SEMIANNUAL
REPORT
March 31, 2000
(Unaudited)
[Penn Cap Logo Omitted]
[Penn Cap 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 2000
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Aside from a brief rally in March, bank stock performance continued its decline
in the first quarter of 2000. The Penn Capital Select Financial Services Fund
outperformed its index, the NASDAQ Bank Index, but also ended the quarter with
negative returns. For the period January 1, 2000, through March 31, 2000, the
Fund posted a total return of (0.31%) compared to (8.89%) for the NASDAQ Bank
Index.
Over the past three months, some distinct trends have evolved in the financial
sector. Looking out, we see three primary drivers of financial stock performance
in 2000, with some secondary considerations:
One primary indicator, with a negative outlook in the short term, is the current
interest rate environment. Given the continued strength of economic data over
the last few weeks, we remain confident that interest rates are poised to go
higher. We also believe, however, that we are close to a peak. The May meeting
of the Federal Open Market Committee will most likely result in the 6th
consecutive increase in short term interest rates. As our economy continues to
digest the rate hikes of the last five prior sessions, economic trends could
quickly reverse themselves. We experienced this in 1995 and there is no reason
to believe that the same actions will not provide a similar result.
The second consideration, which is largely neutral, is fundamentals. Although we
believe most earnings disappointments in the bank group are behind us, banks are
increasingly challenged to grow their earnings well above a 5% annual pace. In
what has become a mature industry, our strategy is to identify banks with
achievable growth potential above industry averages. In our view, banks that are
successful in developing areas of business NOT driven by interest rate
volatility, such as capital markets and asset management businesses, are much
more likely to experience accelerated earnings growth over the near and long
term.
One of the more positive considerations within the financial sector has to do
with market momentum. It is evident that financial stocks have become the "safe
harbor of choice" for investors whose relationships with technology stocks have
become increasingly erratic. Although investors will never completely abandon
the technology sector, there certainly will be a pruning process. We believe
that the clearer the technology landscape becomes, the more the financial sector
will benefit from its evolution.
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And finally, a modest acceleration in acquisition activity over the prior year
is a promising trend that we are constantly monitoring. Given the maturity of
this industry, continued consolidation is a necessity. The Fund will maintain a
two-tiered focus: large banks with the capability of achieving above industry
average growth, and small banks with niches that gain the attention of much
larger acquiring entities. Also, look for more large foreign banks to enter the
U.S. market through acquisition, another catalyst that could drive valuations to
a higher level.
Sincerely,
/s/RICHARD A. HOCKER
Richard A. Hocker
CHIEF INVESTMENT OFFICER
2
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STATEMENT OF NET ASSETS PENN CAPITAL FUNDS
March 31, 2000 (Unaudited)
PENN CAPITAL SELECT Value
FINANCIAL SERVICES FUND Shares (000)
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COMMON STOCKS (82.0%)
BANKS (63.1%)
Astoria Financial 181 $ 5
Bank of America 100 5
Bank of New York 150 6
Bank United, Cl A 155 5
BankUnited Financial, Cl A* 500 3
CCBT Financial Companies 435 6
Chase Manhattan 130 11
Coastal Bancorp 660 11
Deutsche Bank, ADR 125 9
First Union 425 16
Fleet Boston Financial 192 7
Mellon Financial 260 8
National Penn Bancshares 934 19
North Fork Bancorporation 970 17
Peoples Bank Bridgeport 145 3
PNC Bank 240 11
Premier National Bancorp 434 7
Provident Bankshares 109 2
Regions Financial 65 1
Seacoast Banking of Florida, Cl A 525 14
Summit Bancorp 200 5
SunTrust Banks 117 7
U.S. Bancorp 175 4
United Bankshares 410 9
Wells Fargo & Company 400 16
Westamerica Bancorporation 250 7
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214
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FINANCIAL SERVICES (14.5%)
Alliance Capital Management
Holding 185 8
American Express 50 7
Capital One Financial 50 2
Citigroup 167 10
Mech Financial 150 5
Neuberger Berman 275 8
Raymond James Financial 195 4
T. Rowe Price 130 5
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49
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INSURANCE (4.4%)
American International Group 56 6
Mony Group 265 9
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15
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Value
Shares (000)
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TOTAL COMMON STOCKS
(Cost $280) $278
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PREFERRED STOCKS (7.1%)
BANKS (7.1%)
Astoria Financial* 925 24
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TOTAL PREFERRED STOCKS
(Cost $24) 24
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MUTUAL FUNDS (9.7%)
John Hancock Bank and
Thrift Opportunity 1,250 9
SEI Daily Income Trust Money
Market Portfolio 12,404 12
SEI Daily Income Trust Prime
Obligation Portfolio 12,404 12
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TOTAL MUTUAL FUNDS
(Cost $33) 33
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TOTAL INVESTMENTS (98.8%)
(Cost $337) 335
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OTHER ASSETS AND LIABILITIES, NET (1.2%) 4
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NET ASSETS:
Portfolio Capital (unlimited
authorization -- no par value)
based on 35,247 outstanding
shares of beneficial interest 373
Accumulated net realized loss
on investments (32)
Net unrealized depreciation
on investments (2)
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TOTAL NET ASSETS (100.0%) $339
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Net Asset Value, Offering and
Redemption Price Per Share $9.63
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* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
The accompanying notes are an integral part of the financial statements.
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STATEMENT OF OPERATIONS (000) PENN CAPITAL FUNDS
(Unaudited)
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
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10/1/99
THRU 3/31/00
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Investment Income:
Dividends........................................... $ 5
Interest ........................................... --
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Total Investment Income........................... 5
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Expenses:
Investment Advisory Fees ........................... 1
Investment Advisory Fee Waiver ..................... (1)
Administrator Fees ................................. 33
Custodian Fees ..................................... --
Transfer Agent Fees ................................ 12
Professional Fees .................................. 1
Trustee Fees ....................................... --
Registration Fees .................................. 1
Pricing Fees ....................................... --
Printing Fees ...................................... 12
Amortization of Deferred Organizational Costs....... 3
Insurance and Other Fees ........................... (2)
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Total Expenses ................................... 60
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Less: Reimbursements by Adviser..................... (58)
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Total Net Expenses ............................... 2
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Net Investment Income ........................ 3
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Net Realized Loss From Securities Sold ............. (12)
Net Unrealized Appreciation
of Investment Securities ......................... 6
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Net Realized and Unrealized Loss
on Investments ............................ (6)
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Net Decrease in Net Assets Resulting
From Operations ................................. $ (3)
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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.
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STATEMENT OF CHANGES IN NET ASSETS (000) PENN CAPITAL FUNDS
(Unaudited)
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
---------------------------
10/1/99 10/1/98
THRU 3/31/00 THRU 9/30/99
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Investment Activities:
Net Investment Income ....................... $ 3 $ 8
Net Realized Loss on Securities Sold......... (12) (5)
Net Unrealized Appreciation of
Investment Securities ..................... 6 114
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Net Increase (Decrease) in Net Assets
Resulting from Operations ............... (3) 117
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Distributions to Shareholders:
Net Investment Income ....................... (9) (6)
Realized Capital Gain ....................... (15) (47)
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Total Distributions ....................... (24) (53)
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Capital Share Transactions:
Proceeds from Shares Issued ................. 65 18
Proceeds from Shares Issued in Lieu of
Cash Distributions................ 24 53
Cost of Shares Redeemed...................... (28) (533)
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Increase (Decrease) in Net Assets From
Capital Share Transactions................. 61 (462)
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Total Increase (Decrease) in Net Assets ... 34 (398)
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Net Assets:
Beginning of Period........................ 305 703
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End of Period(1)........................... $339 $ 305
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Shares Issued and Redeemed:
Issued ...................................... 8 1
Issued in Lieu of Cash Distributions......... 2 5
Redeemed..................................... (3) (45)
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Net Increase (Decrease) in Share
Transactions............................. 7 (39)
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(1) Includes undistributed net investment income of $6 as of September 30, 1999.
The accompanying notes are an integral part of the financial statements.
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FINANCIAL HIGHLIGHTS PENN CAPITAL FUNDS
For a Share Outstanding Throughout Each Period (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Net
Asset Unrealized Distributions Distributions Asset Assets
Value Net Gains from Net from Value End
Beginning Investment on Investment Capital End Total of Period
of Period Income Investments Income Gains of Period Return+ (000)
--------- --------- ------------ ---------- ------------ --------- ----------- --------
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PENN CAPITAL SELECT FINANCIAL SERVICES FUND
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000* $10.74 0.11 (0.39) (0.31) (0.52) $ 9.63 (2.15)% $339
1999 $10.50 0.23 0.79 (0.09) (0.69) $10.74 9.62% $305
1998(1) $10.00 0.07 0.64 (0.01) (0.20) $10.50 6.81% $703
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss) to
Ratio of Net to Average Average
Ratio Investment Net Assets Net Assets
of Expenses Income (Excluding (Excluding Portfolio
to Average to Average Waivers and Waivers and Turnover
Net Assets Net Assets Reimbursements) Reimbursements) Rate
----------- ----------- --------------- --------------- --------
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PENN CAPITAL SELECT FINANCIAL SERVICES FUND
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<S> <C> <C> <C> <C> <C>
2000* 1.40% 2.32% 41.06% (37.34)% 18.4%
1999 1.40%* 1.17%* 14.54%* (11.97)% 114.1%
1998(1) 1.40% 0.68% 29.22% (27.14)% 174.8%
<FN>
*For the six-month period ended March 31. All ratios are for the period and have been annualized.
+Returns are for the period indicated and have not been annualized.
(1) Commenced operations on October 20, 1997. All ratios are for the period and have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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NOTES TO FINANCIAL STATEMENTS PENN CAPITAL FUNDS
March 31, 2000 (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 19 portfolios. 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.
7
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NOTES TO FINANCIAL STATEMENTS (Continued) PENN CAPITAL FUNDS
March 31, 2000 (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. Certain 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.
8
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NOTES TO FINANCIAL STATEMENTS (Concluded) PENN CAPITAL FUNDS
March 31, 2000 (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 28, 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, 2000, are as
follows (000):
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
-----------------------
Purchases ..................... $99
Sales ......................... $52
The aggregate gross unrealized appreciation and depreciation for securities held
by the Fund at March 31, 2000, are as follows (000):
PENN CAPITAL SELECT
FINANCIAL SERVICES FUND
-----------------------
Aggregate gross unrealized
appreciation ............... $ 27
Aggregate gross unrealized
depreciation ............... (29)
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Net unrealized depreciation $ (2)
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NOTES
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[BLANK PAGE]
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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 PROSPECTUS,
WHICH CONTAINS DETAILED INFORMATION.
PEN-F-010-02
