PROFIT FUNDS INVESTMENT TRUST
PROFIT VALUE FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
<PAGE>
LETTER TO SHAREHOLDERS PROFIT VALUE FUND
September 30, 1997
Dear Profit Value Fund Shareholder:
It is always a pleasure to report on success, and the year 1997 brought
numerous successes for The Profit Value Fund. In its initial year of operation,
the Profit Value Fund performed competitively, gained many new investors, and
ended the year as one of the fastest growing mutual funds managed by an African
American-owned firm.
For the fiscal year ended September 30, 1997, the Profit Value Fund closed at
a value of $12.88 per share for a total return of 28.80%, comparable with a
28.72% return for its benchmark, the Standard & Poor's 500 Composite Stock
Index. The Fund's performance reflects the broad market strength over the fiscal
year. The portfolio mix of blue chip stocks across several major industries
allowed the Fund to benefit from the rising equity markets while limiting the
downside movement during the brief declines experienced during the fiscal year.
During the Fund's fiscal year, strength in the broad market continued to
attract mutual fund inflows. Advances in the equity market were led by the
performance of the larger, more liquid issues with stable earnings. The question
whether another Federal Reserve tightening will come in November remains open,
however we do not at this point believe a major change in Fed policy is
imminent. We remain convinced that over the near term there are no serious
threats to the positive investment environment of low inflation, expanding
corporate profitability, and increased efficiencies, but we will remain vigilant
for unexpected shocks to the current economy.
While we are pleased with the Fund's performance in the fiscal year just
ended, we understand that the market strength shown in 1995, 1996, and 1997
might be temporary in nature, and the market should not be expected to provide
this type of strong upward momentum on a regular basis. Therefore, we continue
to supervise the management of the Fund's assets in a prudent and cautious
manner, seeking relative value growth that is not dependent upon an excessive
upward market trend.
We urge shareholders to take a similar approach. That is, invest for the long
run, avoid the temptation to "time" your investment based on market predictions,
and diversify among stocks, bonds, and mutual funds based on your individual
needs and time horizons. Finally, invest on a consistent basis, regardless of
whether the markets are up or down.
Regardless of the direction the markets take in the coming year, we believe
that The Profit Value Fund will continue to offer a valuable alternative for
individual and institutional investors. We would like to take this opportunity
to thank you, our valued and growing family of shareholders, for your continued
support of and confidence in The Profit Value Fund. We look forward to serving
your investment needs in the years to come.
Sincerely,
/S/ SIGNATURE
Eugene A. Profit
President
1
<PAGE>
PROFIT FUNDS INVESTMENT TRUST
PERFORMANCE CHART
[LINE GRAPH]
THE PROFIT VALUE FUND VS. S&P 500 INDEX
NOVEMBER 1996 - SEPTEMBER 1997
PROFIT VALUE FUND S&P 500 INDEX
11/30/96 10,000 10,000
12/31/96 10,020 9,802
1/31/97 10,264 10,414
2/28/97 10,450 10,496
3/31/97 10,205 10,065
4/30/97 10,431 10,666
5/31/97 11,096 11,315
6/30/97 11,399 11,821
7/31/97 12,466 12,762
8/31/97 12,035 12,047
9/30/97 12,603 12,707
TOTAL SINCE
RETURN NOV. 15, 1996
- ------------------------------------
28.80%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS PROFIT VALUE FUND
September 30, 1997
To the Shareholders and Board of Trustees
of Profit Funds Investment Trust.:
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of Profit Funds Investment Trust, Profit Value Fund
as of September 30, 1997, and the related statements of operations, changes in
net assets and the financial highlights for the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit 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 investments owned as of September 30, 1997
by correspondence with the custodians 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 audit provides 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
the Profit Funds Investment Trust, Profit Value Fund as of September 30,
1997, and the results of its operations, changes in its net assets, and its
financial highlights for the period then ended in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 15, 1997
3
<PAGE>
PROFIT VALUE FUND
SCHEDULE OF INVESTMENTS
September 30, 1997
PROFIT Market
VALUE FUND Shares Value
- --------------------------------------------------------
COMMON STOCK (94.9%)
AEROSPACE & DEFENSE (3.4%)
Raytheon 1,160 $ 68,585
----------
AUTOMOTIVE (4.7%)
General Motors 1,395 93,378
----------
BANKS (6.5%)
First Chicago 1,025 77,131
J.P. Morgan 475 53,972
----------
131,103
----------
CHEMICALS (3.1%)
E.I. du Pont de Nemours 1,000 61,562
----------
COMPUTERS & SERVICES (3.8%)
Harris 1,630 74,572
NCR* 32 1,118
----------
75,690
----------
ELECTRICAL UTILITIES (5.8%)
American Electric Power 1,350 61,425
Southern 2,460 55,504
----------
116,929
----------
FOOD, BEVERAGE & TOBACCO (2.5%)
Philip Morris 1,230 51,122
----------
INSURANCE (7.4%)
American General 1,375 71,328
Cigna 415 77,294
----------
148,622
----------
MANUFACTURING (4.3%)
Minnesota Mining & Manufacturing 940 86,950
----------
PAPER & PAPER PRODUCTS (8.4%)
International Paper 1,760 96,910
Weyerhaeuser 1,205 71,547
----------
168,457
----------
PETROLEUM & FUEL PRODUCTS (3.6%)
Atlantic Richfield 850 72,622
----------
PETROLEUM REFINING (15.9%)
Amoco 705 67,944
Chevron 1,190 98,993
Exxon 1,520 97,375
Texaco 900 55,294
----------
319,606
----------
RAILROADS (3.2%)
Norfolk Southern 615 63,499
----------
Shares/
Face Market
Amount (000) Value
- --------------------------------------------------------
RETAIL (11.4%)
May Department Stores 1,195 $ 65,127
The Limited 3,065 74,901
Wal-Mart Stores 2,460 90,098
----------
230,126
----------
RUBBER & PLASTIC (3.2%)
Dow Chemical 720 65,295
----------
SEMI-CONDUCTORS/INSTRUMENTS (3.8%)
AMP 1,440 77,130
----------
TELEPHONES & TELECOMMUNICATION (3.9%)
AT&T 1,775 78,655
----------
TOTAL COMMON STOCK
(Cost $1,607,371) 1,909,331
----------
CASH EQUIVALENT (0.9%)
Corestates Liquidity Fund
(Cost $18,944) 18 18,944
----------
TRI-PARTY REPURCHASE AGREEMENT (4.2%)
Lehman Brothers
5.32%, dated 09/30/97, matures
10/01/97, repurchase price
$84,332 (collateralized by
U.S. Treasury Bond, par value
$68,712, 10.00%, due 05/15/10,
market value $86,857)
(Cost $84,319) $84 84,319
----------
TOTAL INVESTMENTS (100.0%)
(Cost $1,710,634) 2,012,594
==========
*NON-INCOME PRODUCING SECURITY
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PROFIT VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
<TABLE>
ASSETS:
<S> <C>
Investment securities at market value (cost basis $1,710,634)*............................. $2,012,594
Receivables:
Dividends and interest.................................................................... 3,471
Fund shares sold.......................................................................... 150
Reimburseable expenses due from manager................................................... 68,963
Other assets................................................................................ 6,825
Deferred organizational costs............................................................... 96,774
----------
TOTAL ASSETS............................................................................. 2,188,777
----------
LIABILITIES:
Accrued expenses payable.................................................................... 45,723
Due to administrator for organizational expenses paid....................................... 118,301
Payable for fund shares redeemed............................................................ 14,977
----------
TOTAL LIABILITIES ....................................................................... 179,001
----------
NET ASSETS:
Fund shares (unlimited authorization - no par
value) based on 156,052 shares outstanding............................................... 1,688,119
Undistributed net investment income......................................................... 11,364
Accumulated net realized gain on investments................................................ 8,333
Net unrealized appreciation of investments ................................................ 301,960
----------
TOTAL NET ASSETS ........................................................................ $2,009,776
==========
NET ASSET VALUE PER SHARE .................................................................... $ 12.88
==========
<FN>
*Also cost for Federal Income Tax purposes
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PROFIT VALUE FUND
STATEMENT OF OPERATIONS
For the period November 15, 1996 to September 30, 1997
<TABLE>
INVESTMENT INCOME:
<S> <C>
Dividend income............................................................................ $ 27,034
Interest income............................................................................ 2,873
--------
Total investment income.................................................................. 29,907
--------
EXPENSES:
Investment advisory fees .................................................................. 11,880
Less: Waiver of investment advisory fees................................................... (11,880)
Administration fees ....................................................................... 56,317
Less: Waiver of administration fees ....................................................... (18,405)
Professional fees ......................................................................... 23,140
Transfer Agency fees ...................................................................... 25,421
Pricing fees .............................................................................. 1,754
Printing expenses.......................................................................... 5,248
Custody fees............................................................................... 2,507
Registration fees ......................................................................... 16,640
Organization expense ...................................................................... 20,620
Trustee fees .............................................................................. 10,522
Insurance expense ......................................................................... 2,315
Miscellaneous expense....................................................................... 643
--------
Total expenses before reimbursement ....................................................... 146,722
Less: Reimbursement of expenses by manager................................................. (128,179)
--------
Total expenses, net of reimbursement .................................................... 18,543
--------
NET INVESTMENT INCOME ........................................................................ 11,364
--------
Net realized gain from securities sold .................................................... 8,333
Net change in unrealized appreciation on investments ...................................... 301,960
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .............................................. 310,293
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................. $321,657
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PROFIT VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period November 15, 1996 to September 30, 1997
<TABLE>
OPERATIONS:
<S> <C>
Net investment income...................................................................... $ 11,364
Net realized gain from investments sold..................................................... 8,333
Net change in unrealized appreciation on investments........................................ 301,960
----------
Net increase in net assets resulting from operations..................................... 321,657
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued................................................................ 1,674,905
Cost of shares repurchased.................................................................. (86,786)
----------
Increase in net assets derived from capital share transactions........................... 1,588,119
----------
Total increase in net assets............................................................. 1,909,776
----------
NET ASSETS:
Beginning of period ....................................................................... 100,000
----------
End of period.............................................................................. $2,009,776
==========
CAPITAL SHARE TRANSACTIONS:
Shares issued.............................................................................. 153,642
Shares repurchased.......................................................................... (7,590)
----------
Net capital share activity............................................................... 146,052
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PROFIT VALUE FUND
FINANCIAL HIGHLIGHTS
For the period November 15, 1996 to September 30, 1997
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio
Net Ratio of Expenses
Net Realized and Net of Net to Average
Asset Unrealized Asset Net Ratio Investment Net Assets
Value Net Gains or Value Assets of Expenses Income (Excluding
Beginning Investment (Losses) on End Total End to Average to Average Waivers and
of Period Income Investments of Period Return of Period Net Assets Net Assets Reimbursements)
--------- ---------- ------------ --------- ------ --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997(1) $10.00 $0.07 $2.81 $12.88 28.80%(3) $2,009,776 1.95% 1.19% 18.57%
Ratio
of Net
Investment
Income (Loss)
to Average
Net Assets
(Excluding Portfolio Average
Waivers and Turnover Commission
Reimbursements) Rate Rate (2)
--------------- --------- ----------
<S> <C> <C> <C>
1997(1) (15.43)% 9.59% $0.0600
<FN>
All amounts have been annualized unless otherwise noted.
(1) The Fund commenced operations on November 15, 1996.
(2) Average commission rate paid per share for security purchases and sales during the period.
(3) Total return has not been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
1. ORGANIZATION:
The Profit Funds Investment Trust (the "Trust") was organized as a Massachusetts
business trust under a Declaration of Trust dated June 14, 1996. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company with two portfolios: the Profit Value Fund
(formerly the Profit Lomax Value Fund) (the "Fund") and the Profit Institutional
Equity Fund (formerly the Profit Lomax Institutional Equity Fund). As of
September 30, 1997, the Profit Institutional Equity Fund had not commenced
operations. The Fund's prospectus provides a description of the Fund's
investment objectives, policies and strategies. The assets of the Fund are
segregated, and a shareholder's interest is limited to the Fund in which shares
are held.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund. These policies are in conformity with generally accepted accounting
principles.
SECURITY VALUATION -- Investments in equity securities that are traded
on a national securities 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. If there is no
such reported sale, these securities, and unlisted securities for which
market quotations are readily available, are valued at the most recently
quoted bid price.
Debt obligations exceeding sixty days to maturity for which market
quotations are readily available are valued at the most recently quoted bid
price. Debt obligations with sixty days or less until maturity may be
valued either at the most recently quoted bid price or at their amortized
cost.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions
are accounted for on the trade date of the security purchase or sale.
Dividend income is recognized on ex-dividend date, and interest income is
recognized on an accrual basis and includes, where applicable, the pro rata
amortization of premium or accretion of discount. The cost used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and
amortization of purchase discounts and premiums during the applicable
holding period. Purchase discounts and premiums on securities held by the
Fund are accreted and amortized to maturity using the scientific interest
method, which approximates the effective interest method.
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
provisions for Federal income taxes is required.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for
repurchase agreements are held by the custodian bank until the repurchase
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.
NET ASSET VALUE PER SHARE -- The net asset value per share of the Fund is
calculated each business day. In general, it is completed by dividing the
assets of the Fund, less its liabilities, by the number of outstanding
shares of the Fund.
OTHER -- Distributions from net investment income for the Fund are declared
and paid annually to shareholders. Any net realized capital gains are
distributed to shareholders at least annually.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements, in conformity 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
9
<PAGE>
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVESTMENT ADVISORY AGREEMENT:
The Fund has an agreement with Investor Resources Group, Inc. (the "Manager"),
to provide general investment advisory services to the Fund and to manage the
Fund's business affairs. The agreement requires the Fund to pay the Manager a
monthly fee at the annual rate of 1.25% of the Fund's average daily net assets.
The Manager currently intends to waive its fee and reimburse the Fund for
expenses incurred to the extent necessary to enable the Fund to maintain total
operating expenses at a maximum level of 1.95% per annum of the Fund's average
daily net assets. The waiver and reimbursement are voluntary and may be
discontinued at any time.
The Manager retained the Edgar Lomax Company ("Edgar Lomax"), to serve as
subadviser to the Fund through 10/31/97. For its services, the Manager paid
Edgar Lomax a fee at the annual rate of 0.50% of the Fund's average daily net
assets.
Effective 11/1/97, the Manager assumed full responsibility for Investment
Advisory Services.
CoreStates Bank, N.A., acts as Custodian for the Fund. The Custodian plays no
role in determining the investment policies of the Fund or which securities are
to be purchased or sold in the Fund.
4. ADMINISTRATION AGREEMENTS:
The Fund has entered into a Fund Accounting and Administration Agreement with
SEI Fund Resources (SEI). For its services, the Fund pays SEI a fee equal on an
annual basis to the greater of (i) 0.15% of the average daily net assets on the
first $50 million of the Fund, 0.125% of the average daily net assets on the
next $50 million, and 0.10% of the average daily net assets on all assets over
$100 million, or (ii) $65,000. Effective 12/1/97, Fund Accounting and
Administration will be provided by Countrywide Investments, Inc.
The Fund has retained State Street Bank and Trust Company as its Transfer Agent.
Boston Financial Data Services, Inc., serves as the Fund's dividend disbursing
agent and shareholder service agent. BFDS is a subsidiary of State Street Bank
and Trust Company.
5. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
Organizational costs have been capitalized by the Fund and are being amortized
on a straight line basis over a maximum of sixty months following commencement
of operations. In the event any of the initial shares of the Fund are redeemed
by any holder thereof during the period that the Fund is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof by
the Fund will be reduced by the unamortized organizational cost in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
Certain officers of the Fund are also officers of the Manager or the current
Administrator. Such officers are paid no fees by the Fund for serving as
officers of the Fund.
6. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, excluding
short-term investments, for the year ended September 30, 1997 were as follows:
PURCHASES SALES
--------- --------
Profit
Value Fund $1,701,387 $102,349
The aggregate gross unrealized appreciation and depreciation for securities held
by the Fund at September 30, 1997 was as follows:
NET UNREALIZED
APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
Profit
Value Fund $301,960 $-- $301,960
10
<PAGE>
PROFIT VALUE FUND
NOTICE TO SHAREHOLDERS
September 30, 1997
(UNAUDITED)
FOR TAXPAYERS FILING ON A CALENDAR YEAR BASIS, THIS NOTICE IS FOR INFORMATIONAL
PURPOSES ONLY.
Dear Profit Fund Shareholders:
For the fiscal year ended September 30, 1997, each portfolio is designating
long-term capital gains, qualifying dividends and exempt income with regard to
distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C) (E)
CAPITAL GAINS INCOME TOTAL (D) TAX (F)
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING EXEMPT FOREIGN
PORTFOLIO (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1) INTEREST TAX CREDIT
- --------- ------------- ------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Profit Value Fund 0% 0% 0% 75% 0% 0%
</TABLE>
Please consult your tax adviser for proper treatment of this information.
- ----------
(1) QUALIFYING DIVIDENDS REPRESENT DIVIDENDS WHICH QUALIFY FOR THE CORPORATE
DIVIDENDS RECEIVED DEDUCTION.
* ITEMS (A) AND (B) ARE BASED ON A PERCENTAGE OF THE PORTFOLIO'S TOTAL
DISTRIBUTIONS.
** ITEMS (D), (E) AND (F) ARE BASED ON A PERCENTAGE OF ORDINARY INCOME
DISTRIBUTIONS OF THE PORTFOLIO.
11
