Annual Report
-------------
PERRITT MICROCAP OPPORTUNITIES FUND, INC.
-----------------------------------------
A no-load mutual fund
that invests in the
stocks of rapidly
growing companies
that at the time
of purchase have
equity market values
below $300 million.
Formerly Perritt Capital Growth Fund, Inc.
October 31, 1997
PERRITT
MICROCAP OPPORTUNITIES FUND, INC.
---------------------------------
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 Roth IRA
403(b) Education IRA
President's Message
Fiscal year 1997, which ended October 31, was a watershed year for
your Fund. Total assets swelled from $8.1 million on October 31,
1996, to $24.8 million at the end of October 1997. The Fund's
annual return during the fiscal year topped that of the Russell
2000 Index (a commonly used benchmark of the performance of small
capitalization stocks) for the fourth consecutive fiscal year.
Michael Corbett, an employee of Perritt Capital Management since
1990, assumed the duties of co-portfolio manager of the Fund.
Finally, the board of directors approved a change in the name of
the Fund to the Perritt MicroCap Opportunities Fund, Inc. to better
reflect its management style.
During the 12 months ending October 31, the Fund returned a total
of 39.5% versus 27.2% for the Russell 2000 Index and 29.7% for the
Standard & Poor's 500 Index. The Fund's market-topping performance
was the result of several variables. First, the composition of the
Fund differed significantly from that of both the Russell 2000
Index and the S & P 500 Index, both of which contain allocations to
public utility and bank stocks. Second, merger and acquisition
activity among smaller companies increased during the year. During
fiscal 1997, five of the stocks held in our portfolio received buy
out offers including American Service Group, Amrion, Sullivan
Dental, Tranzonic, and Versa Technologies. (Jackson Hewett, a
recent addition to the portfolio, received a buy out offer in mid-November.)
Finally, a handful of stocks in the portfolio exhibited
significant price appreciation.
At fiscal year-end, the portfolio contained the common stocks of 53
companies, 25 of which were added during the year. (The Fund's 10
largest holdings are described later in this report.) Because of
the inflow of new cash late in the fiscal year, the fund's annual
expense ratio declined from 1.92% to 1.52%, the lowest in the
Fund's history. The Fund's portfolio turnover rate increased from
58% in fiscal 1996 to 83.1% in fiscal 1997, The increase in
portfolio turnover was largely the result of three factors. First,
about 10% if the Fund's holdings were sold because of pending, buy
out offers. Second, a number of the Fund's holdings appreciated
significantly and were sold because company size rose well beyond
the micro-cap threshold ($300 million). Finally, a number of
stocks were sold because share appreciation drove their valuations
well above those that we considered "reasonable", given their
future growth prospects. Although the future is never certain, we
believe that the economic and financial environment for small
capitalization stocks is the best we have seen in some time. The
stocks of smaller companies tend to perform well during an
environment marked by an expanding economy, low interest rates and
an expansive money supply, a strong dollar relative to major
foreign currencies and reasonable valuations relative to those of
large capitalization stocks. Finally, the recent decline in the
capital gains tax rate favors small capitalization stocks, because
investors obtain the bulk of their returns from small companies via
capital appreciation. Rather than pay cash dividends, the vast
majority of small growth companies reinvest their earnings in
productive assets. Thus, micro-cap shareholder returns are
dominated by capital gains. For shares held more than 18 months,
capital gains are taxed at a maximum 20% rate versus a maximum
39.6% on dividend income.
Gerald W. Perritt
Portfolio Managers:
The Fund is managed by Dr. Gerald W. Perritt (since inception in
1988) and Michael Corbett (since 1996). 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, Ball State University and DePaul
University (Chicago). Dr. Perritt has authored several books on
investing, including Small Stocks: Big Profits, Mutual Funds Made
Easy and Gerald Perritt's Mutual Fund Almanac. Mr. Corbett joined
the firm in 1990 as a research analyst, and is currently vice-president of
Perritt Capital Management. He has been a
contributing columnist for several investment newsletters and is
currently working toward a Chartered Financial Analyst (CFA)
designation.
PERFORMANCE Perritt MicroCap Versus Russell 2000
Opportunities Fund Small Cap Index
--------------- ---------------
1988 $10,220 $10,177
1989 10,604 11,574
1990 8,369 8,213
1991 11,722 12,784
1992 11,921 13,747
1993 13,467 17,913
1994 13,326 17,625
1995 16,738 20,475
1996 19,843 23,538
1997 26,976 29,937
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, 1997
Past 1 yr Past 3 yrs Past 5 yrs Fund Life
Perritt MicroCap 35.95% 102.43% 126.29% 169.76%
Russell 2000 Index 27.19% 69.50% 117.33% 199.37%
S&P 500 Index 29.68% 93.57% 118.45% 238.55%
CPI* 2.15% 8.19% 13.68% 38.37%
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, 1997
Past 1 yr Past 3 yrs Past 5 yrs Fund Life
Perritt MicroCap 35.95% 26.50% 17.74% 10.94%
Russe11 2000 Index 27.19% 19.23% 16.79% 12.15%
S&P 500 Index 29.68% 24.63% 16.91% 13.61%
CPI* 2.15% 2.66% 2.60% 3.46%
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 indications of future
performance.
Small is in the Eye of the Beholder
Ever since the fund began operations in 1988, it has pursued a
strategy of buying small company stocks, defined as those with
market capitalization below $200 million. The goal was to give
individual investors a way to capture the so-called "small firm"
(the seemingly extra risk adjusted returns that have been delivered
by small capitalization stocks for nearly three-quarters of a
century). The research that had uncovered the small firm effect
defined a small firm as one with equity market value below that of
the firm that separated the bottom 20% of New York Stock Exchange
listed companies from the top 80% when ranked according to equity
market value. As of September 30, 1996, the market capitalization
of that company, according to Ibbottson Associates, was $197
million.
From a handful of funds in 1988, the number of mutual funds
claiming to follow a small-cap investment strategy has grown to
more than 200. However, the portfolios of a large number of these
funds contain the stocks of companies with equity capitalizations
well beyond $197 million. Because of the diversity of portfolio
composition, Lipper Analytical Services, Inc. (a mutual fund
industry watchdog) divided the so called small-cap funds into two
groups, those that at the time of purchase invest in the stocks of
companies with equity market values below $300 million and those
with market values between $300 million and $1 billion. Funds
falling into the latter group were designated as small-cap funds
while those in the former group were dubbed micro-cap funds.
The new micro-cap fund category was created because a large number
of mutual fund investors make their mutual fund selections based on
fund performance. However, the comparison of the returns of one
fund with that of another is only meaningful when the two funds
follow a similar investment style and their portfolios possess
similar financial characteristics. It is impossible to determine
if a fund that returned 20% during a given period has been better
managed than another that provided a return of 10% during the same
period, because the two funds may have followed different
investment strategies. Suppose, for example, that the first fund
invested in only large capitalization stocks while the second
invested in the stocks of very small companies. Furthermore,
suppose that an applicable large cap index returned 25% during the
period while a small cap benchmark returned 5%. On the basis of
absolute returns, the first fund appears to be better managed.
However, when compared to an appropriate benchmark, the managers of
the second fund enhanced shareholder value while the first
(relative to its benchmark) did not.
To give potential shareholders a better idea of our investment
style, we have changed the name of the Perritt Capital Growth Fund
to the Perritt MicroCap Opportunities Fund, Inc. As the name
implies, the Fund invests in the stocks of companies that at the
time of purchase possess equity market values below $300 million.
(in fact, the vast majority of new investments are of companies
with equity market values below $200 million.) As stock prices
continue to increase over the long run, the size of the company
that separates the largest from the smallest companies listed on
the New York Stock Exchange will no doubt continue to grow.
However, the objective of the Fund will continue to remain the
same. That is, to provide a portfolio of stocks that has the
potential to capture what academic research has referred to as the
small firm effect.
www.perrittcap.com
Fund Updates on the Worldwide Web
Beginning in January 1988, a portion of the Perritt Capital
Management, Inc. website will be devoted to the Perritt MicroCap
Opportunities Fund, Inc. Every month the Fund's portfolio holdings
will be updated and portfolio managers Dr. Gerald W. Perritt and
Michael Corbett will comment on the financial markets and on
changes in the Fund's portfolio. In addition, news and notes
regarding the Fund's current holdings will be posted every week so
that Fund shareholders can keep abreast of the factors affecting
the Fund's performance. Finally, we plan to include the Fund's
annual and quarterly financial reports as well as an updated Fund
prospectus.
Ten Largest Holdings
Boston Acoustics (BOSA) is a manufacturer of high performance
speaker systems for home, car and computer environments. Founded
in 1979, the company recorded its eighteenth consecutive year of
record sales in 1997. An industry innovator, the company began
supplying high performance audio speaker systems to computer
manufacturer Gateway 2000 last May.
Craftmade International (CRFT) is a Texas-based distributor and
marketer of ceiling fans and related products. The company's
national sales organization markets its products to more than 1,500
lighting showroom and electrical wholesaler locations, which sell
to the new home construction, remodeling and replacement markets.
The company's ceiling fans, bathstrip lighting and light kits are
manufactured in Taiwan.
Gradco Systems (GRCO) Incorporated in 1978, the company designs,
produces and markets devices which collate paper sheets to the
copier market, and supplies feeders and mailboxing sorters and
stackers for the computer controlled printer market. The company's
products are marketed directly to original equipment manufacturers
including: Mita, Xerox, Ricoh, Konica, Toshiba, Lanier, Sharp,
Fujitsu, Olympus and Kyocera. Its products are manufactured in
Japan and Korea.
Grand Prix Association of Long Beach (GPLB) is the owner and
operator of the Toyota Grand Prix of Long Beach, the annual Indy
car race run on the streets of Long Beach since 1975. The race is
now the second largest Indy car race in the world next to the
Indianapolis 500. In addition, the company recently acquired
Gateway International Raceway near St. Louis and Memphis
Motorsports Park in Tennessee. The Gateway 300 NASCAR Busch Series
held last September drew a sellout crowd of 52,000 and was seen by
nearly two million more on CBS-TV.
Petroleum Helicopters (PHEL) operates 317 helicopters, the world's
largest civilian helicopter fleet, and is the leading provider of
helicopter services to oil drillers located in the Gulf of Mexico.
The company was incorporated in 1949 by Robert Suggs, whose family
holds 51% of its voting stock. In recent years, the company has
diversified its services and currently 32% of its revenues are
derived from aeromedical, international and technical services.
RCM Technologies (RCMT), founded in 1968, is a provider of
specialty staffing services to U.S. businesses. The company's 31
branches located in 12 states focus staffing services in the
information technology, professional engineering, specialty health
care and general support sectors. Last June, the company completed
a 2.8 million share secondary stock offering which raised
approximately $20 million, primarily earmarked for the acquistion
of privately held staff servicing firms.
RehabCare Group (RHBC), headquartered in St. Louis, is a leading
provider of acute rehabilitation, subacute, outpatient, temporary
and permanent therapist staffing services on a contract basis to
over 750 hospitals, nursing homes and contract therapy commpanies
in all 50 of the United States. The aging of the U.S. population
is expected to continue to add to the base of patients that will
benefit from therapy services, which will drive industry growth
well into the foreseeable future.
Republic Automotive Parts (RAUT) distributes a wide range of
replacement parts to the automotive aftermarket through 16
distribution centers and 95 auto parts stores located in 16 states.
About 55% of company sales are at wholesale to the auto repair
trade. The company also distributes auto body parts through 14
distribution centers. An aging population and increasing average
car age, as well as the acquisition of small independent auto parts
firms, continue to drive both revenue and profit growth.
Tarrant Apparel Group (TAGS) designs, contracts for the manufacture
of, and sells moderately priced apparel, primarily for women, under
private label to specialty retailers such as Lerner, Limited, Lane
Bryant, Express and mass merchandiser Target. Its woven and knit
fabrication include jeanswear, casual pants, t-shirts, blouses,
shirts, dresses, leggings and jackets. The company imports
approximately 85% of its products with about 80% coming from Hong
Kong and China.
TBC Corporation (TBCC) is the nation's leading independent
distributor of private brand tires for the replacement market. The
company's customers include more than 200 regional distribution
centers which serve independent dealers throughout the U.S., Canada
and Mexico. Its Big O subsidiary acts as a franchisor of
independent retail tire and automotive service stores. Kelly-Springfield, a
division of Goodyear Tire and Rubber, supplies more
than half of the tires sold by TBC.
STATEMENT OF NET ASSETS October 31, 1997
Shares Market Value
- ------ ------------
COMMON STOCKS - 103.2% (a)
Biotechnology - 1.9%
50,000 Cytoclonal* $465,625
Business Service - 13.8%
20,000 Barra* 515,000
30,700 EMCOR Group* 585,219
35,000 LCS Industries 700,000
19,000 McGrath Rentcorp* 463,125
10,600 Pomeroy Computer Resources* 270,300
61,500 RCM Technology 891,750
---------
3,425,394
Capital Goods - 4.1%
74,400 Gradco* 609,150
23,000 Printronix* 419,750
---------
1,028,900
Chemicals and Related Products - 2.0%
15,600 AEP Industries* 499,200
Consumer Products - Manufacturing - 12.5%
35,500 Boston Acoustics 1,038,375
38,000 Craftmade International 532,000
36,500 Global Motorsports* 556,625
32,000 Sport Haley* 364,000
50,000 Tattant Apparel Group* 612,500
---------
3,103,500
Consumer Services - 10.2%
60,000 Interstate National Dealer* 581,250
8,000 Jackson Hewitt* 362,000
92,000 TBC* 943,000
53,000 Warrantech* 636,000
---------
2,522,250
Electronic Equipment - 8.2%
79,000 Asante Technology* 365,375
15,000 General Scanning* 387,188
39,700 Summa Four* 451,587
7,000 Thrustmaster* 113,750
31,080 Transact Technologies* 388,500
16,500 Woodhead 321,750
---------
2,028,150
STATEMENT OF NET ASSETS (continued)
Environmental Services - 6.7%
63,300 Emcon Associates* 371,887
51,200 Harding Lawson Associates* 486,400
29,440 Sevenson Environmental Services 426,880
63,500 Versar* 381,000
---------
1,666,167
Food - 7.5%
16,000 Celestial Seasonings* 432,000
22,000 J & J Snack Foods* 374,000
30,000 Tasty Baking 663,750
17,000 Worthington Foods 386,750
---------
1,856,500
Land Development - 1.4%
12,000 Tejon Ranch 342,750
Leisure - 3.8%
42,000 Acres Gaming* 346,500
40,000 Grand Prix Association of Long Beach* 595,000
-------
941,500
Medical Supplies & Services - 3.9%
31,700 Iridex* 20,962
22,OOO Rehabcare Group* 606,375
4,800 US Physical Therapy* 52,800
-------
980,137
Minerals & Resources - 2.0%
38,800 Green (A.P.) Industries 499,550
Oil Services - 10.8%
28,000 Aztec Manufacturing 505,750
62,000 Boxx Energy Corp. B Non-voting* 437,875
26,100 Petroleum Helicopters Non-voting 632,925
25,000 Petroleum Helicopters Voting 587,500
12,500 Saint Mary Land & Exploration 509,375
---------
2,673,425
Printing & Publishing - 1.6%
35,000 Thomas Nelson 406,875
Retail - 5.7%
5,000 Brookstone* 60,469
51,200 Republic Automotive Parts* 806,400
40,000 S & K Famous Brands* 550,000
---------
1,416,869
STATEMENT OF NET ASSETS (continued)
Software - 4.6%
72,000 Altris Software* 333,000
11,000 Data Research Associates 140,250
37,300 Programmers Paradise* 391,650
11,000 Rainbow Technologies* 270,875
---------
1,135,775
Specialty Manufacturing - 2.5%
50,000 Barringer Tech* 484,375
29,000 Tridex* 145,000
-------
629,375
Total Common Stocks (Cost $23,901,149) 25,621,942
Total Investments(Cost $23,901,149) 25,621,942
Cash and Receivables
Net of Liabilities - (3.2)% (a) $(791,374)
Total Net Assets - 100% $24,830,568
(Equivalent to $17.75 per share based on 1,399,234 shares of
capital stock outstanding)
STATEMENT OF NET ASSETS (continued)
* 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, 1997 October 31, 1996
---------------- ----------------
Net investment loss................... $ (74,105) $ (88,318)
Net realized gain on investments...... 2,892,339 835,018
Net increase in unrealized
appreciation of investments......... 76,761 554,632
Increase in net assets resulting ----------- -----------
from from operations................ 2,894,995 1,301,332
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income.............................. (21,777) (439,517)
Distributions from net realized gains
from investment transactions........ (724,922) (584,161)
Decrease in net assets resulting from ----------- -----------
distributions....................... (746,699) (1,023,678)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (1,708,342
and 115,983) shares, respectively).. 30,622,392 1,545,853
Cost of shares redeemed (930,469 and
104,320 shares, respectively).......(16,789,699) (1,412,290)
Reinvested dividends (53,851 and
80,986 shares, respectively)........ 719,992 989,644
Increase in net assets derived ----------- -----------
from capital share transactions..... 14,552,685 1,123,207
----------- -----------
Total Increase ....................... 16,700,981 1,400,861
NET ASSETS AT THE BEGINNING
OF THE PERIOD....................... 8,129,587 6,728,726
----------- -----------
NET ASSETS AT THE END OF THE PERIOD
(Including undistributed net
investment loss of ($308,759) and
($322,972) respectively)...........$24,830,568 $8,129,587
===========================
The accompanying notes to financial statements are
an integral part of this statement.
FINANCIAL HIGHLIGHTS
Years ended October 31
1997 1996 1995 1994 1993
Selected Per-Share Data
Net asset value,
beginning of period....... $14.33 $14.17 $11.89 $12.54 $11.43
------ ------ ------ ------- -------
Net investment income (loss) (0.05) (0.16) (0.13) (0.13) (0.14)
Net realized and unrealized
gain on investments....... 4.78 2.42 3.01 0.02 1.61
----- ------ ------ ------- -------
Total from Investment
Operations................ 4.73 2.26 2.88 (0.11) 1.47
------ ------ ------- -------
Less Distributions:
From net investment income (0.04) (0.90) - - (0.08)
From net realized gains... (1.27) (1.20) (0.60) (0.54) (0.28)
------ ------ ------ ------- ------
Total Distributions....... (1.31) (2.10) (0.60) (0.54) (0.36)
------ ------ ------ ------- ------
Net asset value,
end of period............. $17.75 $14.33 $14.17 $11.89 $12.54
====== ====== ====== ====== ======
Total Return................ 35.95% 18.56% 25.60% (1.05%) 12.97%
Ratios and Supplemental Data
Net assets, end of period
(in thousands)........... $24,831 $8,130 $6,729 $6,279 $7,208
Ratio of expenses to
average net assets....... 1.52% 1.92% 2.07% 2.00% 1.96%
Ratio of net investment income
to average net assets..... (0.6%) (1.2%) (1.0%) (1.0%) (1.1%)
Portfolio turnover rate 83.1% 58.0% 67.4% 39.2% 34.6%
Average Commission Rate per
equity stock traded....... $0.0270 $0.0363
FINANCIAL HIGHLIGHTS (continued)
Years ended October 31
1992 1991 1990 1989 1988**
Selected Per-Share Data
Net asset value,
beginning of period....... $11.36 $ 8.17 $10.52 $10.22 $10.00
------ ------ ------- ------ -------
Net investment income (loss) (0.12) (0.02) 0.09 0.16 0.06
Net realized and unrealized
gain on investments....... 0.31 3.27 (2.27) 0.22 0.16
------ ------ ------- ------ -------
Total from Investment
Operations................ 0.19 3.25 (2.18) 0.38 0.22
------ ------ ------- ------ -------
Less Distributions:
From net investment income - (0.06) (0.17) (0.08) -
From net realized gains... (0.12) - - - -
------ ------ ------- ------ -------
Total Distributions....... (0.12) (0.06) (0.17) (0.08) -
------ ------ ------- ------ -------
Net asset value,
end of period............. $11.43 $11.36 $ 8.17 $10.52 $10.22
====== ====== ====== ====== ======
Total Return................ 1.70% 40.06%(21.07%) 3.75% 2.20
Ratios and Supplemental Data
Net assets, end of period
(in thousands)............ $6,942 $6,183 $4,265 $5,573 $3,020
Ratio of expenses to
average net assets........ 2.30% 2.50% 2.50% 2.50% 2.70%*
Ratio of net investment income
to average net assets..... (1.1%) (0.2%) 0.9% 1.8% 1.6%*
Portfolio turnover rate 24.4% 37.4% 23.6% 22.6% 3.5%*
Average Commission Rate per
equity stock traded.......
** Commencement of operations. For the period April 11, 1988 to
October 31, 1988.
* Annualized
The accompanying notes to financial statements are
an integral part of this statement.
STATEMENT OF OPERATIONS
For the
Year ended
October 31, 1997
INCOME:
Dividend............................. $45,918
Interest............................. 62,358
-------
Total income......................... 108,276
-------
EXPENSES:
Management fees...................... 83,934
Legal fees........................... 5,792
Administrative services.............. 22,097
Transfer agent fees.................. 22,850
Registration fees.................... 15,615
Printing and postage................. 3,870
Custodian fees....................... 13,150
Auditing............................. 11,000
Directors and annual meeting......... 1,219
Insurance............................ 1,801
Other expenses....................... 1,053
-------
Total expenses 182,381
-------
Net investment loss (74,105)
-------
NET REALIZED GAIN ON INVESTMENTS............. 2,892,339
NET INCREASE IN UNREALIZED APPRECIATION
OF INVESTMENTS............................ 76,761
---------
NET GAIN ON INVESTMENTS...................... 2,969,100
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...........................$2,894,995
==========
The accompanying notes to financial statements are
an integral part of this statement.
NOTES TO FINANCIAL STATEMENTS October 31, 1997
The Perritt MicroCap Opportunites 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 and commercial paper,
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 and commercial paper 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, 1997, purchases
and
sales of investment securities (excluding demand notes) were
$24,687,193 and $9,937,036 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 $321,816 as ordinary income dividend
distributions and $2,496,418 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.
f. The process of preparing a statement of financial condition
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the statement of financial condition and reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from those estimaes.
NOTES TO FINANCIAL STATEMENTS (continued) October 31, 1997
g. Substantially all of the Fund's assets and liabilities are
considered financial instruments as defined by Statement of
Financial Accounting Standards No. 107 and are either
already
reflected at fair values or are short-term or replacable on
demand. Therefore, their carrying amounts approximate their
fair values.
2. Investment Advisor and Management Agreement and Transactions
With Related Parties -
The Fund has an agreement with Perritt Capital Management, Inc.
("PCM), 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 advisory 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 as stated in
the agreement. The most restrictive percentage limitation
(which applies only to the reimbursement of management fees)
applicable to the Fund is 2% of the average net asset value.
3. Related Parties -
As of October 31, 1997, liabilities of the Fund included
accrued operating expenses of $19,916 payable to Perritt
Capital Management, Inc.
4. Sources of Net Assets -
As of October 31, 1997, the sources of net assets were as
follows:
Fund shares issued and outstanding..........$20,399,448
Unrealized appreciation of investments...... 1,720,793
Accumulated net realized gain on investments 3,019,086
Undistributed net investment loss........... (308,759)
-----------
Total.......................................$24,830,568
============
Aggregate net unrealized appreciation as of October 31, 1997
consisted of the following:
Aggregate gross unrealized appreciation..... 2,936,130
Aggregate gross unrealized depreciation..... (1,215,337)
-----------
Net unrealized appreciation................. $1,720,793
===========
As of October 31, 1997, 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 MicroCap
Opportunites Fund, Inc.:
We have audited the accompanying statement of net assets of the
Perritt MicroCap Opportunities Fund, Inc. (a Maryland corporation)
as of October 31, 1997, 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 eight 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. The financial highlights for the
years ended October 31, 1989 and 1988 were audited by other
auditors whose opinion dated November 17, 1989 was unqualified.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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, 1997 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 MicroCap Opportunities Fund, Inc.
as of October 31, 1997, 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 eight years in the period then ended in conformity with
generally accepted accounting principles.
CHECKERS, SIMON & ROSNER LLP
Chicago, Illinois
December 27, 1997
For assistance with your existing account, call our
Shareholder Service Center at: 1-800-332-3133
Board of Directors
David Maglich
Gerald W. Perritt
Dianne C. Click
Investment Advisor
Perritt Capital Management, Inc.
120 S. Riverside Plaza
Suite 1745
Chicago, IL 60606
(800) 331-8936
Independent Accountants
Checkers, Simon & Rosner LLP
One South Wacker Drive
Chicago, IL 60606
Legal Counsel
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
Custodian, Transfer Agent and
Dividend Disbursing Agent
Firstar Trust Company
PO Box 701
Milwaukee, WI 53201-0701
Brokerage Firm Availability
Charles Schwab & Company
Jack White & Company
Waterhouse Securities
This report is authorized for distribution only to shareholders and
others who have received a copy of the prospectus of the Perritt
Capital MicroCap Opportunities Fund, Inc.
