PROFIT VALUE FUND
[LOGO]
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SEMI-ANNUAL REPORT TO SHAREHOLDERS
For the Period Ended March 31, 1998
LETTER TO SHAREHOLDERS PROFIT VALUE FUND
March 31, 1998
Dear Profit Value Fund Shareholder:
At Profit Funds, we are committed to helping you pursue your financial
goals, whether it's saving for retirement, paying for college tuition, buying a
home, or building your own business. Our investment philosophy is that, over the
long term, the most promising investment opportunities can be found among large
financially sound companies which at the time of investment show an attractive
valuation discount relative to their peers.
Profit Value Fund is a growth mutual fund that seeks long term capital
gains by investing primarily in established larger capitalization companies
(i.e. companies having a market capitalization exceeding $1 Billion dollars)
that are attractive relative to their peers. During the six month period covered
by this report, the Advisor's stock selections generally produced positive
returns in an environment where traditional "value" stocks fell behind the S&P
500 averages. 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. During
the Fund's semi-annual period ending March 1998, the Profit Value Fund began to
regain the growth momentum it enjoyed during the period immediately following
its inception. The Fund's transition to Countrywide Fund Services as the new
administrator proceeded smoothly and on January 12, they took over all functions
previously delegated to SEI Fund Resources.
For the semi-annual period ended March 31, 1998, the Profit Value Fund
closed at a value of $13.62 per share for a total return of 6.97%. 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 period. During the
period, strength in the broad market continued to attract mutual fund inflows.
Advances in the equity market were led by a sector by sector rotation of
momentum stocks pushing the market averages to historically high valuations. The
question whether another Federal Reserve tightening will come later in the year
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
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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.
As anticipated, Quash Profit Productions, LLC T/A Investor Resources Group
("IRG") continues to make adjustments to the portfolio as conditions warrant.
The turnover ratio of the portfolio was higher than normal due to repositioning
the portfolio to reflect IRG's style of management. Specifically, the addition
of EMC, Compaq, Intel, Computer Associates, and Sun Microsystems should place
the Fund in a good position to benefit from the next run in technology which
management believes has already begun to occur in early 1998. Additionally IRG
has added 2 pharmaceutical companies, Merck and Pfizer, and 5 financial services
companies, Bear Stearns, Countrywide Credit, Legg Mason, Marsh & McClennan, and
T-Rowe Price, and we continue to evaluate companies that represent good
valuations relative to their industry and competitors.
While we are pleased with the Fund's performance in the period just ended,
we understand that the market strength shown in 1995, 1996, 1997 and early 1998
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 the remainder of the 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 express our sincere appreciation to 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 many years
to come.
Sincerely,
/s/ Eugene A. Profit
Eugene A. Profit
President
2
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PROFIT VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
================================================================================
ASSETS
Investments in securities:
At acquisition cost $1,731,348
==========
At value (Note 1) $2,064,156
Receivable for capital shares sold 119,520
Dividends receivable 3,960
Receivable for securities sold 185,560
Receivable from Advisor 70,339
Organization costs, net (Note 1) 84,944
Other assets 8,438
----------
TOTAL ASSETS 2,536,917
----------
LIABILITIES
Payable to affiliates (Note 3) 3,000
Payable for securities purchased 211,778
Other accrued expenses and liabilities 41,155
----------
TOTAL LIABILITIES 255,933
----------
NET ASSETS $2,280,984
==========
Net assets consist of:
Paid-in capital (Note 1) $1,844,839
Accumulated net undistributed income 2,072
Accumulated net realized gains from security transactions 101,265
Net unrealized appreciation on investments 332,808
----------
Net assets $2,280,984
==========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 167,477
==========
Net asset value, offering price and
redemption price per share (Note 1) $ 13.62
==========
See accompanying notes to financial statements.
3
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PROFIT VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31 , 1998 (UNAUDITED)
================================================================================
INVESTMENT INCOME
Dividend income $ 22,418
Interest income 1,006
---------
TOTAL INVESTMENT INCOME 23,424
---------
EXPENSES
Administration and accounting fees (Note 3) 26,916
Registration fees 16,413
Professional fees 14,606
Transfer agent fees (Note 3) 13,163
Investment management fees (Note 3) 12,255
Organization expense 11,830
Insurance expense 5,962
Reports to shareholders 1,639
Custodian fees 1,317
Distribution expense 324
Other expenses 1,738
---------
TOTAL EXPENSES 106,163
Fees waived and expenses reimbursed by the Adviser (Note 3) (86,924)
---------
NET EXPENSES 19,239
---------
NET INVESTMENT INCOME 4,185
---------
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains from security transactions 101,279
Net change in unrealized
appreciation/depreciation on investments 30,848
---------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 132,127
---------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 136,312
=========
See accompanying notes to financial statements.
4
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<CAPTION>
PROFIT VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED MARCH 31, 1998 AND SEPTEMBER 30, 1997
=========================================================================================
SIX MONTHS PERIOD
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1998 1997 (A)
(UNAUDITED)
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 4,185 $ 11,364
Net realized gains from security transactions 101,279 8,333
Net change in unrealized appreciation/
depreciation on investments 30,848 301,960
----------- -----------
Net increase in net assets from operations 136,312 321,657
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (13,477) --
Distributions from net realized gains (8,347) --
----------- -----------
Decrease in net assets from distributions to shareholders (21,824) 0
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 487,569 1,674,905
Net asset value of shares issued in
reinvestment of distributions to shareholders 21,756 --
Payments for shares redeemed (352,605) (86,786)
----------- -----------
Net increase in net assets from capital share transactions 156,720 1,588,119
----------- -----------
TOTAL INCREASE IN NET ASSETS 271,208 1,909,776
NET ASSETS:
Beginning of period 2,009,776 100,000
----------- -----------
End of period $ 2,280,984 $ 2,009,776
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold 37,590 153,642
Shares issued in reinvestment of
distributions to shareholders 1,766 --
Shares redeemed (27,931) (7,590)
----------- -----------
Net increase in shares outstanding 11,425 146,052
Shares outstanding, beginning of period 156,052 --
----------- -----------
Shares outstanding, end of period 167,477 146,052
=========== ===========
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(a) Represents the period from the initial public offering of shares (November
15, 1996) through September 30, 1997.
See accompanying notes to financial statements.
5
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<CAPTION>
PROFIT VALUE FUND
FINANCIAL HIGHLIGHTS
===================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
- -----------------------------------------------------------------------------------
Six Months Period
Ended Ended
Mar. 31, Sept. 30,
1998 1997 (a)
(Unaudited)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period $ 12.88 $ 10.00
-------- --------
Income from investment operations:
Net investment income 0.03 0.07
Net realized and unrealized gains on investments 0.85 2.81
-------- --------
Total from investment operations 0.88 2.88
-------- --------
Less distributions:
Dividends from net investment income (0.09) --
Distributions from net realized gains (0.05) --
-------- --------
Total distributions (0.14) --
-------- --------
Net asset value at end of period $ 13.62 $ 12.88
======== ========
RATIOS AND SUPPLEMENTAL DATA:
Total return ( not annualized) 6.97% 28.80%
======== ========
Net assets at end of period (000's) $ 2,281 $ 2,010
======== ========
Ratio of expenses to average net assets (b) 1.95%(C) 1.95%(C)
Ratio of net investment income to average net assets 0.43%(C) 1.19%(C)
Portfolio turnover rate 101%(C) 10%(C)
Average commission rate per share $ 0.060 $ 0.0600
- -----------------------------------------------------------------------------------
</TABLE>
(a) Represents the period from the initial public offering of shares (November
15, 1996) through September 30, 1997.
(b) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 10.76% and 18.57% for the
periods ended March 31, 1998 and September 30, 1997, respectively.
(c) Annualized.
See accompanying notes to financial statements.
6
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PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The Profit Value Fund (the Fund) is a diversified series of Profit Funds
Investment Trust (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940. The Trust was organized as
an Massachusetts business trust on June 14, 1996. The public offering of shares
of the Fund commenced on November 15, 1996. The Fund had no operations prior to
the public offering of shares except for the initial issuance of shares.
The Fund seeks long-term total return, consistent with the preservation of
capital and maintenance of liquidity, by investing primarily in the common stock
of established, larger capitalization companies (i.e. companies having a market
capitalization exceeding $1 billion). Dividend income is only an incidental
consideration to the Fund's investment objective.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time). Securities which are traded
over-the-counter are valued based on the last sales price, if available,
otherwise, at the last quoted bid price. Securities traded on a national stock
exchange are valued based upon the closing price on the principal exchange where
the security is traded.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost, which, together with accrued
interest, approximates market. At the time the Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding, rounded to the nearest cent. The offering and
redemption price per share of the Fund is equal to the net asset value per
share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned. Distributions to shareholders --
Distributions to shareholders arising from net investment income and net
realized capital gains, if any, are distributed at least once each year.
Dividends from net investment income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Organization costs -- Costs incurred by the Fund in connection with its
organization and registration of shares, net of certain expenses, have been
capitalized and are being amortized on a straight-line basis over a five year
period beginning with the commencement of operations.
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 at
7
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PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
As of March 31, 1998, net unrealized appreciation on investments was $332,808
for federal income tax purposes, of which $359,565 related to appreciated
securities and $26,757 related to depreciated securities based on a federal
income tax cost basis of $3,650,497.
2. INVESTMENT TRANSACTIONS
During the six months ended March 31, 1998, purchases and proceeds from sales of
portfolio securities, other than short-term investments, amounted to $959,166
and $940,884, respectively.
3. TRANSACTIONS WITH AFFILIATES
The President of the Board of the Trust is also the President of Investor
Resources Group, Inc. (the Adviser). Certain other trustees and officers of the
Trust are also officers of the Adviser or of Countrywide Fund Services, Inc.
(CFS), the administrative services agent and accounting services agent for the
Trust.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser pursuant to the terms of an
Investment Advisory Agreement. The Fund pays the Adviser an investment
management fee, computed and accrued daily and paid monthly, at an annual rate
of 1.25% of average daily net assets of the Fund.
The Adviser currently intends to waive its fee and reimburse the Fund for
expenses incurred to the extent necessary to enable it to maintain total
operating expenses at a maximum level of 1.95% per annum of the Fund's average
daily net assets. Accordingly, the Adviser waived its entire investment advisory
fee of $12,255 and reimbursed the Fund for $74,669 of other operating expenses
during the six months ended March 31, 1998.
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENTS
Effective on January 12, 1998, the Fund entered into an Administration Agreement
with CFS. Under the terms of the Agreement, CFS supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for the Fund. CFS supervises the
preparation of tax returns for the Fund, reports to shareholders of the Fund,
reports to and filings with the Securities and Exchange Commission and state
securities commissions and materials for meetings of the Board of Trustees. For
these services, the Fund pays CFS a monthly fee calculated at an annual rate of
.15% of average daily net assets up to $25 million; .125%
8
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PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Concluded)
of such assets between $25 million and $50 million; and .10% of such assets in
excess of $50 million, subject to a minimum monthly fee of $1,000.
Also effective on January 12, 1998, the Fund entered into an Accounting Services
Agreement with CFS. Under the terms of the Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, the Fund pays CFS a monthly fee of $2,000. In
addition, the Fund reimburses CFS for its out-of-pocket expenses related to the
pricing of the Fund's portfolio securities.
Prior to January 12, 1998, the Fund was party to a Fund Accounting and
Administration Agreement with SEI Fund Resources (SEI) under which these
services were performed by SEI at 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% on the next $50 million of such assets, and 0.10% on all such
assets over $100 million, or (ii) $65,000.
TRANSFER AGENT AGREEMENT
State Street Bank and Trust Company is the Fund's transfer agent. Boston
Financial Data Services, Inc., a subsidiary of State Street Bank and Trust
Company, maintains the records of each shareholder's account, answers
shareholder's inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions.
9
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PROFIT VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998 (UNAUDITED)
================================================================================
MARKET
INVESTMENTS IN COMMON STOCK - 90.3% SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE - 0.2%
Raytheon Co. 88 $ 5,005
----------
AUTOMOTIVE - 2.3%
General Motors Corp. 795 $ 53,613
----------
BASIC & SPECIALTY CHEMICALS - 6.0%
Dow Chemical Co. 720 $ 70,020
E.I. du Pont de Nemours & Co. 1,000 68,000
----------
$ 138,020
----------
CONSUMER STAPLES - 4.9%
Eastman Kodak Co. 1,000 $ 64,875
Fila Holding ADR 2,000 46,875
----------
$ 111,750
----------
ELECTRIC UTILITIES - 6.0%
American Electric Power Co., Inc. 1,350 $ 67,838
Southern Co. 2,460 68,111
----------
$ 135,949
----------
ENERGY & RESOURCES - 9.8%
Atlantic Richfield Co. 500 $ 39,312
Chevron Corp. 690 55,416
Exxon Corp. 800 54,100
Global Marine, Inc.* 1,500 37,125
Mobil Corp. 500 38,312
----------
$ 224,265
----------
FINANCIAL & INSURANCE - 16.1%
American General Corp. 1,375 $ 88,945
Bear Stearns Co., Inc. 1,000 51,375
Country Credit Industries, Inc. 1,000 53,187
Legg Mason, Inc. 1,000 59,313
Marsh & McLennan Co., Inc. 500 43,656
T. Rowe Price Associates, Inc. 1,000 70,375
----------
$ 366,851
----------
FOOD, BEVERAGE & TOBACCO - 3.2%
Philip Morris Co., Inc. 1,730 $ 72,119
----------
HEALTHCARE - 4.4%
Merck & Co., Inc. 400 $ 51,350
Pfizer, Inc. 500 49,844
----------
$ 101,194
----------
MANUFACTURING - 1.7%
Minnesota Mining and Manufacturing Co. 440 $ 40,122
----------
10
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MEDICAL INSTRUMENTS - 2.3%
Medtronic, Inc. 1,000 $ 51,875
----------
PAPER PRODUCTS - 2.1%
International Paper Co. 1,000 $ 46,812
----------
RETAILING - 8.1%
The Limited, Inc. 2,065 $ 59,240
Wal-Mart Stores, Inc. 2,460 124,999
----------
$ 184,239
----------
TECHNOLOGY - 17.6%
Compaq Computer Corp. 2,000 $ 51,750
Computer Associates International, Inc. 1,000 57,750
EMC Corp.* 2,000 75,625
Harris Corp. 1,630 84,964
Intel Corp. 700 54,644
Sun Microsystems, Inc.* 1,000 41,719
Western Digital Corp.* 2,000 35,125
----------
$ 401,577
----------
TELECOMMUNICATIONS - 3.7%
AT&T Corp. 1,275 $ 83,672
----------
TRANSPORTATION - 1.9%
FDX Corp.* 600 $ 42,675
----------
TOTAL COMMON STOCK $2,059,738
----------
(Cost $1,726,931)
- --------------------------------------------------------------------------------
FACE MARKET
CASH EQUIVALENTS - 0.2% AMOUNT VALUE
- --------------------------------------------------------------------------------
Corestates Liquidity Fund $ 4,418 $ 4,418
---------- ----------
TOTAL CASH EQUIVALENTS $ 4,418 $ 4,418
========== ==========
TOTAL COMMON STOCK & CASH EQUIVALENTS - 90.5% $2,064,156
OTHER ASSETS IN EXCESS OF LIABILITIES - 9.5% 216,828
----------
NET ASSETS - 100.0% $2,280,984
==========
* Non-income producing securities.
See accompanying notes to financial statements.
11
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<CIK> 0001016887
<NAME> PROFIT FUNDS INVESTMENT TRUST
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<NAME> PROFIT VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 1,731,348
<INVESTMENTS-AT-VALUE> 2,064,156
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<OTHER-ITEMS-ASSETS> 93,382
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</TABLE>
