PERRITT CAPITAL GROWTH FUND
A no-load mutual fund that invests in a
portfolio of common stocks of smaller,
rapidly growing companies
ANNUAL REPORT
----------------
October 31, 1995
No Sales Charges
No Redemption Charges
No 12b-1 Fees
Minimum Initial Investment $1,000
IRA Minimum Initial Investment $250
Dividend Reinvestment Plan
Systematic Withdrawal Plan
Automatic Investment Plan
Retirement Plans Including:
IRA Keogh
SEP 403(b)
For assistance with your existing account, call our Shareholder
Service Center at:
1-800-338-1579
Board of Directors Independent Accountants
David Maglich Checkers, Simon & Rosner LLP
Gerald W. Perritt One South Wacker Drive
Dianne C. Click Chicago, IL 60606
Custodian, Transfer Agent and Investment Advisor
Dividend Disbursing Agent Perritt Capital Management
Firstar Trust Company 680 N. Lake Shore Drive, #2038
PO Box 701 Chicago, IL 60611
Milwaukee, WI 53201-0701 (312) 649-6940
Legal Counsel This report is authorized for
Foley & Lardner distribution only to
777 East Wisconsin Avenue shareholders and others who
Milwaukee, WI 53202 have received a copy of the
prospectus of the Perritt
Capital Growth Fund, Inc.
Dear Fellow Shareholders:
So far, 1995 has treated investors very well. The upward trend in
interest rates that plagued the stock market during 1994 came to a
halt near year-end, and bond prices have been rising during most of
this year. In July, the Federal Reserve lowered short-term
interest rates for the first time in nearly two years, and stock
prices took their cue from the bond market. During the past 12
months (ending October 31, 1995), your fund returned 25.6 percent
versus 16.9 percent for the Russell 2000 Index, a commonly used
measure of small firm stock performance. This is the second
consecutive year that the Perritt Capital Growth Fund returned more
than this small-cap Index.
At fiscal year-end, approximately 20 percent of the fund's
investments were concentrated in so-called "high tech" industries,
such as electronics and semiconductor equipment, telecommunications
and computer software. Most notable by their absence were stocks
in the banking and utility sectors. Even so, the fund continues to
follow a value-oriented investment strategy. Our focus is
primarily on the shares of growing companies with market values of
equity below $150 million. These are the true small-cap stocks of
academic literature describing the so-called "small firm effect."
When making individual investment selections from the group of
approximately 2,000 publicly traded small-cap stocks with equity
capitalizations below $150 million, we seek the common stocks of
companies that are trading at a reasonable price-earnings multiple
relative to their future growth prospects. In general, we prefer
to pay a price-earnings multiple (based on year-ahead per share
earnings) that is less than a company's long-term annual growth
rate.
During the last few months, we have trimmed our investment in
so-called "high-tech" companies and have added to our investments
in the stocks of companies with much more reasonable price-earnings
ratios. In addition, we have been seeking value-priced stocks in
the health care and medical products industries. Despite robust
growth, many firms in these industries have been spending heavily
on research and development, and future revenue and earnings growth
could be one of the pleasant stock market surprises during the next
year or two.
Small-cap stocks in general have performed very well during the
last 12 months, and the future for this sector of the market
appears to be bright. Domestic GDP growth has slowed to a
sustainable level preferred by the Federal Reserve Board. Should
our modest growth expectations be realized, we expect the Fed to
ease its recent restrictive monetary policy. That could bode well
for interest rates. These are precisely the financial and economic
conditions that tend to treat small companies well. Although it is
impossible to predict the future with a high degree of accuracy
(and past returns are not a reliable indicator of future results),
we believe that small-cap stocks will continue to perform well in
the near future.
Although we have noted growing pockets of negativism regarding
near-term prospects for the stock market and the U.S. economy, we
continue to believe that the American capitalist system is the most
powerful economic force on earth. We are proud of America's world
leadership in promoting democracy, human rights and the maintenance
of free markets. And we are confident that investors will continue
to be well-rewarded by their participation in the American capital
markets.
Portfolio Managers: The Fund has been directed since inception by
Dr. Gerald W. Perritt. Dr. Perritt received a doctorate in finance
and economics from the University of Kentucky. He has taught
investments and finance at a number of colleges and universities
including: Babson College, the University of Miami, Florida
International University (where he served as Department Chairman),
Ball State University, and DePaul University (Chicago). In
addition to his duties as portfolio manager of the Fund, Dr.
Perritt is editor of Investment Horizons, an investment newsletter
that focuses on small-cap stocks, and The Mutual Fund Letter, a
mutual fund investment newsletter. He has authored several books
on investing, including Mutual Funds Made Easy, and has served as
a financial columnist for Forbes and Worth magazines. Dr. Perritt
is assisted by Michael Corbett, a 1989 graduate of DePaul
University.
PERFORMANCE Perritt Capital Versus Russell 2000
Growth Fund Small Cap Index
--------------- ---------------
1988 $10,220 $ 9,184
1989 10,604 10,445
1990 8,369 7,412
1991 11,722 11,537
1992 11,921 12,406
1993 13,467 16,165
1994 13,326 15,906
1995 16,738 18,478
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change, or the growth of a hypothetical $10,000
investment. Each performance figure includes changes in a fund's
share price, plus any reinvestment of any dividends (income) and
capital gains (profits the fund earns when is sells stocks that
have grown in value).
Cumulative Total Returns - Periods ended October 31, 1995
Past 1 year Past 5 years Life of Fund
Perritt Capital Growth 25.60% 100.00% 67.38%
S&P 500 Index 24.14% 91.28% 115.24%
Russell 2000 Index 16.87% 149.28% 84.78%
CPI* 2.70% 14.80% 31.48%
Cumulative total returns reflect the fund's actual performance over
a set period - in this case, since the fund began on April 11,
1988. For example, if you invested $1,000 in a fund that had a 5%
return over one year you would end up with $1,050. You can compare
the fund's returns to the S&P 500 - a common proxy for the U.S.
stock market. You can also compare them to the Russell 2000, which
currently reflects the smallest 2000 companies in the U.S. stock
market. Both benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges. Comparing
the fund's performance to the consumer price index helps show how
your investment did compared to inflation*.
Average Annual Total Return - Periods ended October 31, 1995
Past 1 year Past 5 years Life of Fund
Perritt Capital Growth 25.60% 14.87% 7.05%
S&P 500 Index 24.14% 13.87% 10.67%
Russell 2000 Index 16.87% 20.04% 8.46%
CPI* 2.70% 2.80% 3.69%
Average annual total returns take the fund's actual (or cumulative)
returns and show you what would have happened if the fund had
performed at a constant rate each year.
Total returns and yields are based on past results
and are not an indication of future performance.
STATEMENT OF NET ASSETS
October 31, 1995
Shares Market Value
- ------ ------------
COMMON STOCKS - 98.6% (a)
Building Materials - 3.9%
14,000 Bayou Steel* $ 63,000
6,000 Central Sprinkler* 198,000
--------
261,000
Business Service - 8.1%
5,500 Brandon Systems 99,000
6,900 McGrath Rentcorp 120,750
18,000 Pomeroy Computer Resources* 324,000
--------
543,750
Capital Good - 5.7%
11,000 ECC International* 112,750
4,000 Lindsay Manufacturing* 141,000
4,500 MTS Systems 127,125
--------
380,875
Chemicals and Related Products - 3.5%
6,200 AEP Industries 139,500
6,000 Aceto 96,000
--------
235,500
Consumer Product - 10.0%
8,000 Allou Health & Beauty* 47,500
7,000 Boston Acoustics 148,750
11,300 Craftmade International 94,637
6,000 Custom Chrome* 150,750
10,100 Dixie Yarns* 49,238
7,300 Forschner* 84,863
10,400 Jean Philippe* 96,200
--------
671,938
Electronics and Semi-Conductor Equipment - 10.9%
4,000 Cohu 123,000
10,000 Computer Products* 116,250
4,000 Cornerstone Imaging* 90,000
11,500 Ikos Systems* 135,125
6,000 STM Wireless* 102,000
9,000 Tridex* 70,875
6,400 VERSA 99,200
--------
736,450
Energy - 3.1%
8,000 Patterson Energy* 104,500
8,000 St. Mary Land & Exploration 107,000
--------
211,500
STATEMENT OF NET ASSETS (continued)
Shares Market Value
- ------ ------------
Environmental Services - 8.2%
7,100 Andros* 122,475
16,000 EMCON Associates* 64,000
7,500 Groundwater Technology* 105,000
10,000 Met-Pro 141,250
7,000 Osmonics* 119,000
--------
551,725
Food - 4.3%
8,200 Goodmark Foods 151,700
8,100 Worthington Foods 135,675
--------
287,375
Hospital Supplies & Services - 11.6%
12,800 Gish Biomedical* 108,800
8,100 Medex* 89,100
6,000 Minntech 121,500
12,000 Professional Sports Care Management* 66,000
9,300 RehabCare Group* 130,200
8,700 Tranzonic 127,237
10,100 Utah Medical* 138,875
--------
781,712
Leisure - 6.8%
10,000 Aldila* 44,375
9,450 Casino Data Systems* 153,562
4,400 Johnson Worldwide A* 102,300
8,000 Shufflemaster* 98,000
10,000 Topps 61,250
--------
459,487
Military Equipment - 1.4%
15,000 Engineering Support 97,500
Minerals & Resources - 4.6%
5,000 Florida Rock 135,000
6,000 Green (A.P.) Industries 118,500
4,000 Oil-Dri 56,500
--------
310,000
Retail - 5.2%
2,500 Eastbay 53,125
12,000 Genovese Drug Stores 118,500
5,000 Hometown Buffet* 65,625
7,700 Republic Automotive Parts* 111,650
--------
348,900
STATEMENT OF NET ASSETS (continued)
Shares Market Value
- ------ ------------
Software - 6.7%
4,100 Analysts International 121,463
8,000 Barra* 118,000
5,000 Rainbow Technologies* 105,625
13,000 TRO Learning* 102,375
--------
447,463
Telecommunications - 1.9%
6,000 Centigram Communications* 126,750
Transportation - 2.7%
12,866 Frozen Food Express 114,186
4,000 Marten Transport* 70,000
--------
184,186
--------
Total Common Stocks (Cost $5,546,711) $6,636,111
----------
DEMAND NOTES - 1.1% (a)
183 General Mills 5.46% due 03/05/96 183
14 Pitney Bowes 5.47% due 02/02/96 14
73,368 Sara Lee 5.45% due 11/09/95 73,368
166 Wisconsin Electric 5.51% due 05/24/96 166
----------
Total Demand Notes (Cost $73,731) $73,731
----------
Total Investments (Cost $5,620,442) $6,709,842
----------
Cash and Receivables Net of
Liabilities - 0.3% (a) $18,884
----------
TOTAL NET ASSETS
(Equivalent to $14.17 per share
based on 474,862 shares of $6,728,726
capital stocks outstanding.) ==========
*Non-income producing security.
(a) Percentages for various classifications relate to total
net assets.
The accompanying notes to financial statements are an integral
part of this statement.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
Year Ended Year Ended
OPERATIONS: October 31, 1995 October 31, 1994
---------------- ----------------
Net investment loss................... $ (63,148) $ (70,578)
Net realized gain on investments...... 1,086,825 353,286
Net increased (decrease) in unrealized
appreciation of investments......... 403,904 (332,198)
Increase (decrease) in net assets ----------- -----------
resulting from operation............ 1,427,581 (49,490)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income.............................. --- ---
Distributions from net realized gains
from investment transactions........ (309,908) (304,322)
Decrease in net assets resulting from ----------- -----------
distributions....................... (309,908) (304,322)
CAPITAL SHARE TRANSACTIONS:
-------------------------
Proceeds from shares issued (26,436
and 50,039 shares, respectively..... 326,407 623,454
Cost of shares redeemed (106,727 and
120,292 shares, respectively........ (1,294,217) (1,486,212)
Reinvested dividends (27,070 and
23,427 shares, respectively)........ 299,665 287,923
Decrease in net assets derived from ----------- -----------
capital share transactions.......... (668,145) (574,835)
----------- -----------
Total Increase (Decrease)............. 449,528 (928,647)
NET ASSETS AT THE BEGINNING
OF THE PERIOD....................... 6,279,198 7,207,845
----------- -----------
NET ASSETS AT THE END OF THE PERIOD
(Including undistributed net
investment loss of ($297,802) and
($234,654, respectively)........... $6,728,726 $6,279,198
===========================
The accompanying notes to financial statements are
an integral part of this statement.
FINANCIAL HIGHLIGHTS
Years ended October 31
1995 1994 1993 1992 1991
Selected Per-Share Data
Net asset value,
beginning of period......... $11.89 $12.54 $11.43 $11.36 $8.17
------ ------- ------ ------- ------
Net investment income (loss) (0.13) (0.13) (0.14) (0.12) (0.02)
Net realized and unrealized
gain on investments......... 3.01 0.02 1.61 0.31 3.27
------ ------- ------ ------- ------
Total from Investment
Operations.................. 2.88 (0.11) 1.47 0.19 3.25
------ ------- ------ ------- ------
Less Distributions:
From net investment income - - (0.08) - (0.06)
From net realized gains... (0.60) (0.54) (0.28) (0.12) -
------ ------- ------ ------- ------
Total Distributions....... (0.60) (0.54) (0.36) (0.12) (0.06)
------ ------- ------ ------- ------
Net asset value,
end of period............... $14.17 $11.89 $12.54 $11.43 $11.36
====== ====== ====== ====== ======
Total Return................ 25.60% (1.05%) 12.97% 1.70% 40.06%
Ratios and Supplemental Data
Net assets, end of period
(in thousands).............. $6,729 $6,279 $7,208 $6,942 $6,183
Ratio of expenses to
average net assets.......... 2.07% 2.00% 1.96% 2.31% 2.50%
Ratio of net investment income
to average net assets....... (1.0%) (1.0%) (1.1%) (1.1%) (0.2%)
Portfolio turnover rate 67.4% 39.2% 34.6% 24.4% 37.4%
The accompanying notes to financial statements are
an integral part of this statement.
STATEMENT OF OPERATIONS
For the
Year ended
October 31, 1995
INCOME:
Dividend............................. $44,469
Interest............................. 11,477
Other................................ 11,825
-------
Total income......................... 67,771
-------
EXPENSES:
Management fees...................... 44,174
Legal fees........................... 3,480
Administrative services.............. 22,241
Transfer agent fees.................. 13,425
Registration fees.................... 15,435
Printing and postage................. 5,370
Custodian fees....................... 8,057
Auditing............................. 13,500
Directors and annual meeting......... 2,563
Insurance............................ 2,139
Other expenses....................... 535
-------
Total Expenses 130,919
-------
Net investment loss (63,148)
-------
NET REALIZED GAIN ON INVESTMENTS............. 1,086,825
NET INCREASE IN UNREALIZED APPRECIATION
OF INVESTMENTS............................ 403,904
---------
NET GAIN ON INVESTMENTS...................... 1,490,729
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...........................$1,427,581
==========
The accompanying notes to financial statements are
an integral part of this statement.
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
The Perritt Capital Growth Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
investment company.
1. Summary of Significant Accounting Policies -
The following is a summary of significant accounting policies
of the Fund:
a. Each security, excluding demand notes, is valued at the
last sale price reported by the principal security exchange
on which the issue is traded, or if no sale is reported,
the mean between the latest bid and ask price. Securities
which are traded over-the-counter are valued at the mean
between the latest bid and ask price if no sale was
effected. Demand notes are valued at cost which
approximates quoted market value. Investment transactions
are recorded no later than the first business day after the
trade date. Cost amounts, as reported on the statement of
net assets, are the same for federal income tax purposes.
For the year ended October 31, 1995, purchases and sales of
investment securities (excluding demand notes) were
$4,255,960 and $5,113,839 respectively.
b. Net realized gains and losses on securities were computed
using first-in , first-out basis.
c. Provision has not been made for federal income tax since
the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all income
to its shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to
regulated investment companies. The Fund will distribute
approximately $439,517 as ordinary income dividend
distributions and $584,161 as capital gain dividend
distributions.
d. Dividends to shareholders are recorded on the ex-dividend
date.
e. Dividend income is recognized on the ex-dividend date, and
interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are
amortized over the life of the respective securities.
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1995
2. Investment Advisor and Management Agreement and Transactions
With Related Parties -
The Fund has a management agreement with Perritt Capital
Management, Inc. ("PCM) (formerly Perritt Investments, Inc.),
with whom certain officers of the Fund are affiliated, to serve
as investment advisor and manager. Under the terms of the
agreement, the Fund will pay PCM a monthly management fee at
the
annual rate of 0.7% of the daily net assets of the Fund.
This agreement requires the advisor to reimburse the Fund in
the event that the expenses of the Fund in any fiscal year
exceed that percentage of the average net asset value of the
Fund which is the most restrictive percentage provided by the
state laws of the various states in which the Fund's common
stock is qualified for sale. The most restrictive percentage
limitation (which applies only to the reimbursement of
management fees) applicable to the Fund is 2 1/2% of the
average net asset value up to $30,000,000, 2% of the average
net asset value of the next $70,000,000, and 1 1/2% of the
average net asset value in excess of $100,000,000.
3. Related Parties -
As of October 31, 1995, liabilities of the Fund included
accrued operating expenses of $4,016 payable to Perritt
Capital Management, Inc.
4. Sources of Net Assets -
As of October 31, 1995, the sources of net assets were as
follows:
Fund shares issued and outstanding.......... $4,723,556
Unrealized appreciation of investments...... 1,089,400
Accumulated net realized gain on investments 1,213,572
Undistributed net investment loss........... (297,802)
-----------
Total....................................... $6,728,726
===========
Aggregate net unrealized appreciation as of October 31, 1995
consisted of the following:
Aggregate gross unrealized appreciation..... 1,446,507
Aggregate gross unrealized depreciation..... (357,107)
-----------
Net unrealized appreciation................. $1,089,400
===========
As of October 31, 1995, there were 20,000,000 shares of $0.01
par value capital stock authorized.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS:
To the Shareholders and Board of Directors of the Perritt Capital
Growth Fund, Inc.:
We have audited the accompanying statement of net assets of the
Perritt Capital Growth Fund, Inc. (a Maryland corporation) as of
October 31, 1995, the related statement of operations for the year
then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for
each of the five years in 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
audits.
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 securities
owned as of October 31, 1995 by correspondence with the custodian
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 audits provide 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 Perritt Capital Growth Fund, Inc. as of
October 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the
five years in the period then ended in conformity with generally
accepted accounting principles.
CHECKERS, SIMON & ROSNER LLP
Chicago, Illinois
December 21, 1995
