
Ratio of gross expenses to average net
assets1.22%1.29%n/an/an/an/an/an/an/an/a
Ratio of net expenses to average net
assets0.75%0.78%0.38%0.45%0.31%0.10%0.05%-0-0.03%0.28%
Ratio of net investment income to average
net
assets5.74%6.77%7.30%8.32%7.88%8.24%8.84%8.86%8.82%6.45%
Portfolio turnover
rate525.0%239.2%163.8%337.6%316.6%189.6%170.1%252.4%142
.1%-0-
See notes to financial statements.
Financial Highlights
For the years ended December 31, 1996, 1995, 1994, 1993,
1992, 1991, 1990, 1989, 1988, and from October 12, 1987
(Commencement of Operations) to December 31, 1987.
Pennsylvania Tax-Free Income Portfolio Class A
For a share outstanding throughout the indicated period.
19961995199419931992 19911990198919881987
Net Asset Value: Beginning of
period$11.31$10.31$11.40$10.93$10.71$10.29$10.34$10.16 $
9.95$10.00
Investment Operations:
Net investment
income0.5800.6420.6180.6020.6420.6690.6960.7180.7490.117
Net realized and unrealized gain (loss)
on investments(0.270)1.040(1.090)0.4700.2200.450
(0.010)0.1800.210(0.050)
Total from Investment
Operations0.3101.682(0.472)1.0720.8621.1190.6860.8980.9
590.067
Distributions:
Dividends from net investment
income(0.580)(0.642)(0.618)(0.602)(0.642)
(0.669)(0.696)(0.718)(0.749)(0.117)
Distributions from net realized gains
on investments-0-(0.04) -0- -0- -0-
(0.030)(0.040) -0- -0- -0-
Total Distributions(0.580)(0.682)(0.618)(0.602)(0.642)
(0.699)(0.736)(0.718)(0.749)(0.117)
Net Asset Value: End of
period$11.04$11.31$10.31$11.40$10.93$10.71$10.29$10.34$
10.16$ 9.95
Total Return: (excluding sales charge)
2.9%16.7%(4.2%)10.0%8.3%11.3%7.0%9.1%10.0%0.7%
Net assets, end of period ($
thousands)129,726123,79191,95489,89763,38644,81723,8801
9,2438,645368
Ratio of gross expenses to average net
assets1.25%1.30%n/an/an/an/an/an/an/an/a
Ratio of net expenses to average net
assets0.85%0.85%0.79%0.65%0.50%0.32%0.31%0.20%
- -0-0.26%
Ratio of net investment income to average
net
assets5.29%5.84%5.71%5.31%5.93%6.33%6.84%6.92%7.40%6.38%
Portfolio turnover rate24.3%10.0%15.3%1.0%1.3%22.2%33.3%
-0- -0- -0-
Money Market Income Portfolio Class A
For a share outstanding through the indicated period.
19961995199419931992 19911990198919881987
Net Asset Value: Beginning of period$ 1.00$ 1.00$ 1.00$
1.00$ 1.00$ 1.00$ 1.00$ 1.00$1.00$ 1.00
Investment Operations:
Net investment
income0.0470.0520.0360.0250.0300.0550.0750.0860.0750.014
Net realized and unrealized gain
on investments-0--0--0--0--0--0--0--0--0--0-
Total from Investment Operations0.047
0.0520.0360.0250.0300.0550.0750.0860.0750.014
Distributions:
Dividends from net investment
income(0.047)(0.052)(0.036)(0.025)(0.030)(0.055)(0.075)
(0.086)(0.075)(0.014)
Distributions from net realized gains
on investments-0--0--0--0--0--0--0--0--0--0-
Total
Distributions(0.047)(0.052)(0.036)(0.025)(0.030)(0.055)
(0.075)(0.086)(0.075)(0.014)
Net Asset Value: End of period$ 1.00$ 1.00$ 1.00$ 1.00$
1.00$ 1.00$ 1.00$ 1.00$ 1.00$ 1.00
Total Return: (excluding sales
charge)4.8%5.3%3.7%2.5%3.1%5.6%7.8%9.0%7.7%1.4%
Net assets, end of period ($
thousands)18,67612,0419,0155,5696,46910,44712,58711,076
6,233909
Ratio of gross expenses to average net
assets1.04%1.14%n/an/an/an/an/an/an/an/a
Ratio of net expenses to average net
assets0.65%0.65%0.65%0.65%0.65%0.65%0.65%0.60%-0-0.03%
Ratio of net investment income to average
net
assets4.72%5.19%3.76%2.50%3.06%5.51%7.46%8.59%7.91%6.98%
Portfolio turnover raten/an/an/an/an/an/an/an/an/an/a
See notes to financial statements.
Financial Highlights
Class C: For the year ended December 31, 1996, and from
November 15, 1995, (commencement of operations) to
December 31, 1995.
For a share outstandingClass AClass C (1)
throughout the indicated period.U.S.
New YorkGovernmentPennsylvania
Tax-FreeSecuritiesQualityTax-Free
Income (c)IncomeIncomeIncome
19961996 1995 1996 19951996 1995
Net Asset Value: Beginning of
period$10.00$10.80$10.65$10.59$10.47$ 11.31$11.22
Investment Operations:
Net investment income0.3460.5180.0660.5040.0820.4920.064
Net realized and unrealized gain
(loss) on
investments0.170(0.240)0.150(0.120)0.120(0.280)0.130
Total from Investment
Operations0.5160.2780.2160.3840.2020.2120.194
Distributions:
Dividends from net investment income
(0.346)(0.518)(0.066)(0.504)(0.082)(0.492)(0.064)
Distributions from net realized gains
on investments-0--0- -0--0- -0--0-(0.040)
Total Distributions
(0.346)(0.518)(0.066)(0.504)(0.082)(0.492)(0.104)
Net Asset Value: End of
period$10.17$10.56$10.80$10.47$10.59 $11.03$11.31
Total Return: (excluding sales charge)
5.1%2.6%n/a(b)3.7%n/a(b)1.9%n/a(b)
Net assets, end of period ($ thousands) 256
168 21 547 256 1,653 166
Ratio of gross expenses to average net assets
1.08%1.97%n/a(b)1.96%n/a(b)2.05%n/a(b)
Ratio of net expenses to average net
assets-0-1.64%n/a(b)1.49%n/a(b)1.64%n/a(b)
Ratio of net investment income
to average net assets
3.59%5.13%n/a(b)5.00%n/a(b)4.49%n/a(b)
Portfolio turnover rate (a)
18.7%478.4%227.8%525.0%239.2%24.3%10.0%
(1)Effective November 15, 1995, the Fund commenced
offering Class C shares. All capital shares
issued and outstanding as of November 15, 1995 were
reclassified as Class A shares.
(a)Portfolio turnover is calculated on the basis of the
Fund as a whole without distinguishing
between the classes of shares issued.
(b) Ratios not meaningful due to short period of
operation of Class C shares.
(c) New York Tax-Free Fund commenced operations on April
1, 1996, accordingly all financial information is for the
nine month period ended December 31, 1996.
See notes to financial statements.
Notes to Financial Statements
Note A_General
The William Penn Interest Income Fund (the "Fund") is
registered under the Investment Company Act of 1940 as a
diversified open-end management investment company and
operates as a series fund currently offering five
portfolios with distinct investment objectives and
policies. The U.S. Government Securities Income Portfolio
seeks to provide a high level of current income from
investments in obligations of the U.S. Government and its
agencies and instrumentalities, consistent with the
preservation of capital and the maintenance of liquidity.
The Quality Income Portfolio seeks to provide the highest
level of current income available from investment grade
corporate bonds and other fixed-income securities,
consistent with the preservation of capital and the
maintenance of liquidity. The New York and Pennsylvania
Tax-Free Income Portfolios seek to provide a high level
of current income exempt from Federal income taxes, New
York and Pennsylvania income and personal property taxes,
respectively, without assuming any undue risk to income
or principal. The Money Market Income Portfolio seeks to
maximize current income available from investments in a
variety of specific short-term instruments, consistent
with the preservation of capital and the maintenance of
liquidity.
Note B_Significant Accounting Policies
Portfolio Valuation: In the Money Market Portfolio, the
assets are valued at amortized cost, which approximates
market value. Bonds and other fixed income securities are
valued on the basis of prices provided by a pricing
service or the sub-advisor when such prices are believed
to reflect the fair market value for such securities. The
prices provided by a pricing service are determined
without regard to bid or last sale prices but take into
account institutional size trading in similar groups of
securities and any developments related to specific
securities. Certain mortgage-backed securities, which are
priced by the pricing service, are discounted to reflect
a liquidation value based on the relative size of the
pool using procedures approved by the Board of Directors.
The discount is not material. Short-term instruments
(with remaining maturities of sixty days or less) are
valued at amortized cost, which approximates market
value.
Securities Transactions and Investment Income: Securities
transactions are recorded on a trade date basis. Realized
gains and losses from securities transactions are
recorded on the identified cost basis for both financial
reporting and federal income tax purposes. Interest
income is recorded on the accrual basis for both
financial reporting and federal income tax purposes. In
computing investment income, premiums are amortized over
the life of the security, unless said premium is in
excess of any call price, in which case the excess is
amortized to the earliest call date. Discounts are
accreted over the life of the security. Forward foreign
currency exchange contracts are obligations to purchase
or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of
the contract. Contracts are recorded at market value.
Realized gains and losses arising from such transactions
are included in net realized gain (loss) from investment
transactions. Risks associated with such contracts
include movement in the value of such currency relative
to the U.S. dollar and the ability of the counterparty to
perform. Futures contracts are marked to market daily and
the variation margin is recorded as an unrealized gain or
loss. When a contract is closed, a realized gain or loss
is recorded equal to the difference between the opening
and closing value of the contract. Generally, open
forward and futures contracts are marked to market for
federal income tax purposes at fiscal year-end. Foreign
denominated assets and forward currency contracts may
involve risks not typically associated with domestic
transactions, including: unanticipated movements in
exchange rates, the degree of government supervision and
regulation of security markets, and the possibility of
political or economic instability. The use of futures
contracts may involve other risks such as the possibility
of an illiquid market or imperfect correlation between
the value of the contracts and the underlying securities.
Notes to Financial Statements (continued)
Transactions with Shareholders: Transactions of fund
shares are recorded on the trade date. Each portfolio
declares a daily dividend from investment income, which
is paid monthly.
Federal Income Taxes: It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to
distribute substantially all of its net investment income
and all realized net gain from investment transactions to
its shareholders. Accordingly, no provision has been made
for federal income taxes and the Fund will not be subject
to a federal excise tax. Each portfolio is treated as a
separate entity for determining such qualification.
Estimates: The preparation of financial statements in
comformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Other: The fund accounts separately for the assets,
liabilities and operations of each portfolio. Expenses
directly attributable to each portfolio are charged to
that portfolio's operations; expenses that are applicable
to all portfolios are allocated based on average net
asset value.
Note C_Investment Advisory Fee and Other Transactions
With Affiliates
The Investment Advisory Agreement with Penn Square
Management Corporation provides that each Portfolio pays
the Advisor a monthly fee based on a percent of the total
net assets of the portfolio at the following annual
percentages:
Pennsylvania Tax-Free Income Portfolio.65%
New York Tax-Free Income Portfolio.65%
Money Market Income Portfolio.50%
Quality Income Portfolio.65%
U.S. Government Securities Income Portfolio.65%
The Fund has entered into a Distribution Agreement with
Penn Square Management Corporation and has adopted a
distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The Fund will pay
annually up to .25% for Class A and 1.00% for Class C of
the average daily net assets to securities dealers who
are dealers of record with respect to Fund shares, for
services provided in connection with maintenance of
shareholder accounts.
Penn Square Management Corporation is also the Transfer
and Dividend Disbursing Agent for the Fund and provides
these services at cost.
The Declaration of the Trust provides that each Trustee
of the Fund who is not affiliated with Penn Square
Management Corporation shall receive a quarterly fee of
$1,000 and reimbursement for their out-of-pocket expenses
incurred as Trustee.
The Advisor may, at its discretion, reimburse the
respective portfolios for expenses incurred. For the year
ended December 31, 1996, the Advisor reimbursed/waived
the Fund, in aggregate, for expenses of $876,673.
For the year ended December 31, 1996, Penn Square
Management Corporation received an aggregate of
approximately $9,000 and $101,000 in Commission and
Underwriting fees, respectively, for sales of shares in
the New York Tax-Free Income, Pennsylvania Tax-Free
Income, Quality Income and U.S. Government Securities
Income portfolios. The Money Market Income portfolio
imposes no sales charge and therefore no fees are
collected from transactions in this portfolio.
Notes to Financial Statements (continued)
Note D_Securities Transactions
The following summarizes the securities transactions by
the Fund, other than short-term securities, for the year
ended December 31, 1996:
Cost ofProceeds
PortfolioPurchasesfrom Sales
Pennsylvania Tax-Free Income$59,133,730$29,360,359
New York Tax-Free Income268,44835,329
Quality Income154,217,596151,893,324
U.S. Government Securities Income199,396,953205,153,862
At December 31, 1996, unrealized appreciation
(depreciation) for each portfolio was as follows:
Gross Gross Net
Portfolio Appreciation (Depreciation) Appreciation
Pennsylvania Tax-Free Income $4,657,180 $(1,147,052) $3,510,128
New York Tax-Free Income 4,245 -0- 4,245
Quality Income 452,177 (156,731) 295,446
U.S. Government Securities Income 1,209,550 (178,356) 1,031,194
At December 31, 1996, the cost of investments owned was
the same for financial reporting and federal income tax
purposes.
The following portfolios have capital loss carryforwards
at December 31, 1996 which may be carried forward and
applied against future capital gains; U.S. Government
Securities Income, $499,405; Quality Income, $885,440;
and Pennsylvania Tax-Free Income, $84,950. These
carryforwards begin to expire in the year 2002.
Report of Independent Auditors
Trustees and Shareholders
William Penn Interest Income Fund
We have audited the accompanying statements of assets and
liabilities, including the schedules of investments of
the William Penn Interest Income Fund (comprising, U.S.
Government Securities Income, Quality Income, New York
Tax-Free Income, Pennsylvania Tax-Free Income, and Money
Market Income Portfolios) as of December 31, 1996, and
the related statements of operations, the statements of
changes in net assets, and the financial highlights for
each of the periods indicated therein. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1996, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of each of the
portfolios constituting the William Penn Interest Income
Fund as of December 31, 1996, the results of their
operations, the changes in their net assets, and the
financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting
principles.
Reading, Pennsylvania
January 22, 1997
SHAREHOLDER SERVICES:
610-670-1031
800-523-8440
610-670-0620 FAX
P.O. Box 1419
Reading, Pennsylvania 19603
Overnight Mail:
2650 Westview Drive
Wyomissing, PA 19610
E-Mail:[email protected]
Growth and Income
Penn Square Mutual Fund
International
Scottish Widows International Fund
Stability
Money Market Portfolio
Income
Quality Income Portfolio
U.S. Government Securities Portfolio
Tax-Free Income
New York Tax-Free Portfolio
Pennsylvania Tax-Free Portfolio
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993 and
the investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, on the 5th day of March, 1997.
PENN SQUARE MUTUAL FUND
By: [sig]
James E. Jordan, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to this registration has been signed below by the following
persons in the capacities and on the date indicated. Each of the
persons whose signature appears below hereby authorizes James E.
Jordan, President of the Registrant, to execute in the name of each
person and to file all amendments to this Registration Statement as
the Registrant deems appropriate and appoints such person as his
attorney-in-fact to sign on his behalf individually and in each
capacity stated below and to file all amendments and post-effective
amendments to this Registration Statement.
SIGNATURE TITLE DATE
[sig]
James E. Jordan President, March 5, 1997
principal
executive
officer and
Trustee
[sig]
Dennis J. Westley V.President March 5, 1997
and Treasurer
Lee D. Arning Trustee
[sig]
Gail M. Harrity Trustee March 5, 1997
Paul J. Lawler Trustee
[sig]
Emmett M. Murphy Trustee March 5, 1997
[sig]
John D. Tenhula Trustee March 5, 1997
Ferdinand Thun Trustee
Consent of Independent Accountants
We consent to the references to our firm under the captions
"Independant Auditors" and "Auditors" and to the use of our
report dated January 22, 1997, in the Post-Effective
Amendment No. 19 to the Registration Statement (Form N-1A No. 14609)
and related Prospectus and Statement of Additional Information of the
William Penn Interest Income Fund dated April 30, 1997.
ERNST & YOUNG LLP
Reading, Pennsylvania
April 21, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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This schedule contains summary financial information extracted from the
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<NAME> WILLIAM PENN INTEREST INCOME FUND
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 56,974,195
<INVESTMENTS-AT-VALUE> 58,011,754
<RECEIVABLES> 363,593
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,375,347
<PAYABLE-FOR-SECURITIES> 19,407,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,098
<TOTAL-LIABILITIES> 19,521,848
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,408,157
<SHARES-COMMON-STOCK> 3,655,999
<SHARES-COMMON-PRIOR> 4,417,218
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (585,852)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,031,194
<NET-ASSETS> 38,853,499
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,921,775
<OTHER-INCOME> 0
<EXPENSES-NET> 429,237
<NET-INVESTMENT-INCOME> 2,492,538
<REALIZED-GAINS-CURRENT> 74,877
<APPREC-INCREASE-CURRENT> 1,103,589
<NET-CHANGE-FROM-OPS> 1,463,826
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,492,080
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 262,020
<NUMBER-OF-SHARES-REDEEMED> 1,167,532
<SHARES-REINVESTED> 114,293
<NET-CHANGE-IN-ASSETS> (8,884,944)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (661,721)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280,365
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 571,856
<AVERAGE-NET-ASSETS> 43,108,000
<PER-SHARE-NAV-BEGIN> 10.80
<PER-SHARE-NII> .603
<PER-SHARE-GAIN-APPREC> (.220)
<PER-SHARE-DIVIDEND> .603
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> .010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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This schedule contains summary financial information extracted from the
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</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
<SERIES>
<NUMBER> 1B
<NAME> US GOVERNMENT SECURITIES C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 56,974,195
<INVESTMENTS-AT-VALUE> 58,011,754
<RECEIVABLES> 363,593
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,375,347
<PAYABLE-FOR-SECURITIES> 19,407,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,098
<TOTAL-LIABILITIES> 19,521,848
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,408,157
<SHARES-COMMON-STOCK> 15,930
<SHARES-COMMON-PRIOR> 1,934
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (585,852)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,031,194
<NET-ASSETS> 38,853,499
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,921,775
<OTHER-INCOME> 0
<EXPENSES-NET> 429,237
<NET-INVESTMENT-INCOME> 2,492,538
<REALIZED-GAINS-CURRENT> 74,877
<APPREC-INCREASE-CURRENT> 1,103,589
<NET-CHANGE-FROM-OPS> 1,463,826
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,492,080
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,492
<NUMBER-OF-SHARES-REDEEMED> 1,950
<SHARES-REINVESTED> 454
<NET-CHANGE-IN-ASSETS> (8,884,944)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (661,721)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280,365
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 571,856
<AVERAGE-NET-ASSETS> 43,108,000
<PER-SHARE-NAV-BEGIN> 10.80
<PER-SHARE-NII> .518
<PER-SHARE-GAIN-APPREC> (.240)
<PER-SHARE-DIVIDEND> .518
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> .016
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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This schedule contains summary financial information extracted from the
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</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
<SERIES>
<NUMBER> 3A
<NAME> PENNSYLVANIA TAX-FREE INCOME A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 126,686,748
<INVESTMENTS-AT-VALUE> 130,196,876
<RECEIVABLES> 1,729,971
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,926,847
<PAYABLE-FOR-SECURITIES> 93,293
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 454,905
<TOTAL-LIABILITIES> 548,198
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,929,953
<SHARES-COMMON-STOCK> 11,755,483
<SHARES-COMMON-PRIOR> 10,950,369
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (61,432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,510,128
<NET-ASSETS> 131,378,649
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,867,257
<OTHER-INCOME> 0
<EXPENSES-NET> 1,094,599
<NET-INVESTMENT-INCOME> 6,772,658
<REALIZED-GAINS-CURRENT> (82,525)
<APPREC-INCREASE-CURRENT> (2,919,813)
<NET-CHANGE-FROM-OPS> 3,770,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,772,658
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,141,199
<NUMBER-OF-SHARES-REDEEMED> 1,617,410
<SHARES-REINVESTED> 281,325
<NET-CHANGE-IN-ASSETS> 7,422,035
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,858
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,618,322
<AVERAGE-NET-ASSETS> 128,284,000
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> .580
<PER-SHARE-GAIN-APPREC> (.270)
<PER-SHARE-DIVIDEND> .580
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> .008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 NSAR and is qualified in its entirety by reference to such NSAR.
</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 126,686,748
<INVESTMENTS-AT-VALUE> 130,196,876
<RECEIVABLES> 1,729,971
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,926,847
<PAYABLE-FOR-SECURITIES> 93,293
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 454,905
<TOTAL-LIABILITIES> 548,198
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,929,953
<SHARES-COMMON-STOCK> 149,862
<SHARES-COMMON-PRIOR> 14,669
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (61,432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,510,128
<NET-ASSETS> 131,378,649
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,867,257
<OTHER-INCOME> 0
<EXPENSES-NET> 1,094,599
<NET-INVESTMENT-INCOME> 6,772,658
<REALIZED-GAINS-CURRENT> (82,525)
<APPREC-INCREASE-CURRENT> (2,919,813)
<NET-CHANGE-FROM-OPS> 3,770,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,772,658
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 153,114
<NUMBER-OF-SHARES-REDEEMED> 20,735
<SHARES-REINVESTED> 2,814
<NET-CHANGE-IN-ASSETS> 7,422,035
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 21,093
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,858
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,618,322
<AVERAGE-NET-ASSETS> 128,284,000
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> .492
<PER-SHARE-GAIN-APPREC> (.280)
<PER-SHARE-DIVIDEND> .492
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.03
<EXPENSE-RATIO> .016
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 NSAR and is qualified in its entirety by reference to such NSAR.
</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
<SERIES>
<NUMBER> 2A
<NAME> QUALITY INCOME A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 42,126,906
<INVESTMENTS-AT-VALUE> 42,380,092
<RECEIVABLES> 1,742,979
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,123,071
<PAYABLE-FOR-SECURITIES> 12,409,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,460
<TOTAL-LIABILITIES> 12,511,788
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,056,227
<SHARES-COMMON-STOCK> 2,961,219
<SHARES-COMMON-PRIOR> 2,801,404
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (740,390)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 295,446
<NET-ASSETS> 31,611,283
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,001,368
<OTHER-INCOME> 0
<EXPENSES-NET> 233,117
<NET-INVESTMENT-INCOME> 1,768,251
<REALIZED-GAINS-CURRENT> 419,226
<APPREC-INCREASE-CURRENT> (697,750)
<NET-CHANGE-FROM-OPS> 1,489,727
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,767,265
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 586,715
<NUMBER-OF-SHARES-REDEEMED> 537,624
<SHARES-REINVESTED> 110,724
<NET-CHANGE-IN-ASSETS> 1,680,466
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,169,481)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 200,442
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 378,778
<AVERAGE-NET-ASSETS> 30,837,000
<PER-SHARE-NAV-BEGIN> 10.59
<PER-SHARE-NII> .592
<PER-SHARE-GAIN-APPREC> (.100)
<PER-SHARE-DIVIDEND> .592
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 NSAR and is qualified in its entirety by reference to such NSAR.
</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
<SERIES>
<NUMBER> 2B
<NAME> QUALITY INCOME C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 42,126,906
<INVESTMENTS-AT-VALUE> 42,380,092
<RECEIVABLES> 1,742,979
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,123,071
<PAYABLE-FOR-SECURITIES> 12,409,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,460
<TOTAL-LIABILITIES> 12,511,788
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,056,227
<SHARES-COMMON-STOCK> 52,266
<SHARES-COMMON-PRIOR> 24,159
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (740,390)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 295,446
<NET-ASSETS> 31,611,283
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,001,368
<OTHER-INCOME> 0
<EXPENSES-NET> 233,117
<NET-INVESTMENT-INCOME> 1,768,251
<REALIZED-GAINS-CURRENT> 419,226
<APPREC-INCREASE-CURRENT> (697,750)
<NET-CHANGE-FROM-OPS> 1,489,727
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,767,265
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,437
<NUMBER-OF-SHARES-REDEEMED> 10,939
<SHARES-REINVESTED> 1,609
<NET-CHANGE-IN-ASSETS> 1,680,466
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,169,481)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 200,442
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 378,778
<AVERAGE-NET-ASSETS> 30,837,000
<PER-SHARE-NAV-BEGIN> 10.59
<PER-SHARE-NII> .504
<PER-SHARE-GAIN-APPREC> (.120)
<PER-SHARE-DIVIDEND> .504
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> .015
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 NSAR and is qualified in its entirety by reference to such NSAR.
</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
<SERIES>
<NUMBER> 4
<NAME> MONEY MARKET INCOME
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 18,491,065
<INVESTMENTS-AT-VALUE> 18,491,065
<RECEIVABLES> 14,538
<ASSETS-OTHER> 172,400
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,678,003
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,627
<TOTAL-LIABILITIES> 1,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,676,376
<SHARES-COMMON-STOCK> 18,676,376
<SHARES-COMMON-PRIOR> 12,041,397
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18,676,376
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 843,122
<OTHER-INCOME> 0
<EXPENSES-NET> 101,520
<NET-INVESTMENT-INCOME> 741,602
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 741,602
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 741,602
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,466,823
<NUMBER-OF-SHARES-REDEEMED> 23,510,154
<SHARES-REINVESTED> 678,310
<NET-CHANGE-IN-ASSETS> 6,634,979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 78,420
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 163,980
<AVERAGE-NET-ASSETS> 15,705,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
12/31/96 NSAR and is qualified in its entirety by reference to such NSAR.
</LEGEND>
<CIK> 0000814436
<NAME> WILLIAM PENN INTEREST INCOME FUND
<SERIES>
<NUMBER> 5
<NAME> NEW YORK TAX-FREE INCOME A
<S> <C>
<PERIOD-TYPE> 9MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 248,492
<INVESTMENTS-AT-VALUE> 252,737
<RECEIVABLES> 3,438
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 256,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105
<TOTAL-LIABILITIES> 105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 251,825
<SHARES-COMMON-STOCK> 25,179
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,245
<NET-ASSETS> 256,070
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,373
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 7,373
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 4,245
<NET-CHANGE-FROM-OPS> 11,618
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,373
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,062
<NUMBER-OF-SHARES-REDEEMED> 2,533
<SHARES-REINVESTED> 650
<NET-CHANGE-IN-ASSETS> 256,070
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 958
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,210
<AVERAGE-NET-ASSETS> 206,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .346
<PER-SHARE-GAIN-APPREC> .170
<PER-SHARE-DIVIDEND> .346
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
