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PROFIT FUNDS INVESTMENT TRUST
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PROFIT VALUE FUND
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SEMI-ANNUAL REPORT
March 31, 1999
(Unaudited)
INVESTMENT ADVISER ADMINISTRATOR
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INVESTOR RESOURCES GROUP, LLC COUNTRYWIDE FUND SERVICES, INC.
8720 Georgia Avenue, Suite 808 P.O. Box 5354
Silver Spring, Maryland 20910 Cincinnati, Ohio 45201-5354
1.888.744.2337
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<PAGE>
PROFIT FUNDS Profit Value Fund
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[LOGO]
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INVESTMENT TRUST
LETTER TO SHAREHOLDERS PROFIT VALUE FUND
May 19, 1999
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 total return
by investment primarily in established, larger capitalization companies (i.e.
companies having a market capitalization exceeding $1 billion) that are
attractive relative to their peers. During the semi-annual period covered by
this report, the performance of traditional "value" stocks lagged significantly
behind the S&P 500 Index; however, the Profit Value Fund outperformed both its
peers and the S&P 500 Index.
We are pleased to inform you that the first quarter of 1999 was the best
quarter in Profit Value Fund's history on numerous fronts. Asset growth
increased well beyond the historical monthly average of 7.5% per month from
inception through last fiscal year-end, and the Fund was mentioned in numerous
magazine and press articles. The most exciting news is that the Fund's strong
performance in 1998 continued into first quarter of 1999, with the Fund's 13.16%
return outperforming the 4.98% increase in the S&P 500 Index and the 2.12%
increase in the Lipper Growth & Income Fund Index for the quarter. We are
excited about the Fund's performance and how it is helping to generate
substantial interest in the Profit Value Fund. The Fund's addition of a 4%
front-end load to new shareholder purchases during the period has also
contributed to interest in the Fund as stockbrokers are beginning to discuss the
Fund with their clients.
For the semi-annual period ended March 31, 1999, the Profit Value Fund
closed at a net asset value of $18.74 per share. The Fund's total return over
the twelve months then ended was 37.77%, as compared to a total return for the
S&P 500 Index of 18.46% and a 4.12% return for the Lipper Growth & Income Fund
Index. The Fund's performance compared to its Lipper peer group competitors as
well as its S&P 500 Index benchmark reflects strong relative outperformance.
During much of 1998, advances in the equity market were very narrow, led by
a sector by sector rotation of the top large momentum stocks, which continued to
push the S&P 500 Index to historically high valuations. In this type of market
environment, traditional "value" stocks typically get beaten up and fail to keep
pace; however,
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P.O. Box 5354 o Cincinnati, Ohio 45201-5354 o 888.744.2337
<PAGE>
management's increase in the Fund's exposure to the technology sector late last
summer proved timely and the Fund was able to prosper in this narrow market
advance. As the market began to broaden during the semi-annual period,
management started to put new assets to work in the financial services, basic
materials, automobiles, and utilities sectors. During the period, the Fund
initiated positions in Bell Atlantic, Chase Manhattan, CompUSA, Walt Disney,
duPont, Fannie Mae, Ford, and Pepsico. The Fund sold positions in International
Paper and Computer Associates.
The U.S. market has been rising at triple its historical annual rate over
the past four years. Although we caution investors to temper expectations of
future market returns, we believe the Fund is well positioned to weather any
changes in the market environment. We believe that, although the Federal Reserve
may change its interest rate policy in the short term, interest rates will
remain near their current level over the longer term. We remain convinced that
within the market strength of the past year there has been enough sector and
individual security corrections to help minimize any concerns about a sustained
market downturn.
Regardless of the direction the markets take in the coming years, we
believe that the Profit Value Fund will continue to offer an attractive
investment opportunity for individual and institutional investors. We continue
to evaluate companies in a prudent and cautious manner, seeking companies that
represent good valuations relative to their industry and competitors that are
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.
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 for many years to come.
Sincerely,
/s/ Eugene A. Profit
Eugene A. Profit
President
<PAGE>
PROFIT VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999 (UNAUDITED)
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ASSETS
Investments in securities:
At acquisition cost $ 2,307,837
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At value (Note 1) $ 3,535,123
Cash 40,000
Receivable for capital shares sold 6,040
Dividends receivable 3,698
Receivable from Adviser 47,410
Organization costs, net (Note 1) 61,284
Other assets 16,519
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TOTAL ASSETS 3,710,074
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LIABILITIES
Payable to affiliates (Note 3) 4,000
Payable for securities purchased 176,400
Other accrued expenses and liabilities 8,502
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TOTAL LIABILITIES 188,902
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NET ASSETS $ 3,521,172
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Net assets consist of:
Paid-in capital $ 2,271,657
Accumulated net investment loss (10,173)
Accumulated net realized gains from security transactions 32,402
Net unrealized appreciation on investments 1,227,286
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Net assets $ 3,521,172
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Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 187,904
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Net asset value and redemption price per share (Note 1) $ 18.74
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Maximum offering price per share (Note 1) $ 19.52
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See accompanying notes to financial statements.
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PROFIT VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
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INVESTMENT INCOME
Dividends $ 15,005
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EXPENSES
Professional fees 16,337
Investment management fees (Note 3) 16,191
Accounting services fees (Note 3) 12,000
Organization expense (Note 1) 11,830
Custodian fees 7,085
Postage and supplies 6,975
Insurance expense 6,750
Registration fees 6,331
Administration fees (Note 3) 6,000
Transfer agent fees (Note 3) 6,000
Trustees' fees and expenses 4,648
Reports to shareholders 2,186
Distribution expense (Note 3) 621
Other expenses 578
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TOTAL EXPENSES 103,532
Fees waived and expenses reimbursed by the Adviser (Note 3) (78,354)
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NET EXPENSES 25,178
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NET INVESTMENT LOSS (10,173)
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REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains from security transactions 32,402
Net change in unrealized appreciation/
depreciation on investments 959,514
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NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 991,916
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NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 981,743
=========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PROFIT VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED MARCH 31, 1999 AND SEPTEMBER 30, 1998
=========================================================================================
Six Months
Ended Year
March 31, Ended
1999 September 30,
(Unaudited) 1998
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FROM OPERATIONS:
<S> <C> <C>
Net investment loss $ (10,173) $ (3,902)
Net realized gains from security transactions 32,402 3,421
Net change in unrealized appreciation/depreciation
on investments 959,514 (34,188)
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Net increase (decrease) in net assets from operations 981,743 (34,669)
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FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income -- (13,477)
Distributions from net realized gains (3,407) (8,347)
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Decrease in net assets from distributions to shareholders (3,407) (21,824)
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FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 762,244 979,553
Net asset value of shares issued in
reinvestment of distributions to shareholders 3,397 21,756
Payments for shares redeemed (238,937) (938,460)
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Net increase in net assets from capital share transactions 526,704 62,849
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TOTAL INCREASE IN NET ASSETS 1,505,040 6,356
NET ASSETS:
Beginning of period 2,016,132 2,009,776
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End of period $ 3,521,172 $ 2,016,132
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ACCUMULATED NET INVESTMENT LOSS $ (10,173) $ --
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold 44,722 73,832
Shares issued in reinvestment of distributions
to shareholders 206 1,766
Shares redeemed (16,235) (72,439)
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Net increase in shares outstanding 28,693 3,159
Shares outstanding, beginning of period 159,211 156,052
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Shares outstanding, end of period 187,904 159,211
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PROFIT VALUE FUND
FINANCIAL HIGHLIGHTS
==========================================================================================================
Six Months
Ended Year Period
March 31, Ended Ended
1999 Sept. 30, Sept. 30,
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD: (Unaudited) 1998 1997 (a)
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<S> <C> <C> <C>
Net asset value at beginning of period $ 12.66 $ 12.88 $ 10.00
-------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) (0.05) (0.02) 0.07
Net realized and unrealized gains (losses) on investments 6.15 (0.06) 2.81
-------- -------- --------
Total from investment operations 6.10 (0.08) 2.88
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Less distributions:
Dividends from net investment income -- (0.09) --
Distributions from net realized gains (0.02) (0.05) --
-------- -------- --------
Total distributions (0.02) (0.14) --
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Net asset value at end of period $ 18.74 $ 12.66 $ 12.88
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA:
Total return (b) 48.22%(d) (0.57%) 28.80%(d)
======== ======== ========
Net assets at end of period (000's) $ 3,521 $ 2,016 $ 2,010
======== ======== ========
Ratio of net expenses to average net assets (c) 1.94%(e) 1.95% 1.95%(e)
Ratio of net investment income (loss) to average net assets (0.79%)(e) (0.18%) 1.19%(e)
Portfolio turnover rate 17%(e) 101% 10%(e)
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</TABLE>
(a) Represents the period from the initial public offering of shares (November
15, 1996) through September 30, 1997.
(b) Total returns shown exclude the effect of applicable sales loads.
(c) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 7.99% (e), 8.36% and
18.57% (e) for the periods ended March 31, 1999, September 30, 1998 and
1997, respectively (Note3).
(d) Not annualized.
(e) Annualized.
See accompanying notes to financial statements.
<PAGE>
PROFIT VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
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Market
COMMON STOCKS - 96.3% Shares Value
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AUTOMOBILES - 3.6%
Ford Motor Co. 2,200 $ 124,850
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BASIC & SPECIALTY CHEMICALS - 3.6%
Dow Chemical Co. 720 67,095
E.I. du Pont de Nemours & Co. 1,000 58,063
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125,158
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BEVERAGES - 2.2%
Pepsico, Inc. 2,000 78,375
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CONSUMER STAPLES - 1.8%
Eastman Kodak Co. 1,000 63,875
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ELECTRIC UTILITIES - 1.6%
Southern Co. 2,460 57,349
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ENERGY & RESOURCES - 4.2%
El Paso Energy Corp. 1,500 49,031
Exxon Corp. 800 56,450
Mobil Corp. 500 44,000
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149,481
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FINANCIAL & INSURANCE - 16.7%
American General Corp. 1,375 96,937
Chase Manhattan Corp. 1,300 105,706
Countrywide Credit Industries, Inc. 1,000 37,500
Fannie Mae 1,000 69,250
Legg Mason, Inc. 2,000 67,375
Marsh & McLennan Co., Inc. 750 55,641
Merrill Lynch & Co. 1,000 88,437
T. Rowe Price Associates, Inc. 2,000 68,750
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589,596
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HEALTHCARE - 8.1%
Amgen, Inc.* 1,400 104,825
Merck & Co., Inc. 1,400 112,263
Pfizer, Inc. 500 69,375
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286,463
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MEDICAL INSTRUMENTS - 8.1%
Medtronic, Inc. 1,000 71,750
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MULTI-MEDIA - 1.8%
The Walt Disney Co. 2,000 62,250
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<PAGE>
PROFIT VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
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Market
COMMON STOCKS - 96.3% (Continued) Shares Value
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RETAILING - 10.2%
Abercrombie & Fitch Co.* 1,775 $ 163,300
Nike, Inc. 1,000 57,688
Wal-Mart Stores, Inc. 1,500 138,281
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359,269
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RETIREMENT/AGED CARE - 1.3%
Sunrise Assisted Living, Inc.* 1,000 45,563
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TECHNOLOGY - 30.0%
America Online, Inc.* 2,400 350,400
Compaq Computer Corp. 2,000 63,375
CompUSA Inc.* 5,000 35,000
EMC Corp.* 2,000 255,500
Intel Corp. 1,000 119,125
Microsoft Corp.* 1,200 107,550
Sun Microsystems, Inc.* 1,000 124,937
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1,055,887
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TELECOMMUNICATIONS - 7.7%
AT&T Corp. 1,275 101,761
Bell Atlantic Corp. 1,500 77,531
GeoTel Communications Corp.* 2,000 91,750
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271,042
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TELEVISION - 1.4%
Univision Communications, Inc. - Class A* 1,000 50,000
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TOTAL COMMON STOCKS (Cost $2,163,622) - 96.3% $ 3,390,908
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MONEY MARKETS - 4.1%
Corestates Liquidity Fund 6,847 $ 6,847
Fidelity Institutional Cash Fund 137,368 137,368
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TOTAL MONEY MARKETS (COST $144,215) $ 144,215
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TOTAL INVESTMENTS AT VALUE (COST $2,307,837) - 100.4% $ 3,535,123
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.4)% (13,951)
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NET ASSETS - 100.0% $ 3,521,172
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* Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (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
a 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 (normally 4:00 p.m., Eastern time). Securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the closing sales price
or, if not traded on a particular day, at the closing bid price. Securities
traded in the over-the-counter market, and which are not quoted by NASDAQ, are
valued at the last sales price, if available, otherwise, at the last quoted bid
price. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith in accordance with procedures
established by and under the general supervision of the Board of Trustees.
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 maximum offering
price per share of the Fund is equal to the net asset value per share plus a
sales load equal to 4.17% of the net asset value (or 4% of the offering price).
The 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.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
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. In the event any of the
initial shares of the Fund are redeemed during the amortization period, the
redemption proceeds will be reduced by a pro rata portion of any unamortized
organization costs in the same proportion as the number of initial shares being
redeemed bears to the number of initial shares of the Fund outstanding at the
time of redemption. As of March 31, 1999, unamortized organization costs of
$61,284 are scheduled to be amortized over a remaining 31 months.
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
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
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, 1999, net unrealized appreciation on investments was $1,227,286
for federal income tax purposes, of which $1,281,413 related to appreciated
securities and $54,127 related to depreciated securities based on a federal
income tax cost basis of $2,307,837.
2. INVESTMENT TRANSACTIONS
During the six months ended March 31, 1999, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$838,348 and $196,061, respectively.
3. TRANSACTIONS WITH AFFILIATES
The President of the Trust is also the President of Investor Resources Group,
LLC (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, shareholder servicing and transfer agent, and
accounting services agent for the Trust.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
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 advisory
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 voluntarily waive its investment advisory fees
and reimburse the Fund for expenses incurred to the extent necessary to limit
total operating expenses of the Fund to 1.95% of the Fund's average daily net
assets. Accordingly, the Adviser waived its investment advisory fees of $16,191
and reimbursed the Fund for $62,163 of other operating expenses during the six
months ended March 31, 1999.
ADMINISTRATION AGREEMENT
Under the terms of an Administration 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, 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, CFS receives a monthly fee at an annual rate of 0.15% of the Fund's
average daily net assets up to $25 million; 0.125% of such net assets between
$25 million and $50 million; and 0.10% of such net assets in excess of $50
million, subject to a minimum monthly fee of $1,000. During the six months ended
March 31, 1999, CFS earned $6,000 of administration fees under the
Administration Agreement.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, CFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, CFS receives a fee, based on current asset levels, of
$2,000 per month from the Fund. During the six months ended March 31, 1999, CFS
earned $12,000 of accounting services fees under the Accounting Services
Agreement. In addition, the Fund reimburses CFS for out-of-pocket expenses
related to the pricing of the Fund's portfolio securities.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, CFS maintains the records of each shareholder's account,
answers shareholders' 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. For these
services, CFS receives a monthly fee at an annual rate of $17.00 per shareholder
account from the Fund, subject to a $1,000 minimum monthly fee. During the six
months ended March 31, 1999, CFS earned $6,000 of transfer agent fees under the
Transfer Agent Agreement. In addition, the Fund reimburses CFS for out-of-pocket
expenses including, but not limited to, postage and supplies.
<PAGE>
PROFIT VALUE FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
UNDERWRITING AGREEMENT
CW Fund Distributors, Inc. (the Underwriter), an affiliate of CFS, serves as
principal underwriter for the Fund and exclusive agent for the distribution of
shares of the Fund. Under the terms of an Underwriting Agreement between the
Trust and the Underwriter, the Underwriter earned $936 from underwriting and
brokerage commissions on the sale of shares of the Fund for the six months ended
March 31, 1999.
DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution (the Plan) under which the Fund may
directly incur or reimburse the Adviser for expenses related to the distribution
and promotion of Fund shares. The annual limitation for payment of such expenses
under the Plan is 0.25% of the Fund's average daily net assets. The Fund
incurred distribution expenses of $621 under the Plan during the six months
ended March 31, 1999.
