SEMIANNUAL
REPORT
MARCH 31, 1999
(Unaudited)
[LOGO OMITTED]
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Penn Capital Select Financial Services Fund
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INVESTMENT REVIEW
PENN CAPITAL SELECT FINANCIAL SERVICES FUND - FIRST QUARTER 1999
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PORTFOLIO OBJECTIVE
The Fund seeks to generate long term capital appreciation. The Fund invests
primarily in equity securities of companies principally engaged in the banking
industry and the financial services sector, seeking undervalued companies
including potential takeover opportunities.
MARKET REVIEW
Bank stocks, which measurably trailed broader market indices in 1998, continued
their underperformance in the first quarter of 1999, relative to the small group
of large cap growth stocks dominating the performance of the Dow Jones
Industrial Average and the S&P 500. The NASDAQ Bank Index returned a negative
4.76% for the quarter ended March 31, 1999. In terms of value, major regional
banks are currently trading at an average 15 times 1999 earnings estimates,
while the Dow stocks are trading, on average, above 30 times 1999 earnings
estimates.
The Penn Capital Select Financial Services Fund again outperformed its benchmark
during the first quarter of 1999. Key banking acquisitions, combined with the
Fund's strategic weighting in certain brokerage companies such as Donaldson,
Lufkin & Jenrette and Charles Schwab Corporation, highlighted the Fund's
outperformance.
Minneapolis based U.S. Bancorp, the 13th largest U.S. bank, announced the
acquisition of San Diego based Bank of Commerce. Bank of Commerce was the
largest Small Business Association (SBA) lender in California. U.S. Bancorp will
utilize this acquisition to expand its SBA lender presence on the West Coast.
Fleet Financial Group and BankBoston, two large cap regional banks
headquartered in the Boston area, announced a strategic merger in March. This
merger will create the nation's 8th largest bank with assets of approximately
$180 billion. The new company will be called Fleet Boston Corporation and should
emerge as one of the top three national commercial lenders, with a greatly
enhanced international presence through BankBoston. The Fund owned positions in
both institutions.
PERFORMANCE REVIEW
Month 0.97%
Quarter 4.20%
Six-Month Period 16.56%
Inception-to-Date
Annualized (10/17/97) 16.29%
The Penn Capital Select Financial Services Fund outperformed the index for the
quarter, driven primarily by the above mentioned strategic weightings and
merger/acquisition activity.
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Notwithstanding the above noted mergers/acquisitions, consolidation activity
remains slow when compared to the first half of 1998 (in 1998, more than $1.2
trillion in bank assets were sold or merged). We continue to believe that the
advantages of consolidation will shape the industry as we move to the next
century. Moderate economic growth combined with a low and stable interest rate
environment continues to bode well for domestically focused financial services
companies. We continue to maintain the Fund's weighting in favor of large cap
financial services companies, looking to add value through smaller cap financial
services companies that offer great potential due to their potential for
acquisition, solid fundamentals, and lower valuations.
Sincerely,
/s/ signature omitted
Richard A. Hocker
CHIEF INVESTMENT OFFICER
PENN CAPITAL MANAGEMENT COMPANY, INC.
<PAGE>
SCHEDULE OF INVESTMENTS PENN CAPITAL FUNDS
March 31, 1999 (Unaudited)
PENN CAPITAL SELECT Value
FINANCIAL SERVICES FUND Shares (000)
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COMMON STOCKS (94.4%)
BANKS (74.6%)
Astoria Financial 741 $ 37
Bank United Corporation, Cl A 500 20
BankAmerica 200 14
BankBoston 600 26
BB&T 305 11
California Federal Bank -
Contingent Litigation
Recovery Participation
Interests* 750 8
California Federal Bank -
Secondary Contingent
Litigation Recovery
Participation Interests* 950 11
CCBT Bancorp 1,060 17
Chase Manhattan 325 26
Citigroup 275 18
Commerce Bancorp 210 9
First Tennessee National 200 7
First Union 1,027 55
Golden State Bancorp -
Litigation Warrants* 5,750 28
MECH Financial 625 20
Mellon Bank 325 23
National Penn Bancshares 600 15
North Fork Bancorporation 1,575 33
Peoples Bank Bridgeport 300 9
PNC Bank 460 26
Premier National Bancorp 960 14
Provident Bankshares 1,166 30
Regions Financial 400 14
Seacoast Banking of Florida 1,300 35
Sovereign Bancorp 1,650 20
Summit Bancorp 1,240 48
SunTrust Banks 297 19
United Bankshares 860 20
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613
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CABLE (1.1%)
Pegasus Communications* 325 9
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FINANCIAL SERVICES (10.1%)
Alliance Capital Management 455 $ 12
American Express 100 12
Donaldson, Lufkin, & Jenrette 470 33
Hambrecht & Quist* 150 5
Raymond James Financial 515 10
T. Rowe Price 325 11
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83
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INSURANCE (8.6%)
Allstate 525 19
American International Group 90 11
Conseco 661 20
Mony Group* 825 21
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71
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TOTAL COMMON STOCKS
(Cost $775) 776
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PREFERRED STOCK (2.9%)
BANK (2.9%)
Astoria Financial* 925 24
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TOTAL PREFERRED STOCK
(Cost $24) 24
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MUTUAL FUNDS (2.7%)
SEI Daily Income Trust Money
Market Portfolio 11 11
SEI Daily Income Trust Prime
Obligation Portfolio 11 11
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TOTAL MUTUAL FUNDS
(Cost $22) 22
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TOTAL INVESTMENTS (100.0%)
(Cost $821) $822
====
* NON-INCOME PRODUCING SECURITY
CL--CLASS
The accompanying notes are an integral part of the financial
statements.
3
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000) PENN CAPITAL FUNDS
(Unaudited)
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
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As of
3/31/99
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Assets:
Investment Securities at Value (Cost $821)................ $ 822
Income Receivable......................................... 1
Receivable for Investment Securities Sold ................ 22
Other Assets ............................................. 22
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Total Assets ........................................... 867
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Liabilities:
Payable for Investment Securities Purchased .............. (22)
Accrued Expenses ......................................... (21)
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Total Liabilities ...................................... (43)
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Net Assets:
Portfolio shares (unlimited authorization--
no par value) based on 72,178 outstanding
shares of beneficial interest ........................ 832
Undistributed Net Investment Income....................... 2
Accumulated Net Realized Loss on Investments ............. (11)
Net Unrealized Appreciation of Investments ............... 1
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Total Net Assets ....................................... $824
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Net Asset Value, Offering Price, and
Redemption Price Per Share .............. $11.42
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The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATEMENT OF OPERATIONS (000) PENN CAPITAL FUNDS
(Unaudited)
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
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10/1/98
THRU 3/31/99
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Investment Income:
Dividends............................................. $ 9
Interest ............................................. 1
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Total Investment Income............................. 10
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Expenses:
Investment Advisory Fees ............................. 4
Investment Advisory Fee Waiver ....................... (4)
Administrator Fees ................................... 35
Custodian Fees ....................................... --
Transfer Agent Fees .................................. --
Professional Fees .................................... --
Trustee Fees ......................................... 1
Registration Fees .................................... --
Pricing Fees ......................................... 1
Printing Fees ........................................ 6
Amortization of Deferred Organizational Costs......... 3
Insurance and Other Fees ............................. 2
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Total Expenses ..................................... 48
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Less: Reimbursements by Adviser....................... (42)
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Total Net Expenses ................................. 6
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Net Investment Income .......................... 4
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Net Realized Loss From Securities Sold ............... (11)
Net Unrealized Appreciation
of Investment Securities ........................... 123
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Net Realized and Unrealized Gain
on Investments .............................. 112
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Net Increase in Net Assets Resulting
From Operations ................................... $116
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Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000) PENN CAPITAL FUNDS
(Unaudited)
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
------------------------------
10/1/98 10/20/97
THRU 3/31/99 THRU 9/30/98(1)
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Investment Activities:
Net Investment Income ......................... $ 4 $ 4
Net Realized Gain (Loss) on Securities Sold.... (11) 53
Net Unrealized Appreciation (Depreciation) of
Investment Securities ....................... 123 (122)
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Net Increase (Decrease) in Net Assets
Resulting from Operations .................. 116 (65)
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Distributions to Shareholders:
Net Investment Income ......................... (6) --
Realized Capital Gain ......................... (47) (6)
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Total Distributions ......................... (53) (6)
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Capital Share Transactions:
Proceeds from Shares Issued ................... 15 870
Proceeds from Shares Issued in Lieu of
Cash Distributions ............................ 53 6
Cost of Shares Redeemed........................ (10) (102)
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Increase in Net Assets From
Capital Share Transactions................... 58 774
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Total Increase in Net Assets ................ 121 703
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Net Assets:
Beginning of Period.......................... 703 --
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End of Period(2)............................. $824 $703
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Shares Issued and Redeemed:
Issued ........................................ 1 74
Issued in Lieu of Cash Distributions........... 5 1
Redeemed....................................... (1) (8)
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Net Increase in Share Transactions............. 5 67
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Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Commenced operations on October 20, 1997.
(2) Includes undistributed net investment income of $2 and $4 as of March 31,
1999, and September 30, 1998, respectively.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS PENN CAPITAL FUNDS
For a Share Outstanding Throughout Each Period (Unaudited)
Net Realized and Net Net Ratio of Net
Asset Unrealized Distributions Distributions Asset Assets Ratio Investment
Value Net Gains from Net from Value End of Expenses Income
Beginning Investment on Investment Capital End Total of Period to Average to Average
of Period Income Investments Income Gains of Period Return(1) (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- --------- --------- ---------- ----------
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PENN CAPITAL SELECT FINANCIAL SERVICES FUND
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999[dagger] $10.50 0.05 1.65 (0.09) (0.69) $11.42 16.56% $824 1.40%* 1.06%*
1998(2) $10.00 0.07 0.65 (0.01) (0.20) $10.50 6.81% $703 1.40%* 0.68%*
Ratio of Net
Ratio of Investment
Expenses Income to
to Average Average
Net Assets Net Assets
(Excluding (Excluding Portfolio
Waivers and Waivers and Turnover
Reimbursements) Reimbursements) Rate
--------------- --------------- ------------
- --------------------------------------------
PENN CAPITAL SELECT FINANCIAL SERVICES FUND
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<S> <C> <C> <C>
1999[dagger] 13.39%* (10.93)%* 79.13%
1998(2) 29.22%* (27.14)%* 174.75%
<FN>
* Annualized
+ For the six-month period ended March 31.
(1) Returns are for the period indicated and have not been annualized.
(2) Commenced operations on October 20, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS PENN CAPITAL FUNDS
March 31, 1999 (Unaudited)
1. ORGANIZATION:
TIP FUNDS (the "Trust") a Massachusetts business trust, is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company with 14 funds. The financial statements included herein are
for the Penn Capital Select Financial Services Fund, (the "Fund"). The financial
statements of the remaining portfolios are presented separately. The assets of
the Fund are segregated, and a shareholder's interest is limited to the fund in
which shares are held. The Fund's prospectus provides a description of the
Fund's investment objectives, policies, and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund.
SECURITY VALUATION -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal income taxes is required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income
is recognized on the accrual basis. Costs used in determining realized
gains and losses on the sales of investment securities are those of the
specific securities sold during the respective holding period.
NET ASSET VALUE PER SHARE -- The net asset value per share of the Fund is
calculated on each business day, by dividing the total value of the Fund's
assets, less liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in the event of default of the counterparty. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters an
insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
8
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NOTES TO FINANCIAL STATEMENTS (Concluded) PENN CAPITAL FUNDS
March 31, 1999 (Unaudited)
EXPENSES -- Expenses that are directly related to the Fund are charged to
the Fund. Other operating expenses of the Trust are prorated to the funds
on the basis of relative daily net assets.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared and paid to Shareholders at least annually. Any net realized
capital gains on sales of securities are distributed to Shareholders at
least annually.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles. These book/tax differences are either
temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated
net realized gain, as appropriate, in the period that the differences
arise.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts 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 reported period. Actual results could differ from those
estimates.
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
Organization costs have been capitalized by the Fund and are being amortized
over a period of sixty months. In the event any of the initial shares of a Fund
are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Fund will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares outstanding at the time
of redemption.
Certain officers of the Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers and trustees of the Trust.
4. ADMINISTRATION, SHAREHOLDER SERVICING, AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee
of 0.09% of the average daily net assets of the Trust up to $250 million, 0.07%
on the next $250 million, 0.06% on the next $250 million, 0.05% on the next
$1.25 billion, and 0.04% of such assets in excess on $2 billion. There is a
minimum annual fee of $65,000 payable to the Administrator for services rendered
to the Fund under the Administration Agreement. The administrator may, at its
sole discretion waive all or a portion of its fees.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Concluded) PENN CAPITAL FUNDS
March 31, 1999 (Unaudited)
DST Systems, Inc., (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Fund under a transfer agency agreement with
the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 30, 1996. The Distributor receives no fees for its distribution services
under this agreement.
5. INVESTMENT ADVISORY AGREEMENT:
The Trust and Penn Capital Management Company, Inc. (the "Adviser") are parties
to an Investment Advisory Agreement, under which the Adviser receives an annual
fee equal to 1.00% of the average daily net assets of the Fund. The Adviser has
voluntarily agreed to waive all or a portion of its fees and to reimburse
expenses of the Fund in order to limit its total operating expenses (as a
percentage of average daily net assets on an annualized basis) to not more than
1.40%. Fee waivers and expense reimbursements are voluntary and may be
terminated at any time.
6. INVESTMENT TRANSACTIONS:
The total cost of security purchases and the proceeds from security sales, other
than short-term investments, for the period ended March 31, 1999, are as
follows (000):
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
-----------------------
Purchases ......................................... $605
Sales ............................................. $652
At March 31, 1999, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at March 31, 1999, are as follows (000):
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
-----------------------
Aggregate gross unrealized
appreciation ................................... $63
Aggregate gross unrealized
depreciation ................................... (62)
---
Net unrealized appreciation ....................... $ 1
===
10
<PAGE>
TRUST
TIP Funds
P.O. Box 419805
Kansas City, MO 64141-6805
INVESTMENT ADVISER
Penn Capital Management Company, Inc.
DISTRIBUTOR
SEI Investments Distribution Co.
ADMINISTRATOR
SEI Investments Mutual Funds Services
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
To open an account, receive account information, make inquiries, or request
literature:
1-800-224-6312
THIS REPORT WAS PREPARED FOR SHAREHOLDERS IN THE PENN CAPITAL FUNDS. IT MAY BE
DISTRIBUTED TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A TIP FUNDS PROSPECTUS,
WHICH CONTAINS DETAILED INFORMATION.
PEN-F-010-01
