Registration No. 33-16812
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. ___ [_]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 12 [X]
(Check appropriate box or boxes.)
PERRITT CAPITAL GROWTH FUND, INC.
(Exact name of Registrant as Specified in Charter)
120 South Riverside Plaza
Suite 1745
Chicago, Illinois 60606
(Address of Principal (Zip Code)
Executive Offices)
(312) 669-1650
(Registrant's Telephone Number, including Area Code)
Gerald W. Perritt
120 South Riverside Plaza
Suite 1745
Chicago, Illinois 60606
(Name and Address of Agent for Service)
______________________________
Copy to:
Phillip J. Hanrahan
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
In accordance with Rule 24f-2(a)(1) under the Investment Company Act of
1940, the Registrant has registered an indefinite amount of its Common
Stock, $.01 par value per share. Registrant's Rule 24f-2 Notice for the
year ended October 31, 1996 was filed on December 28, 1996.
It is proposed that this filing will become effective
(check appropriate box):
X immediately upon filing pursuant to paragraph (b)
of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1)
of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule
485
___ 75 days after filing pursuant to paragraph (a)(2)
of Rule 485
___ on (date) pursuant to paragraph (a)(2) of
Rule 485.
If appropriate, check the following box: [_] this post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
<PAGE>
PERRITT CAPITAL GROWTH FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Financial Highlights
Information
4. General Description of The Fund; Investment Objective and
Registrant Policies
5. Management of the Fund Management of the Fund; Selected Per
Share Data and Ratios; Capital Stock
5A. Management's Discussion of Included in Annual Report to
Fund Performance Shareholders
6. Capital Stock and Other Distributions and Taxes; Capital Stock
Securities
7. Purchase of Securities Determination of Net Asset Value; How
Being Offered to Purchase Shares; Shareholder Plans
8. Redemption or Repurchase How to Redeem Shares
9. Legal proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and **
History
13. Investment Objectives and Investment Objective; Investment
Policies Considerations; Investment
Restrictions; Investment Techniques
14. Management of the Directors and Officers; Management of
Registrant the Fund (in the Prospectus);
Investment Adviser
15. Control Persons and Principal Shareholders
Principal Holders of
Securities
16. Investment Advisory and Investment Adviser; Management of the
Other Services Fund (in Prospectus)
17. Brokerage Allocation Allocation of Portfolio Brokerage
18. Capital Stock and Other Included in Prospectus under "Capital
Securities Stock"
19. Purchase, Redemption and Included in Prospectus under
Pricing of Securities "Determination of Net Asset Value";
Being Offered "Shareholder Plans"; "How to Redeem
Shares" and under "Retirement Plans",
"Other Shareholder Plans" and
"Determination of Net Asset Value" in
the Statement of Additional
Information
20. Tax Status Included in Prospectus under
"Distributions and Taxes" and under
"Taxes" in the Statement of Additional
Information
21. Underwriters *
22. Calculations of Performance Information
Performance Data
23. Financial Statements Financial Statements
_______________
* Answer negative or not applicable.
** Complete answer to Item is included in the Prospectus.
<PAGE>
-----------------
PROSPECTUS
-----------------
February 28, 1997
PERRITT CAPITAL GROWTH FUND, INC.
PROSPECTUS
----------
120 S. Riverside Plaza
Suite 1745
Chicago, Illinois 60606
Telephone: (312) 669-1650
Toll-Free (800) 332-3133
Perritt Capital Growth Fund, Inc. (the "Fund") is an open-end
diversified management investment company. The Fund's objective is
long-term capital appreciation, which it seeks by investing primarily in a
diversified portfolio of common stocks of small companies that management
believes have growth potential.
In view of the Fund's investment objective and strategy, the Fund
must be considered speculative and therefore subject to above-average
risk. Because the Fund is intended to be an investment vehicle for that
part of an investor's capital that can be exposed to above-average risk in
return for the potential for greater returns, an investment in this Fund
may not be appropriate for all investors and, by itself, should not be
considered a long-term investment program.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus sets forth concisely the information about the Fund
that a prospective investor should know before investing. Additional
information about the Fund has been filed with the Securities and Exchange
Commission in the form of a Statement of Additional Information, dated
February 28, 1997, which is incorporated into this prospectus by
reference. A copy of the Statement of Additional Information will be
provided upon request by the Fund without charge to each person to whom a
prospectus is delivered. Write to the Fund at 120 S. Riverside Plaza,
Suite 1745, Chicago, Illinois 60606, or call, toll-free, 1-800-332-3133 or
1-312-669-1650.
INVESTORS ARE ADVISED TO READ AND RETAIN A COPY OF THIS PROSPECTUS FOR
FUTURE REFERENCE.
The date of this prospectus is February 28, 1997.
<PAGE>
TABLE OF CONTENTS
page
Fund Expenses........................................... 1A
The Fund................................................ 1
Financial Highlights.................................... 1
Investment Objective, Policies, and Risk Factors........ 2
Investment Restrictions................................. 3
Management of the Fund.................................. 4
Determination of Net Asset Value........................ 5
How to Purchase Shares.................................. 5
How to Redeem Shares.................................... 7
Shareholder Plans....................................... 9
Distributions and Taxes................................. 10
Capital Stock........................................... 11
Shareholder Reports and Meetings........................ 11
Performance Information................................. 12
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the
Statement of Additional Information dated February 28, 1997, and, if given
or made, such information or representations may not be relied upon as
having been authorized by Perritt Capital Growth Fund, Inc. This
Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not be lawfully made.
FUND EXPENSES
The following information is provided in order to assist you in
understanding the various costs and expenses that a shareholder of the
Fund will bear directly or indirectly. There are certain charges
associated with retirement accounts and with certain services offered by
the Fund. See "SHAREHOLDER PLANS." Purchases and redemptions may also be
made through broker-dealers or others who may charge a commission or other
transaction fee for their services. The Annual Fund Operating Expenses
are actual expenses incurred during the fiscal year ended October 31,
1996. The Adviser will waive its management fee (0.7%) to the extent that
the Fund's total operating expenses exceed 2.5% of the average net assets.
See "MANAGEMENT OF THE FUND." The example below is based on the Annual
Fund Operating Expenses set forth in the accompanying table.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
or Reinvested Dividends................................ None
Deferred Sales Load...................................... None
Redemption Fee........................................... None
Exchange Fee.................................................. None
Annual Fund Operating Expenses:
Management Fee........................................... 0.70%
12b-1 Fees............................................... None
Other Expenses........................................... 1.22%
Total Fund Operating Expenses................................ 1.92%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 years 5 years 10 years
------ ------- ------- --------
$19 $59 $102 $220
The example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than these shown.
THE FUND
Perritt Capital Growth Fund, Inc. (the "Fund") is a no-load, open-end
diversified management investment company commonly called a "mutual fund."
As a no-load fund, the Fund does not impose sales charges, redemption
fees, or 12b-1 charges. The Fund was organized as a Maryland corporation
on August 24, 1987.
FINANCIAL HIGHLIGHTS
The following Financial Highlights and Capital Changes have been
audited by independent accountants, whose report thereon appears in the
Fund's Annual Report. The Financial Highlights should be read in
conjunction with the financial statements and related notes which are
included in the Fund's Annual Report. Additional information about the
Fund's performance is contained in the Annual Report, a copy of which may
be obtained from the Fund without charge.
Years ended October 31
1996 1995 1994 1993 1992
Selected Per-Share Data
Net asset value,
beginning of period..........$14.17 $11.89 $12.54 $11.43 $11.36
------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income (loss). (0.16) (0.13) (0.13) (0.14) (0.12)
Net realized and unrealized
gain (loss) on
investments............... 2.42 3.01 0.02 1.61 0.31
------ ------ ------ ------ ------
Total from Investment
Operations................ 2.26 2.88 (0.11) 1.47 0.19
------ ------ ------ ------ ------
Less Distributions
From net investment income.... (0.90) -- -- (0.08) --
From net realized gain...... (1.20) (0.60) (0.54) (0.28) (0.12)
------ ------ ------ ------ ------
Total Distributions............ (2.10) (0.60) (0.54) (0.36) (0.12)
------ ------ ------ ------ ------
Net asset value, end of
period......................$14.33 $14.17 $11.89 $12.54 $11.43
====== ====== ====== ====== ======
Total Return...................18.56% 25.60% (1.05%) 12.97% 1.70%
Ratios and Supplemental Data
Net assets, end of period
(in thousands)...............$8,130 $6,729 $6,279 $7,208 $6,942
Ratio of expenses to
average net assets........... 1.92% 2.07% 2.00% 1.96% 2.31%
Ratio of net investment income
to average net assets........ (1.2%) (1.0%) (1.0%) (1.1%) (1.1%)
Portfolio turnover rate........ 58.0% 67.4% 39.2% 34.6% 24.4%
Average commission rate per
equity stock trade**.........$0.0363
** Disclosure required for fiscal years beginning after
September 1, 1995
FINANCIAL HIGHLIGHTS continued
Years Ended October 31
For the period
April 11, 1988
1991 1990 1989 to Oct. 31, 1988
Selected Per-Share Data
Net asset value,
beginning of period............ $8.17 $10.52 $10.22 $10.00
------ ------ ------ ------
Income from Investment Operations
Net investment income (loss).. (0.02) 0.09 0.16 0.06
Net realized and unrealized
gain (loss) on investments.. 3.27 (2.27) 0.22 0.16
------ ------ ------ ------
Total from Investment Operations. 3.25 (2.18) 0.38 0.22
------ ------ ------ ------
Less Distributions
From net investment income.. (0.06) (0.17) (0.08) --
From net realized gain...... -- -- -- --
Total Distributions......... (0.06) (0.17) (0.08) --
----- ------ ------ ------
Net asset value, end of period...$11.36 $8.17 $10.52 $10.22
====== ====== ====== ======
Total Return.....................40.06% (21.07%) 3.75% 2.20%
Ratios and Supplemental Data
Net assets, end of period
(in thousands).................$6,183 $4,265 $5,573 $3,020
Ratio of expenses to
average net assets............. 2.50% 2.50% 2.50% 2.70%*
Ratio of net investment income
to average net assets.......... (0.2%) 0.9% 1.8% 1.6%*
Portfolio turnover rate.......... 37.4% 23.6% 22.6% 3.5%
* Annualized
** Disclosure required for fiscal years beginning after
September 1, 1995
<PAGE>
INVESTMENT OBJECTIVE, POLICIES, AND RISK FACTORS
The Fund's investment objective is long-term capital appreciation
which it seeks by investing primarily in a diversified portfolio of common
stocks of small companies that management believes have growth potential.
The Fund will, under normal market conditions, invest at least 80% of its
assets in common stocks and other equity-type securities of small equity
capitalization firms. Small equity capitalization firms are those firms
whose shares are not widely held by institutions and whose equity market
value at the time of purchase will generally range from $10 million to
$200 million. Other equity-type securities will generally be limited to
convertible securities, preferred stocks and warrants to purchase common
stock which are believed to offer favorable possibilities of capital
appreciation. The Fund may invest in securities not listed on a national
or regional securities exchange, but such securities typically will have
an established over-the-counter market. The Fund does not intend to
invest in any security which, at the time of purchase, is not readily
marketable. The current income return of the Fund will be low because
smaller companies frequently need to retain all or most of their profits
to finance growth.
The Fund does not intend to place emphasis on short-term trading
profits. However, when circumstances warrant, investment securities may
be sold from time to time without regard to the length of time they have
been held. The Fund may, for temporary defensive purposes, invest greater
than 20% of its assets in high quality money market securities, including
U.S. Government obligations, certificates of deposit, bankers'
acceptances, commercial paper or cash or cash equivalents. Except for
temporary defensive purposes, the Fund will retain cash and cash
equivalents only in amounts deemed adequate for current needs and to
permit the Fund to take advantage of investment opportunities.
The Fund's investment adviser expects that under normal circumstances
its annual portfolio turnover rate will not exceed 50%. However, this
rate should not be construed as a limiting factor and the portfolio
turnover rate may exceed 50% when the adviser deems changes appropriate.
The annual portfolio turnover rate indicates changes in the Fund's
portfolio. For instance, a rate of 100% would result if all the
securities in the portfolio (excluding securities whose maturities at
acquisition were one year or less) at the beginning of an annual period
had been replaced by the end of the period. The Fund intends to limit
turnover so that realized short-term gains on securities held for less
than three months do not exceed 30% of adjusted gross income in order to
derive the benefits of favorable tax treatment available to regulated
investment companies under the Internal Revenue Code. Increased portfolio
turnover necessarily results in correspondingly heavier brokerage costs
which the Fund must pay and increased realized gains (or losses) to
shareholders.
The Fund is designed for investors with a long-term investment
perspective (and not with a view to playing short-term swings in the
market) who can accept the relatively high volatility in portfolio value
and other risks entailed in seeking long-term growth through investment in
the common stocks of small companies that management believes have growth
potential. Investors should be aware that up to 100% of the Fund's
portfolio may be invested in common stocks and other equity-type
securities. To the extent that the Fund's portfolio is primarily invested
in common stocks and other equity-type securities, the Fund's net asset
value may be subject to greater fluctuation than a portfolio containing a
substantial amount of fixed income securities. There can be no assurance
that the objective of the Fund will be realized or that any income will be
earned. Nor can there be assurance that the Fund's portfolio will not
decline in value.
Investments in small equity capitalization firms tend to be
speculative and volatile and involve greater risks than are customarily
associated with larger companies. Such companies may have limited product
lines and markets, may lack sufficient resources, may be unable to
generate internally the funds necessary for growth and may find external
financing to be either unavailable or unavailable on favorable terms. In
addition, the securities of smaller companies are frequently traded
over-the-counter or on a regional exchange, and the frequency and volume
of their trading is generally substantially less than is typical of larger
companies. When making larger sales, the Fund may have to sell assets at
discounts from quoted prices or may have to make a series of small sales
over an extended period of time.
With respect to investments in securities of foreign issuers, there
is less publicly available information about foreign issuers than is
available in the reports and ratings published about companies in the
United States. Additionally, foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards, and
dividends and interest on foreign securities may be subject to foreign
withholding taxes, which would reduce the Fund's income without providing
a tax credit for the Fund's stockholders. There is also the possibility
of expropriation, nationalization, confiscatory taxation, currency
blockage or political or social instability which could affect investments
in securities of foreign issuers. The Fund will limit its investments in
securities of foreign issuers to those issuers organized under the laws of
Canada and will limit its foreign investments to 10% or less of its
assets. As a result, the adviser considers the foregoing risks to be
minimal.
Consistent with its objective, the Fund may buy covered put options
on specific portfolio securities or sell (write) covered call options on
such securities in order to hedge against changes in securities prices.
The Fund may also attempt to hedge against changes in the value of
securities held in its portfolio by purchasing put options on stock
indexes. The Fund's ability to use these techniques successfully depends
on the degree of correlation among the securities and options markets, the
liquidity of the options markets, and on the Fund investment adviser's
ability to predict movements in the price of individual securities and in
the stock market. Brokerage commissions associated with buying and
selling options are proportionately higher than those associated with
general securities transactions. A more complete description of these
investment practices, their associated risks and the limitations on the
Fund's authority to invest in options is contained in the Statement of
Additional Information. The Fund will typically enter into options which
are standardized and traded on a U.S. exchange or board of trade, or
similar entity, or quoted on the Nasdaq Stock Market. The Fund's
authority to invest in options is subject to certain restrictions. See
"Investment Restrictions."
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which are
presented in the Statement of Additional Information and which, together
with the investment objective of the Fund, cannot be changed without
approval by holders of a majority of the Fund's outstanding voting shares.
As defined in the Investment Company Act of 1940, this means the lesser of
(a) 67% of the shares of the Fund at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50%
of the outstanding shares of the Fund.
Certain restrictions referred to in the foregoing paragraph are
summarized below. Reference should be made to the Statement of Additional
Information for a complete list of fundamental investment restrictions
adopted by the Fund.
The Fund will not:
(1) purchase the securities of a company if, as a result (a) it
would own more than 10% of the outstanding voting securities of any one
company, (b) such holdings would amount to more than 5% of the Fund's
total assets, or (c) more than 25% of its total assets would be
concentrated in any one industry;
(2) borrow money except from banks for temporary or emergency
purposes and then only in amounts not exceeding 5% of the Fund's total
assets valued at market;
(3) pledge, mortgage, hypothecate or otherwise encumber any of its
assets, except as a temporary measure for extraordinary or emergency
purposes, and then not in excess of 15% of its assets taken at cost;
(4) invest in restricted, illiquid or other securities without
readily available market quotations; and
(5) purchase, sell or write options on portfolio securities or stock
indexes if, as a result thereof, (i) the aggregate market value of all
portfolio securities covering such options exceeds 25% of the Fund's net
assets or (ii) the aggregate premiums paid for all such options held
exceeds 5% of the Fund's net assets.
MANAGEMENT OF THE FUND
Directors
The Fund's Board of Directors has overall responsibility for the
business and affairs of the Fund in accordance with the laws of Maryland
governing the responsibilities of directors. The Statement of Additional
Information lists the Fund's directors and officers and provides certain
information about them.
Investment Adviser
The Fund has entered into an Investment Advisory Agreement ("Advisory
Agreement") with Perritt Capital Management, Inc. 120 S. Riverside Plaza,
Suite 1745, Chicago, Illinois 60606 (the "Adviser"). The Adviser was
incorporated as an Illinois corporation on July 8, 1987 and is a wholly
owned subsidiary of Investment Information Services, Inc. ("IIS"). IIS
was organized in 1983 and is primarily in the business of the publication
of The Mutual Fund Letter (a monthly mutual fund advisory newsletter).
The Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940. Essentially, the same staff of financial analysts
that has been actively involved in research for the newsletter published
by IIS uses its experience in selecting small equity capitalization stocks
for the benefit of the Fund and its shareholders. Gerald W. Perritt,
President and Chairman of IIS, is also President of the Adviser. Dr.
Perritt, President and Treasurer of the Fund, has been the principal
portfolio adviser of the Fund since its inception, has authored several
books on investing including "Small Stocks, Big Profits," a book which
discusses the benefits of investing in small firm stocks. Dr. Perritt
received a doctorate in finance and economics from the University of
Kentucky in 1974. 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 De Paul
University in Chicago. Since its inception, the Adviser's principal
business has been providing continuous investment supervision for
individuals and institutional accounts such as the Fund.
The Advisory Agreement provides that the Adviser shall manage the
Fund's investments and shall determine the Fund's portfolio transactions
and shall be responsible for overall management of the Fund's business
affairs, subject to the supervision of the Fund's Board of Directors. As
compensation for its services, the Fund pays to the Adviser a monthly
advisory fee at the annual rate of 0.7% of the average daily net asset
value of the Fund unless partially or completely waived by the Adviser.
See "Determination of Net Asset Value." The Advisory Agreement also
provides that the Adviser will waive its management fee to the extent that
total operating expenses exceed 2.5% of the Fund's average net assets.
The Fund bears all expenses of its operation other than those
incurred by the Adviser. The Fund's expenses include, but are not limited
to, investment advisory fees, custodian fees and expenses, legal, pricing,
accounting and auditing fees, brokerage fees, expenses of preparing
prospectuses and shareholder reports for existing shareholders and
registration fees and expenses. For the year ended October 31, 1996,
expenses were 1.92% of the Fund's average net assets.
Custodian, Transfer Agent and Dividend Disbursing Agent
Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201 acts
as custodian of all cash and securities of the Fund. The Firstar Trust
Company also acts as transfer agent and dividend disbursing agent and
accountant for the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined as of the
close of trading on the New York Stock Exchange (currently 4:00 P.M., New
York Time) on days on which the Exchange is open for business except that
the net asset value may not be computed on a day in which no orders to
purchase shares were received and no shares were tendered for redemption.
The net asset value per share is calculated by adding the value of all
securities, cash or other assets, subtracting liabilities, and dividing
the remainder by the number of shares outstanding.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if there are
no sales that day, at the mean between the then current closing bid and
asked prices. Each over-the-counter security for which the last sale
price on the day of valuation is available from the Nasdaq Stock Market is
valued at that price. All other over-the-counter securities for which
quotations are available are valued at the mean between the then current
closing bid and asked prices. Other assets and securities are valued at a
fair value determined in good faith by the Board of Directors. High
quality debt securities having maturities of less than 60 days will be
valued by the amortized cost method.
HOW TO PURCHASE SHARES
Purchases by Mail
Shares of the Fund may be purchased directly from the Fund by sending
a properly completed Share Purchase Application to the Fund c/o Firstar
Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201. An application
is included on the back flap of this prospectus. To purchase shares by
overnight or express mail, please use the following address: Perritt
Capital Growth Fund, c/o Firstar Trust Company, Mutual Fund Service, Third
Floor, 615 East Michigan Street, Milwaukee, WI 53202. To make additional
purchases, enclose a check payable to the Fund, together with either the
additional investment form attached to your account statement or a letter
indicating your account number, and send the foregoing to the Fund. The
offering price for the Fund's shares is equal to the net asset value per
share (derived in the manner described under "Determination of Net Asset
Value") as computed at the close of the New York Stock Exchange on the day
that the purchase order is received in proper form. Orders received by a
Fund after the close of the New York Stock Exchange will be confirmed at
the net asset value determined at the close of the New York Stock Exchange
on the next business day. All purchases must be made in U.S. dollars, and
checks must be drawn on U.S. banks. No cash will be accepted.
Purchases Through Financial Service Agents
If you are investing through a Financial Service Agent, such as
Charles Schwab & Co., Inc., Waterhouse Securities, Huntleigh Securities,
or Jack White & Co., please refer to their program materials for any
additional special provisions or conditions that may be different from
those described in this Prospectus. Financial Service Agents have the
responsibility of transmitting purchase orders and funds, and of crediting
their customers' accounts following redemptions, in a timely manner in
accordance with their customer agreements and this Prospectus.
If you place an order for Fund shares through a Financial Service
Agent, in accordance with such Financial Service Agent's procedures and
such Financial Service Agent then transmits your order to the Transfer
Agent before 4:00 p.m. New York time on that day, then your purchase will
be processed at the net asset value calculated at 4:00 p.m. New York time
on that day. The Financial Service Agent must promise to send to the
Transfer Agent immediately available funds in the amount of the purchase
price within three business days of the order.
Purchases by wire
Shares may also be purchased by wire by instructing your bank to wire
Federal funds (monies of member banks within the Federal Reserve System)
to the Fund's custodian bank. If a new account is opened by wire
transfer, Firstar Trust Company, the Fund's custodian, must first be
notified and the shareholder must furnish his/her social security or other
tax identification number. The Fund will not be responsible for the
consequences of delays resulting from the banking or Federal Reserve wire
systems. A follow-up application should be sent for all new accounts
opened by wire transfer. Please note that there is a $12 wire transfer
fee. Your bank must include in its wire the full name(s) in which the
account is registered and the Fund account number and should address its
wire as follows:
Firstar Bank, Milwaukee, N.A.
ABA #0750-00022
Account #112950027
For further credit to Perritt Capital Growth Fund, Inc.
Shareholder name:__________________________________________
Shareholder account number:________________________________
General Information for all Purchases
An initial purchase of shares of the Fund must be at least $250, and
subsequent purchases must be made in amounts of $50 or more. An initial
purchase of shares under the Uniform Gift to Minors Act or tax deferred
retirement plans must be at least $250. The minimums for subsequent
purchases do not apply to shares purchased pursuant to the reinvestment of
income dividends and capital gain distributions and shares purchased
pursuant to the automatic investment plan. The minimums may be changed at
any time. Shareholders will be given at least thirty days notice of any
increase in the minimums.
All orders to purchase shares are subject to the Fund's acceptance
and are not binding until so accepted. All orders to purchase shares that
are accepted will be processed at the net asset value next determined
after receipt of the purchase order as provided herein regardless of the
date of acceptance. At its discretion, the Fund may accept telephone
orders from securities dealers. The Fund may decline to accept a purchase
order when in the judgment of management the acceptance of an order is not
in the best interests of existing shareholders. Investments (and
redemptions) may be made in the Fund through broker-dealers and others who
may charge a commission or other fee for their services. A $20 service
fee will be charged when a check is returned because of insufficient or
uncollected funds or when payment is stopped. You will also be
responsible for any losses suffered by the Fund as a result. If a new
account is opened and the check is returned for insufficient or
uncollected funds, the Adviser is responsible for the $20 NSF fee.
Firstar Trust Company may also accept orders from certain qualified
institutions, with payment made to the Fund at a later time. The Adviser
is responsible for insuring that such payment is made on a timely basis.
A broker-dealer which effects such a purchase for an investor may charge
the investor a reasonable service fee, no part of which will be paid to
the Fund or the Adviser.
The Adviser may make payments out of its own resources to dealers and
other persons who distribute shares of the Fund.
HOW TO REDEEM FUND SHARES
Shareholders of the Fund may request redemption of their shares at
any time as provided herein. The redemption price shall be equal to the
net asset value next determined after receipt by the Fund's transfer agent
of a request for redemption submitted in proper form. See "Determination
of Net Asset Value." The value of the shares on redemption may be more or
less than their original cost, depending upon the then-current market
value of the Fund's investments. There is no liquidation charge when
shares are redeemed, nor is one contemplated, although the Board of
Directors is authorized to establish such a charge (not over 1% of the net
asset value of the shares redeemed). Should such a charge ever be
established, shareholders will be given written notice and a reasonable
period (at least 30 days) within which to redeem without charge.
Shares may be redeemed by submitting a written request for redemption
to the Fund, c/o the Fund's transfer agent, Firstar Trust Company, P.O.
Box 701, Milwaukee, Wisconsin 53201. A written redemption request to
Firstar Trust Company (the "Transfer Agent") must specify (i) the name of
the Fund, (ii) the dollar amount or specific number of shares to be
redeemed, and (iii) the shareholder's name and account number. The
redemption request must be signed by each registered owner exactly as the
shares are registered. A redemption request must be signature guaranteed
if it is submitted within 15 days of an address change.
If a redemption request is inadvertently sent to the Fund, it will be
forwarded to Firstar Trust Company, but the effective date of redemption
will be delayed until the request is received by Firstar Trust Company.
Requests for redemption by telephone or telegram and requests that are
subject to any special conditions or that specify an effective date or
other than as provided herein cannot be honored.
For accounts registered in the name of corporations or associations,
the redemption request must include a corporate resolution certified by a
duly authorized officer of the corporation or association, with such
officer's signature guaranteed. For accounts registered in the name of a
trust, the redemption request must be signed by each trustee, with each
signature guaranteed. If a trustee's name is not registered on the
account, a trust document certified within 60 days prior to the redemption
request must also be submitted. A redemption request will not be deemed
to be properly received until the Transfer Agent receives all required
documents in proper form. Questions with respect to the proper form of
redemption requests should be directed to the Transfer Agent at
800-332-3133.
If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to the Transfer Agent together
with the redemption request, with all signatures guaranteed. Where the
shares to be redeemed are NOT represented by certificates, and except as
provided above, signature guarantees are required only for (1) redemptions
involving more than $10,000; or (2) redemptions whereby the proceeds are
to be paid to someone other than the person(s) or organization in whose
name the account is registered or the proceeds are to be sent to an
address other than the address of record. In addition, a redemption
request received within 15 days of an address change must be accompanied
by a signature guarantee. The guarantor of a signature must be a national
bank or trust company, a member of the Federal Reserve System or a member
firm of a national securities exchange or any other financial institution
authorized to guarantee signatures. The Transfer Agent reserves the right
to reject the signature guarantee of an institution if such rejection
would be in the best interests of the Fund and its shareholders.
Notwithstanding the above, signature guarantees will be required where
there appears to be a pattern of redemptions designed to circumvent the
signature guarantee requirement, or where the Fund has other reason to
believe that this requirement would be in the best interests of the Fund
and its shareholders.
The proceeds of redemptions will ordinarily be mailed within two
business days after receipt of a properly completed redemption request,
but no later than the seventh day after a receipt of a redemption request
in proper form, except as indicated below. It is mandatory that the Fund
redeem shares upon the proper request of a shareholder. When shares are
purchased by check, the Fund reserves the right to delay redemption of
shares until it is satisfied that the investor's check used to purchase
shares has cleared. Local checks generally are collected in three
business days and non-local checks in seven business days, although
collection may take longer in certain circumstances. Shareholders may
avoid potential delays when redeeming shares soon after purchase by wiring
funds as provided herein. The right of redemption may be suspended during
any period when: (a) trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission, or such Exchange
is closed for other than weekends and holidays; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) an
emergency as determined by the Securities and Exchange Commission exists,
making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable. A shareholder's account may be
terminated by the Fund if, at the time of any transfer or redemption of
shares of the Fund in the account, the value of the remaining shares in
the account at the current offering price falls below $500. The Fund will
notify a shareholder of its intention to terminate the account and provide
the shareholder with not less than thirty days to make additional
investments. Requests for transfers of shares of the Fund from or between
broker-dealer street name accounts must be made by the broker-dealer. A
shareholder should contact the broker in whose account the shares are held
if he/she wants to transfer these shares.
Redemption requests from shareholders in an individual retirement
account or defined contribution retirement plan must include instructions
regarding federal income tax withholding. Redemption requests not
indicating an election not to have federal income tax withheld will be
subject to withholding. Questions regarding redemptions and the
procedures that must be followed should be directed to the transfer agent,
Firstar Trust Company (1-800-332-3133).
SHAREHOLDER PLANS
Dividend Reinvestment Plan
Unless a shareholder elects otherwise by written notice to the Fund,
all income dividends and all capital gains distributions payable on shares
of the Fund will be reinvested in additional shares of the Fund at the net
asset value in effect on the dividend or distribution payment date. The
Fund acts as the shareholder's agent to reinvest dividends and
distributions in additional shares and hold for his/her account the
additional full and fractional shares so acquired. A shareholder may at
any time change his/her election as to whether to receive his/her
dividends and distributions in cash or have them reinvested by giving
written notice of such change of election to the Fund. Such change of
election applies to dividends and distributions the record dates of which
fall on or after the date that the Fund receives the written notice.
Systematic Withdrawal Plan
To accommodate the current cash needs of investors, the Fund offers a
Systematic Withdrawal Plan pursuant to which a shareholder who owns Fund
shares worth at least $10,000 at current net asset value may provide that
a fixed sum ($200 minimum per payment) will be distributed to him/her at
regular intervals. If requested, these distributions may be automatically
moved from the investor's Fund account to the investor's bank account via
Electronic Funds Transfer, at a cost of $0.50. In electing to participate
in the Systematic Withdrawal Plan, investors should realize that within
any given period the appreciation of their investment in the Fund may not
be as great as the amount withdrawn. Additional information regarding
this service is available from the Fund.
Payments will be made out of the proceeds of redemptions of shares
made on the chosen business day of each month or, if that day is a
holiday, on the following business day. Establishment of a Systematic
Withdrawal Plan constitutes an election by the shareholder to reinvest in
additional Fund shares, at net asset value, all income dividends and
capital gains distributions payable by the Fund on the shares held in such
Account, and shares so acquired will be added to such account. The
shareholder may deposit additional Fund shares in his/her account at any
time. The shareholder may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address by notifying the Fund in writing.
Automatic Investment Plan
The Fund offers an Automatic Investment Plan, which may be
established at any time, pursuant to which shareholders may automatically
make purchases of shares of the Fund on a regular, convenient basis.
There is a $50 minimum per transaction, and there is no service fee
charged. Under the Automatic Investment Plan, shareholders' banks or
other financial institutions debit preauthorized amounts each month from
their checking accounts and apply such amounts to the purchase of shares
of the Fund. Additional information regarding this service, including
applications to establish the Automatic Investment Plan, are available
from the Fund.
Individual Retirement Account ("IRA")
Individuals who receive compensation or earned income, even if they
are active participants in a qualified retirement plan (or certain similar
retirement plans), may establish their own tax-sheltered Individual
Retirement Account ("IRA"). The Fund offers a prototype IRA Plan which
may be adopted by individuals. There is currently no charge for
establishing an account although there is an annual maintenance fee.
The amount of deduction, if any, allowed for IRA contributions is
limited for individuals who are active participants in an employer
maintained retirement plan and whose incomes exceed specified limits.
Simplified Employee Pension Plan ("SEP/IRA")
The Fund also offers a prototype simplified employee pension (SEP)
plan for employers, including self-employed individuals, who wish to
purchase shares of the Fund with tax-deductible contributions not
exceeding annually for any one participant the lesser of $30,000 or 15% of
earned income. Under the SEP plan, employer contributions are made
directly to the IRA accounts of eligible participants.
Defined Contribution Retirement Plan (Keogh Plan)
A prototype defined contribution retirement plan is available for
employers, including self-employed individuals, who wish to purchase
shares of the Fund with tax-deductible contributions not exceeding
annually for any one participant the lesser of $30,000 or 25% of earned
income.
The defined contribution plan also contains a cash or deferred
arrangement which the employer may adopt. The cash or deferred
arrangement is intended to satisfy the requirements of Section 401(k) of
the Internal Revenue Code and allows eligible employees to reduce their
compensation and have such amount contributed to the plan on their behalf.
An employer may also make matching contributions on behalf of
participating employees.
Section 403(b)(7) Plan
The Fund has available a tax-sheltered custodial account designed to
qualify under Section 403(b)(7) of the Internal Revenue Code for use by
employees of certain educational, nonprofit hospital and charitable
organizations. The amount of contributions excludable from income is
subject to several limitations under the Internal Revenue Code.
The IRA documents contain a disclosure statement which the Internal
Revenue Service requires to be furnished to individuals who are
considering adopting an IRA. Because a retirement program involves
commitments covering future years, it is important that the investment
objective of the Fund be consistent with the participant's retirement
objectives. Premature withdrawals from a retirement plan may result in
adverse tax consequences.
A description of applicable acceptance, maintenance, and other
service fees and certain limitations on contributions and withdrawals, as
well as application forms for the foregoing retirement plans, are
available from the Fund upon request. Firstar Trust Company serves as
custodian for these plans and provides certain services. For such
services, the following fees (which are subject to change) are charged
against the accounts of participants: $12.50 annual maintenance fee; $15
for transferring to a successor trustee; $15 for distribution to
participant; $12.00 for outgoing federal wire transfers; and $15 for
refunding any contribution in excess of the deductible limit.
DISTRIBUTIONS AND TAXES
Distributions
Dividends from the Fund's net investment income as well as
distributions designated as capital gains will ordinarily be declared and
paid annually in such a manner as to avoid paying income tax on the Fund's
net investment income and net realized capital gains or being subject to a
federal excise tax on undistributed net investment income and net realized
capital gains. Such distributions and dividends will typically be made in
December. As current income is not an objective of the Fund, the amount
of dividends will likely be small. There is no fixed dividend rate and
there can be no assurance as to the payment of any dividends or the
realization of any gains.
Taxes
The Fund will endeavor to qualify annually as a "regulated investment
company" under Sub-chapter M of the Internal Revenue Code of 1986, as
amended, and accordingly, it will be necessary for the Fund to distribute
substantially all of the income of the Fund (exclusive of capital gains)
earned during the year. If the Fund so qualifies, the Fund will not be
liable for Federal income taxes on amounts paid by it as dividends and
distributions.
For Federal income tax purposes, dividends paid by the Fund and
distributions from short-term capital gains, whether received in cash or
reinvested in additional shares, are taxable as ordinary income.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or reinvested in additional shares, are taxable as
long-term capital gains, regardless of the length of time you have owned
shares in the Fund. The distributions are taxable whether you receive
them in cash or in additional shares. If you are not required to pay tax
on your income, you will not be required to pay Federal income taxes on
the amounts distributed to you. Dividends and capital gain distributions
declared in December and paid the following January will be taxable in the
year they are declared.
The Fund is required to withhold Federal income tax at a rate of 31%
("backup withholding") from dividend payments, distributions and
redemption proceeds if a shareholder fails to furnish the Fund with
his/her social security or other tax identification number ("TIN") and
certify under penalty of perjury that such number is correct and that
he/she is not subject to backup withholding due to the underreporting of
income. The certification form is included as part of the Share Purchase
Application and should be completed when the account is established.
If you do not have a tax identification number, you should indicate
on the application form whether a number has been applied for. The Fund
may be required to backup withhold if a certified TIN is not delivered to
the Fund within 7 days.
Distributions by the Fund may subject an investor to state and local
taxes on the distributions, depending on the laws of a shareholder's home
state and locality. Because this section is not intended to be a full
discussion of present or proposed Federal income tax law and its effect on
shareholders, shareholders are urged to consult their own tax adviser.
CAPITAL STOCK
The Fund is a corporation organized under the laws of the State of
Maryland and was incorporated on August 24, 1987. The Fund has 20,000,000
shares of authorized capital stock, $.01 par value per share. Each share
has one vote and all shares participate equally in dividends and other
distributions by the Fund and in the residual assets of the Fund in the
event of liquidation. Fractional shares have the same rights
proportionately as do full shares. Shares of the Fund have no preemptive
rights and no conversion or subscription rights. Shareholders are
entitled to redeem shares as set forth under "How to Redeem Shares."
Certificates for shares held in an investor's account will be issued
only upon written request, but the investor will be the record owner of
all shares in his account with full shareholder rights.
SHAREHOLDER REPORTS AND MEETINGS
The Fund will provide to shareholders a semiannual statement of their
account. Shareholders will also receive monthly financial information
including a semi-annual report showing the Fund's portfolio and other
information and an annual report containing audited financial statements
for the Fund. Shareholders will receive a confirmation after each
transaction. Any inquiries concerning the Fund may be made by telephone
toll-free 1-800-332-3133, or by writing to the Fund at 120 S. Riverside
Plaza, Suite 1745, Chicago, Illinois 60606.
The Maryland Statutes permit registered investment companies, such as
the Fund, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the
Investment Company Act of 1940. The Fund has adopted the appropriate
provisions in its By-Laws and does not anticipate holding annual meetings
of shareholders for the election of directors unless otherwise required by
the Investment Company Act of 1940. The Fund also has adopted provisions
in its By-Laws for the removal of directors by the stockholders.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders,
the Fund may compare its performance to that of other mutual funds
including funds with similar investment objectives and to other relevant
indices published by recognized mutual fund statistical rating services or
publications of general interest such as "Forbes" or "Money". For
example, the Fund may compare its performance to that of other growth or
aggressive growth mutual funds and to the mutual fund industry as a whole
(excluding money market funds), as compiled by Lipper Analytical Services,
Inc. In addition, the Fund may compare its performance to that of
recognized stock market indicators including, but not limited to, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average.
The Fund may also compare its performance to the AMEX Market Value Index
and the Nasdaq Composite Index. Performance comparisons should not be
considered as representative of the future performance of the Fund.
The Fund may cite its performance in the form of a total return over
specified periods. The Fund's total return for any specified period of
time is calculated by assuming the purchase of shares of the Fund at the
offering price at the beginning of the period. Each dividend or other
distribution paid by the Fund during the period is assumed to have been
reinvested in additional shares of the Fund at net asset value on the
reinvestment date. The number of shares thereby accumulated are valued at
the end of the period.
The percentage increase is determined by subtracting the initial
value of the investment from the ending value and dividing the remainder
by the initial value.
The Fund may also cite its performance in the form of an average
annualized compounded return for a specified period of time. The average
annual compounded return for the Fund is the return which, if applied to
an initial investment and compounded over the given period, would result
in the value of the investment at the end of the period.
Performance will vary from time to time and past results are not
necessarily representative of future results. Performance information,
such as that described above, may not provide a basis for comparison with
other investments or other investment companies using a different method
of calculating performance. Investors' principal in the Fund and its
return are not guaranteed and will fluctuate according to market
conditions. When redeemed, shares may be worth more or less than their
original cost.
<PAGE>
PERRITT CAPITAL GROWTH FUND, INC.
SHARE PURCHASE APPLICATION
Mail to: Minimum Investments:
Perritt Capital Growth Fund Intial: $250
c/o Firstar Trust Company Subsequent: $ 50
P.O. Box 701
Milwaukee, WI 53201-0701
#1...Registration of Shares
____________________________________________________________
Owner (Individual, Corporation, Trustee or Custodian)
____________________________________________________________
Address
____________________________________________________________
City State Zip
____________________________ __________________________
Social Security Number Daytime Telephone Number
(with area code)
____________________________________________________________
Joint Owner
If more than one owner is listed above, then shares will be registered as
joint tenants with rights of survivorship and not as tenants in common,
unless otherwise instructed. UGMA accounts please list the custodian as
owner, the minor as joint owner; put the minor's Social Security Number in
the space above.
#2...Investment Information
This Investment represents an:
___ Initial Purchase payable to: Perritt Capital Growth Fund $____
___ Investment wired to Account #: __________________________ $____
#3...Dividend Option
All income dividends and capital gains distributions will be reinvested in
additional shares as stated in the prospectus unless the item below is
checked.
___ Please pay all income dividends and capital gains distributions in
cash.
I(We) understand that certificates for shares purchased (either initial or
reinvested) will be issued only upon request.
#4...Automatic Investment Plan
Please start my Automatic Investment Plan as described in the prospectus
beginning: Month______ Year______. I hereby instruct Firstar Trust
Company, Transfer Agent for Perritt Capital Growth Fund, to automatically
transfer $________ (minimum $50) directly from my checking, Now, or
savings account named below on the ______t of each month or the first
business day thereafter. I understand that I will be assessed a $20 fee
if the automatic purchase cannot be made due to insufficient fund, stop
payment, or any other reason.
Names(s) on Bank Account______________________________________________
Bank Name______________________________________________________________
Bank Address___________________________________________________________
Account Number_________________________________________________________
Signature of Bank Account Owner________________________________________
Signature of Joint Owner_______________________________________________
#5...Systematic Withdrawals
I would like to withdraw from Perritt Capital Growth Fund $________
($200 minimum) as follows:
______ I would like to have payments made to me on or about the ______th
day of each month (circle ALL) OR the months that I have circled -- Jan
Feb Mar Apr May June July Aug Sept Oct Nov Dec
______ I would like to have payments automatically deposited to may bank
account. Complete bank account information below. (A check will be
mailed to the above address if this box is not checked.) To ensure proper
crediting of your bank account, please attach a voided check or deposit
slip.
Name(s) on Bank Account______________________________________________
Bank Name____________________________________________________________
Bank Address_________________________________________________________
Account Number_______________________________________________________
#6...Signature and Certification by the Internal Revenue Service
I (We), the undersigned, have received a copy of the current
prospectus of the Perritt Capital Growth Fund and are purchasing fund
shares in accordance with its provisions. I (We) further certify that
the undersigned is of legal age and has full legal capacity to make this
purchase. The purchase price shall be the net asset value next determined
following receipt of the application by the Fund, if the application is
accepted. This application cannot be processed unless accompanied by
payment.
Under the penalty of perjury, I (we) certify that (1) the Social
Security Number or Taxpayer Identification Number shown on this form is my
(our) correct Taxpayer Identification Number, and (2) I am (we are) not
subject to backup withholding either because I (we) have not been notified
by the Internal Revenue Service (IRS) that I am (we are) subject to backup
withholding as a result of failure to report all interest or dividends, or
that IRS has not notified me (us) that I am (we are) no longer subject to
backup withholding. The IRS does not require your consent to any of this
provision of the document other than the certifications required to avoid
backup withholding.
------------------------------------ ----------------------
Signature of Owner Date
------------------------------------ ----------------------
Signature of Joint Owner (if any) Date
Investment Adviser
Perritt Capital Management, Inc.
120 S. Riverside Plaza
Suite 1745
Chicago, IL 60606
(312) 669-1650
Officers of the Fund
Gerald W. Perritt - President/Treasurer
Michael J. Corbett - Vice President
Allison B. Hearst - Secretary
Directors of the Fund
David Maglich
Gerald W. Perritt
Diane C. Click
Custodian, Transfer Agent and Dividend Disbursing Agent
Firstar Trust Company
Mutual Fund Services-Third Floor
P.O. Box 701
Milwaukee, WI 53201-0701
1-800-332-3133
Independent Accountants
Checkers, Simon & Rosner LLP
One South Wacker Drive
Chicago, IL 60606
Legal Counsel
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
----------------------------------------------------------
PERRITT CAPITAL GROWTH FUND, INC.
----------------------------------------------------------
A no-load mutual fund that invests in a portfolio of
common stocks of smaller, rapidly growing companies
No Sales Charges
No Redemption Charges
No 12b-1 Fees
Minimum Initial Investment $250
IRA Minimum Initial Investment $50
Dividend Reinvestment Plan
Systematic Withdrawal Plan
Automatic Investment Plan
Retirement Plains Including:
- IRA -Keogh
-SEP -403(b)
The Fund can also be purchased at the following
brokerage firms: Jack White & Company, Charles
Schwab & Company, Huntleigh Securities, and
Waterhouse Securities.
STATEMENT OF ADDITIONAL INFORMATION
Dated February 28, 1997
PERRITT CAPITAL GROWTH FUND, INC.
120 South Riverside Plaza
Suite 1745
Chicago, Illinois 60606
Toll Free: (800) 332-3133
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of Perritt Capital
Growth Fund, Inc., dated February 28, 1997 and any supplement thereto. A
copy of the Prospectus may be obtained without charge from Perritt Capital
Growth Fund, Inc. at the address and telephone number set forth above.
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information and the Prospectus dated February 28, 1997 and, if
given or made, such information or representations may not be relied upon
as having been authorized by Perritt Capital Growth Fund, Inc.
PERRITT CAPITAL GROWTH FUND, INC.
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 4
INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . 6
Put and Call Options on Portfolio Securities . . . . . . . . . . . 6
Stock Index Options . . . . . . . . . . . . . . . . . . . . . . . 10
RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Individual Retirement Accounts ("IRA") . . . . . . . . . . . . . . 12
Simplified Employee Pension Plan ("SEP/IRA") . . . . . . . . . . . 12
Defined Contribution Plans . . . . . . . . . . . . . . . . . . . . 13
Deferred Compensation for Public Schools and Charitable
Organizations ("403(b)(7) Plan") . . . . . . . . . . . . . . 13
OTHER SHAREHOLDER PLANS . . . . . . . . . . . . . . . . . . . . . . . . 13
Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . . . . 13
Automatic Investment Plan . . . . . . . . . . . . . . . . . . . . 14
Dividend Reinvestment Plan . . . . . . . . . . . . . . . . . . . . 14
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 14
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . . 18
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 20
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 21
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 22
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . 23
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 23
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital
appreciation which it seeks by investing primarily in a diversified
portfolio of common stocks of small, rapidly growing companies. The Fund
will, under normal market conditions, invest at least 80% of its assets in
common stocks, securities convertible into common stocks and other
equity-type securities of firms whose equity market value at the time of
purchase is less than $200 million. The Fund may invest in securities not
listed on a national or regional securities exchange, but such securities
typically will have an established over-the-counter market. The Fund does
not intend to invest in any security which, at the time of purchase, is
not readily marketable. The Fund may, for temporary defensive purposes,
invest greater than 20% of its assets in money market securities,
including U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper or cash and cash equivalents. Except for
temporary defensive purposes, the Fund will retain cash and cash
equivalents only in amounts deemed adequate for current needs and to
permit the Fund to take advantage of investment opportunities. The Fund's
investment objective and policies are described in detail in the
Prospectus under the caption "Investment Objective and Policies."
INVESTMENT CONSIDERATIONS
Because the Fund intends to invest to a substantial degree in
common stocks of smaller companies which are, in the opinion of Perritt
Capital Management, Inc., the Fund's investment adviser ("Adviser"),
rapidly growing, an investment in the Fund is subject to greater risks
than those involved with funds that invest in larger companies.
Investments in relatively small companies tend to be speculative
and volatile. Relatively small companies may lack depth in management on
which to rely should loss of key personnel occur. Relatively small
companies also may be involved in the development or marketing of new
products or services, the market for which may not have been established.
Such companies could sustain significant losses when projected markets do
not materialize. Further, such companies may have, or may develop, only a
regional market for products or services and may be adversely affected by
purely local events. Moreover, such companies may be insignificant factors
in their industries and may become subject to intense competition from
larger companies.
Equity securities of relatively small companies frequently will
be traded only in the over-the-counter market or on regional stock
exchanges and often will be closely held with only a small proportion of
the outstanding securities held by the general public. In view of such
factors, the Fund may assume positions in securities with limited trading
markets which are subject to wide price fluctuations. Therefore, the
current net asset value of the Fund may fluctuate significantly.
Accordingly, the Fund should not be considered suitable for investors who
are unable or unwilling to assume the risks of loss inherent in such a
program, nor should an investment in the Fund, by itself, be considered a
balanced or complete investment program.
INVESTMENT RESTRICTIONS
In seeking to achieve its investment objectives, the Fund has
adopted the following restrictions which are matters of fundamental policy
and cannot be changed without approval by the holders of the lesser of:
(i) 67% of the Fund's shares present or represented at a
meeting of shareholders at which the holders of more than 50% of
such shares are present or represented; or
(ii) more than 50% of the outstanding shares of the Fund.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values
of assets will not constitute a violation of that restriction.
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of the Fund's total assets
to be invested in securities of any one issuer (except
securities of the United States Government or any agency or
instrumentality thereof), or purchase more than 10% of the
outstanding securities of any class or more than 10% of the
outstanding voting securities of any one issuer.
2. Purchase securities of any other investment company,
except in connection with a merger, consolidation,
reorganization or acquisition of assets.
3. Purchase or retain the securities of any issuer if
those officers or directors of the Fund or its investment
adviser owning individually more than 1/2 of 1% of the securities
of such issuer together own more than 5% of the securities of
such issuer.
4. Borrow money except from banks for temporary or
emergency purposes (but not for the purpose of purchase of
investments) and then only in an amount not to exceed 5% of the
value of a Fund's net assets at the time the borrowing is
incurred.
5. Invest in real estate (although the Fund may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, commodities contracts or
interests in oil, gas and/or mineral exploration or development
programs.
6. Act as an underwriter of securities or participate on
a joint or joint and several basis in any trading account in any
securities.
7. Invest in companies for the primary purpose of
acquiring control or management thereof.
8. Purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions and
make short sales of securities (except short sales against the
box).
9. Pledge, mortgage, hypothecate or otherwise encumber
any of its assets, except as a temporary measure for
extraordinary or emergency purposes, and then not in excess of
15% of its assets taken as cost.
10. Concentrate more than 25% of the value of its total
assets (taken at market value at the time of each investment) in
securities of non-governmental issuers whose principal business
activities are in the same industry.
11. Invest in restricted securities or illiquid or other
securities without readily available market quotations,
including repurchase agreements.
12. Make loans, except that this restriction shall not
prohibit the purchase and holding of a portion of an issue of
publicly distributed debt securities.
13. Engage in the purchase and sale of put and call
options on portfolio securities or stock indexes except that the
Fund may, subject to the restrictions in Item 14 below, (i)
write covered call options and purchase covered put options on
securities with respect to all of its portfolio securities; (ii)
purchase stock index put options for hedging purposes; and (iii)
enter into closing transactions with respect to such options.
14. Purchase, sell or write options on portfolio
securities or stock indexes if, as a result thereof, (i) the
aggregate market value of all portfolio securities covering such
options exceeds 25% of the Fund's net assets; or (ii) the
aggregate premiums paid for all options held exceeds 5% of the
Fund's net assets.
15. Purchase securities of any company having less than
three years continuous operation (including operations of any
predecessors) if such purchase would cause the value of the
Fund's investments in all such companies to exceed 5% of the
value of its assets.
16. Invest more than 5% of its total assets in warrants,
whether or not the warrants are listed on the New York or
American Stock Exchange, or more than 2% of the value of the
assets of the Fund in warrants which are not listed on those
exchanges. Warrants acquired in units or attached to securities
are not included in this restriction.
INVESTMENT TECHNIQUES
Put and Call Options on Portfolio Securities
The Fund may write (sell) "covered" call options and purchase
covered put options and purchase call and write put options to close out
options previously written by the Fund. The purpose of writing covered
call options and purchasing covered put options will be to reduce the
effect of price fluctuations of the securities owned by the Fund (and
involved in the options) on the Fund's net asset value per share.
Although premiums may be generated through the use of covered call
options, the Adviser does not consider the premiums which may be generated
as the primary reason for writing covered call options. Portfolio
securities on which put options may be purchased and call options may be
written will be purchased solely on the basis of investment considerations
consistent with the Fund's investment objective.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a
certain date (the expiration date). The Fund receives a premium (less a
commission) for writing the option which premium would partially or
completely offset any decline in price. If, for example, the Fund wrote
an option at $50 on the same 100 shares of ABC bought at $40 per share and
now selling for $50 per share, it might receive a premium of approximately
$600. If the market price of the underlying security declined to $45, the
option will not be exercised and the Fund could offset the unrealized loss
of $500 by the $600 premium. On the other hand, if the market price of
the underlying security increases to $55, the option would be exercised
and the Fund will have foregone the unrealized $1,500 gain for a $1,000
gain plus the $600 premium. The Fund can also close out its position in
the call option by repurchasing the option contract separately and
independent of any transaction in the underlying security and, therefore,
realize capital gain or loss. If the Fund could not enter into such a
closing purchase transaction, it may be required to hold a security that
it may otherwise have sold to protect against depreciation.
So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold requiring him to deliver the underlying
security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at
which the writer effects a closing purchase transaction by repurchasing
the option which he previously sold. To secure his obligation to deliver
the underlying security in the case of a call option, a writer is required
to deposit in escrow the underlying security or other assets in accordance
with the rules of the Clearing Corporation and of the Exchanges.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast to the
writing of naked or uncovered options, which the Fund will not do) but
capable of enhancing the Fund's total return. If the call option is
exercised, the Fund will realize a gain or loss from the sale of the
underlying security.
A put option gives the holder (buyer) the "right to sell" a
security at a specified price (the exercise price) at any time until a
certain date (the expiration date). The Fund pays a premium to the writer
for the right to sell the underlying shares at the exercise price instead
of the then existing market price. For example, if the Fund expected a
decline in the market price of its 100 shares of ABC bought at $40, and
currently selling at $50, it might buy a put on such shares, paying a
premium for the right to sell the shares during the next six months at the
current market price of $50 per share. If the market price declines to
$45, the option would be exercised and the Fund would realize the full
$1,000 gain (partially offset by the premium) rather than only a $500
gain. If, on the other hand, the market price remained at $50 or
increased, the option would not be exercised and the gain would be
partially offset by the premium. The Fund may also sell the put option
contract separately and independent of the underlying security and,
therefore, realize capital gain or loss.
The Fund will only write covered call options and purchase
covered put options. This means the Fund will only write a call option or
purchase a put option on a security which the Fund already owns. The Fund
will write covered call options and purchase covered put options in
standard contracts which may be quoted on the Nasdaq Stock Market, or on
national securities exchanges. The Fund may write covered call options
with and purchase covered put options directly from investment dealers
meeting the creditworthiness criteria of the Adviser only if (i) the
options are not as readily available on an exchange, (ii) there is an
active market which provides a degree of liquidity and a pricing
mechanism, and (iii) in the judgment of the Adviser, there is a
substantial likelihood that the parties will meet their contractual
obligations. In order to comply with applicable securities laws, the Fund
will not write a covered call option on a portfolio security or purchase a
put option on a portfolio security if, as a result, (i) the aggregate
market value of all portfolio securities covering call options or subject
to put options exceeds 25% of the Fund's net assets; or (ii) the aggregate
premiums paid for all options held exceeds 5% of the Fund's net assets.
The security covering the call or put option will be maintained
in a segregated account of the Fund's custodian. The Fund does not
consider a security covered by a call or put option to be "pledged" as
that term is used in the Fund's policy which limits the pledging or
mortgaging of its assets.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option, or, which the
Fund will pay when purchasing a put option, will reflect, among other
things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical
price volatility of the underlying security, the length of the option
period, the general supply of and demand for credit conditions, and the
general interest rate environment. The premium received by the Fund for
writing covered call options will be recorded as a liability in the Fund's
statement of assets and liabilities. This liability will be adjusted
daily to the option's current market value, which will be the latest sale
price at the time at which the net asset value per share of the Fund is
computed (close of the New York Stock Exchange), or, in the absence of
such sale, the mean between the closing bid and asked prices. The
liability will be extinguished upon expiration of the option, the purchase
of an identical option in a closing transaction, or delivery of the
underlying security upon the exercise of the option.
The premium paid by the Fund when purchasing a put option will
be recorded as an asset in the Fund's statement of assets and liabilities.
This asset will be adjusted daily to the option's current market value,
which will be the latest sale price at the time at which the net asset
value per share of the Fund is computed (close of New York Stock
Exchange), or, in the absence of such sale, the mean between the closing
bid and asked prices. The asset will be extinguished upon expiration of
the option, the selling (writing) of an identical option in a closing
transaction, or the delivery of the underlying security upon the exercise
of the option.
The Fund will only purchase a call option to close out a covered
call option it has written. The Fund will only write a put option to
close out a put option it has purchased. Such closing transactions will
be effected in order to realize a profit on an outstanding call or put
option, to prevent an underlying security from being called or put, or, to
permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit the Fund to write another call option, or
purchase another put option, on the underlying security with either a
different exercise price or expiration date or both. If the Fund desires
to sell a particular security from its portfolio on which it has written a
call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security. The
Fund will pay brokerage commissions in connection with the writing or
purchase of options to close out previously written options. Such
brokerage commissions are normally higher than those applicable to
purchases and sales of portfolio securities. There is, of course, no
assurance that the Fund will be able to effect such closing transactions
at a favorable price. If the Fund cannot enter into such a transaction, it
may be required to hold a security that it might otherwise have sold, in
which case it would continue to bear a market risk on the security. This
could result in higher transaction costs, including brokerage commissions.
Call options written by the Fund will normally have expiration
dates between three and nine months from the date written. The exercise
price of the options may be below, equal to, or above the current market
values of the underlying securities at the time the options are written.
From time to time, the Fund may purchase an underlying security for
delivery in accordance with an exercise notice of a call option assigned
to it rather than delivering such security from its portfolio. In such
cases, additional brokerage commissions will be incurred.
The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the
premium received from the writing of the call option; however, any loss so
incurred in a closing purchase transaction may be partially or entirely
offset by the premium received from a simultaneous or subsequent sale of a
different call or put option. Also, because increases in the market price
of a call option will generally reflect increases in the market price of
the underlying security, any loss resulting from the repurchase of a call
option is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
Expiration of a call option will generally result in short-term
capital gain for the writer of the option and short-term or long-term
capital gain for the holder of the option depending upon the period the
option was held before expiration. Any gain or loss realized on a closing
transaction will generally be treated as short-term capital gain or loss
for the writer of the option. If the call option is exercised, the writer
will realize a gain or loss from the sale of the security covering the
call option, and in determining such gain or loss, the premium will be
included in the proceeds of the sale.
If the Fund writes options other than "qualified covered call
options," as defined in the Internal Revenue Code, any losses on such
option transactions, to the extent they do not exceed the unrealized gains
on the securities covering the options, may be subject to deferral until
the securities covering the options have been sold. In addition, any
options written against securities other than stocks will be considered to
have been closed out at the end of the Fund's fiscal year and any gains or
losses will be recognized for tax purposes at that time. Such gains or
losses would be characterized as 60% long-term capital gain or loss and
40% short-term capital gain or loss.
If trading were suspended in an option purchased or written by
the Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it had purchased. In addition, prices of indexes may
be distorted if trading of certain stocks included in the indexes is
interrupted. The hours of trading for options may not conform to the
hours during which the underlying securities are traded. To the extent
that the options markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the options markets.
There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position and therefore the Fund may
not be able to effect a closing transaction at a favorable price. If the
Fund were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize any
profit or the option would expire. This could result in higher
transaction costs, including brokerage commissions. If the Fund were
unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the
option expired without exercise, in which case it would continue to bear
market risk on the security. As the writer of a covered call option, the
Fund foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option
above the sum of the premium and the exercise price of the call.
Stock Index Options
The Fund may (i) purchase stock index put options solely for
hedging purposes, and (ii) sell stock index options in order to close out
existing positions. In most respects put options on stock indexes are
identical to listed options on common stock. The primary difference
between stock options and index options occurs when index options are
exercised. In the case of stock options, the underlying security, common
stock, is delivered. However, upon the exercise of an index option,
settlement does not occur by delivery of the securities comprising the
index. The put option holder who exercises the index option receives an
amount of cash if the closing level of the stock index upon which the
option is based is less than the exercise price of the option. This
amount of cash is equal to the difference between the closing price of the
stock index and the exercise price of the option expressed in dollars
times a specified multiple.
A stock index fluctuates with changes in the market values of
the stocks included in the index. For example, some stock index options
are based on a broad market index such as the S&P 500 or the Value Line
Composite Index, or a narrower market index such as the S&P 100. Options
on stock indexes are currently traded on the following exchanges: The
Chicago Board Options Exchange, New York Stock Exchange, American Stock
Exchange, Pacific Stock Exchange and the Philadelphia Stock Exchange.
The Fund may purchase put options in an attempt to hedge against
the risk of unfavorable price movements adversely affecting the value of
the Fund's securities. The Fund will sell stock index options only in
order to close out positions in stock index options which the Fund has
purchased.
Put options may be purchased in order to hedge against an
anticipated decline in stock market prices that might adversely affect the
value of the Fund's portfolio securities or in an attempt to capitalize on
an anticipated decline in stock market prices. If the Fund purchases a
put option on a stock index, the amount of the payment it receives upon
exercising the option depends on the extent of any decline in the level of
the stock index below the exercise price. Such payments would tend to
offset a decline in the value of the Fund's portfolio securities. If,
however, the level of the stock index increases and remains above the
exercise price while the put option is outstanding, the Fund will not be
able to profitably exercise the option and will lose the amount of the
premium and any transaction costs. Such loss may be offset by an increase
in the value of the Fund's portfolio securities.
The Fund's purchase and sale of options on stock indexes will be
subject to the same risks with respect to transactions in stock options on
individual stocks discussed previously. In addition, the distinctive
characteristics of options on indexes create certain risks that are not
present with stock options. Successful use by the Fund of options on stock
indexes will be subject to the ability of the Fund's investment adviser to
correctly predict movements in the directions of the stock market. This
requires different skills and techniques than predicting changes in the
price of individual securities.
All stock index options purchased by the Fund will be listed and
traded on an exchange. However, there is no assurance that a liquid
secondary market on an options exchange will exist for any particular
option, or at any particular time, and for some options no secondary
market may exist. If the Fund is unable to effect a closing sale
transaction with respect to options that it has purchased, it would have
to exercise the options in order to realize any profit.
The Fund's ability to effectively hedge all or a portion of the
securities in its portfolio in anticipation of or during a market decline
through transactions in put options on stock indexes depends on the degree
to which price movements in the underlying index correlate with the price
movements in the Fund's portfolio securities. Inasmuch as the Fund's
portfolio securities will not duplicate the components of an index, the
correlation will not be perfect. Consequently, the Fund will bear the risk
that the prices of its portfolio securities being hedged will not move in
the same amount as the prices of the Fund's put options on the stock
indexes. It is also possible that there may be a negative correlation.
The purchase of stock index options involves the risk that the premium and
transaction costs paid by the Fund in purchasing an option will be lost as
a result of unanticipated movements in prices of the securities comprising
the stock index on which the option is based.
The hours of trading for options may not conform to the hours
during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
markets that cannot be reflected in the options markets. The purchase of
options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary
portfolio securities transactions.
Index prices may be distorted if trading of certain stocks
included in the indices is interrupted. Trading in index options also may
be interrupted in certain circumstances such as if trading is halted in a
substantial number of stocks included in the index. If this occurred the
Fund would not be able to close out options which it had purchased, which
could result in losses to the Fund if the underlying index moved adversely
before trading resumed. However, it is the Fund's policy to purchase
options only on indices which include a sufficient number of stocks so
that the likelihood of a trading halt in the index is minimized.
Although the markets for certain option contracts have developed
rapidly, the markets for other index options are still relatively
illiquid. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop in all
index options contracts. The Fund will not purchase any index option
contract unless and until in the opinion of the Fund's adviser the market
for such options has developed sufficiently that the risk in connection
with such transactions is no greater than the risk in connection with
options on stocks.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with many
types of tax-deferred retirement plans. Initial purchase payments in
connection with tax-deferred retirement plans must be $250. It is
advisable for an individual considering the establishment of a retirement
plan to consult with an attorney and/or an accountant with respect to the
terms and tax aspects of the plan. Additional details about these plans,
application forms and plan documents may be obtained by contacting the
Fund.
Individual Retirement Accounts ("IRA")
Shares of the Fund may be used as a funding medium for an
Individual Retirement Account ("IRA") permitted by Section 408 of the
Internal Revenue Code ("Code"). IRAs are available to individuals who
receive compensation or earned income, whether or not they are active
participants in a tax-qualified or government-approved retirement plan.
Individuals also may establish an IRA to receive a "rollover" contribution
of distributions from another IRA or certain distributions from a
qualified plan. A rollover must be completed within 60 days after receipt
of the amount to be rolled over. Tax advice should be obtained before
planning a rollover.
Eligible individuals may establish an IRA by adopting a model
custodial account available from the Fund. The amount of deduction, if
any, allowed for IRA contributions is limited for individuals who are
active participants in an employer maintained retirement plan and whose
incomes exceed specified limits.
Earnings on an IRA are not subject to current Federal income tax
until distributed; distributions are taxed as ordinary income except to
the extent the distribution represents a return of nondeductible
contributions. The assets in an IRA may be withdrawn without penalty
after the participant reaches age 59-1/2, becomes disabled, dies, or if
withdrawn as part of a series of substantially equal period payments over
the life expectancy of the participant or joint life expectancy of the
participant and beneficiary. Assets in an IRA must begin to be withdrawn
by the first day of April of the year after the year in which the
participant reaches age 70-1/2.
Simplified Employee Pension Plan ("SEP/IRA")
The Fund also offers a prototype simplified employee pension
(SEP) plan for employers, including self-employed individuals, who wish to
purchase shares of the Fund with tax-deductible contributions not
exceeding annually for any one participant the lesser of $30,000 or 15% of
earned income. Under the SEP plan, employer contributions are made
directly to the IRA accounts of eligible participants. SEP plans in
existence on December 31, 1996 also permit employers to provide
participants with an opportunity to make salary reduction contributions.
Defined Contribution Plans
A prototype defined contribution retirement plan is available
for employers, including self-employed individuals, who wish to purchase
shares of the Fund with tax-deductible contributions not exceeding
annually for any one participant the lesser of $30,000 or 25% of earned
income.
The defined contribution plan also contains a cash or deferred
arrangement which the employer may adopt. The cash or deferred
arrangement is intended to satisfy the requirements of Section 401(k) of
the Internal Revenue Code and allows eligible employees to reduce their
compensation and have such amount contributed to the plan on their behalf.
An employer may also make matching contributions on behalf of
participating employees.
Deferred Compensation for Public Schools and Charitable Organizations
("403(b)(7) Plan")
Section 403(b)(7) of the Code permits public school systems and
certain charitable organizations to use mutual fund shares held in a
custodial account to fund deferred compensation arrangements with their
employees. A custodial account agreement is available for those employees
who wish to purchase shares of the Fund in conjunction with such an
arrangement. Contributions to a 403(b)(7) Plan may be made by a
participant's employer or by participants through a salary reduction
agreement. Distributions from the account may be made upon death,
separation from service, or attainment of age 59-1/2 or financial hardship.
OTHER SHAREHOLDER PLANS
Systematic Withdrawal Plan
A shareholder who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an Application which may be
obtained from the Fund, create a Systematic Withdrawal Plan from which a
fixed sum will be paid to him at regular intervals. To establish the
Systematic Withdrawal Plan, the shareholder deposits his Fund shares with
the Fund and appoints it as his agent to effect redemptions of Fund shares
held in his account for the purpose of making monthly or quarterly
withdrawal payments of a fixed amount to him out of his account. Fund
shares deposited by the investor in his account need not be endorsed or
accompanied by a stock power if registered in the same name as his
account; otherwise, a properly executed endorsement or stock power,
obtained from any bank, broker-dealer or the Fund is required. The
investor's signature should be guaranteed by a bank or a member firm of a
national stock exchange.
The minimum amount of a withdrawal payment is $200. These
payments will be made out of the proceeds of periodic redemption of shares
in the account at net asset value. Redemptions will be made on the fifth
business day of each month or, if that day is a holiday, on the next
preceding business day. Establishment of a Systematic Withdrawal Plan
constitutes an election by the shareholder to reinvest in additional Fund
shares, at net asset value, all income dividends and capital gains
distributions payable by the Fund on the shares held in such Account, and
shares so acquired will be added to such account. The shareholder may
deposit additional Fund shares in his account at any time.
Withdrawal payments cannot be considered to be yield or income
on the shareholder's investment, since portions of each payment will
normally consist of a return of capital. Depending on the size or the
frequency of the disbursements requested and the fluctuation in the value
of the Fund's portfolio, redemptions for the purpose of making such
disbursements may reduce or even exhaust the shareholder's account.
Automatic Investment Plan
An Automatic Investment Plan may be established at any time. By
participating in the Automatic Investment Plan, shareholders may
automatically make purchases of shares of the Fund on a regular,
convenient basis. A shareholder may elect to make automatic deposits on
the fifth and/or twentieth day of each month. There is a $50 minimum for
each automatic transaction.
Under the Automatic Investment Plan, shareholders' banks or
other financial institutions debit pre-authorized amounts drawn on their
accounts each month and apply such amounts to the purchase of shares of
the Fund. The Automatic Investment Plan can be implemented with any
financial institution that is a member of the Automated Clearing House. No
service fee is charged to shareholders for participating in the Automatic
Investment Plan. An application to establish the Automatic Investment
Plan may be obtained from the Fund. The Fund reserves the right to
suspend, modify or terminate the Automatic Investment Plan, without
notice.
Dividend Reinvestment Plan
As described under "SHAREHOLDER PLANS - Dividend Reinvestment
Plan" in the Prospectus, all income dividends and capital gain
distributions will be invested automatically in additional Fund shares,
unless the Fund is otherwise notified in writing.
DIRECTORS AND OFFICERS
The directors and officers of the Fund together with information
as to their principal business occupations during the last five years and
other information are shown below. The address of Dr. Perritt, Mr.
Corbett and Ms. Hearst is 120 South Riverside Plaza, Suite 1745, Chicago,
Illinois 60606. The address of David S. Maglich is c/o Fergeson,
Skipper et. al., 1515 Ringling Blvd., Suite 1000, Sarasota,
Florida 34236. The address of Dianne C. Click is 514 North Montana
Avenue, Bozeman, Montana 59715. In the list below, the Fund's directors
who are considered "interested persons" as defined in Section 2(a)(19) of
the Investment Company Act of 1940 are noted with an asterisk(*). These
directors are referred to as inside directors by virtue of their position
as an officer and director of the Fund's investment adviser or their being
a member of the immediate family of an affiliate of the Fund. Dr. Perritt
and Mr. Maglich have served as directors since the Fund's inception. Ms.
Dianne Click has served as a director since February 1995.
*Gerald W. Perritt, President, Treasurer and Director of the
Fund
Dr. Perritt, age 55, has been President and a director of the
Fund since its inception in August 1987. Dr. Perritt is also the
President of Perritt Capital Management, Inc., the investment adviser to
the Fund, and Chairman of Investment Information Services, Inc., a
publisher of financial newsletters and other financial publications. Dr.
Perritt founded Investment Information Services, Inc. in 1983. Prior
thereto, he was Executive Director of the American Association of
Individual Investors, a not-for-profit organization formed to educate the
public about the financial and investment marketplace.
Michael J. Corbett, Vice President of the Fund
Mr. Corbett, age 32, has been a Vice President of the Fund since
March 1991, Vice President of the Adviser since February 1997 and the
Senior Securities Analyst of the Adviser since October 1989. He is
currently working for his CFA (charter financial analyst), and has a
Bachelor's of Science degree from DePaul University in Chicago, Illinois.
Prior to October, 1989, Mr. Corbett was a student at DePaul University in
Chicago, Illinois, where he received a Bachelor of Science degree in
finance.
Bradford D. Szczecinski, Vice President of the Fund
Mr. Szczecinski, age 30, has been a Vice President of the Fund
since August 1996, and senior account executive since January 1994. He
holds a series 6, 7 and 63. Prior to January 1994, he was in the
investment division of NBD Bank, Illinois in 1992 and 1993, and was a
registered representative for The Prudential in 1990 and 1991. In 1990,
he received his Bachelors of Science degree in finance from the University
of Toledo.
Allison B. Hearst, Secretary of the Fund
Ms. Hearst, age 34, has been the Fund's principal financial,
accounting and compliance officer since April 1991. She is also Senior
Accountant of Investment Information Services, Inc., a publisher of a
mutual fund advisory newsletter, as well as for the Adviser. Ms. Hearst
is currently studying for the CPA exam at Northwestern University,
Chicago, Illinois. Prior to April 1991, Ms. Hearst was a student at the
University of Colorado, Boulder, where she graduated Phi Beta Kappa.
David S. Maglich, Director
Mr. Maglich, age 38, has been a director of the Fund since its
inception in August 1987. Mr. Maglich is an associate with the law firm
of Fergeson, Skipper et. al. and has held such position since April 1989.
Prior thereto, he was an associate at the law firm of Devito & Colen, St.
Petersburg, Florida.
Dianne Chaykin Click, Director
Ms. Click, age 34, has been the sole proprietor of The Marketing
Arm., a direct mail marketing consulting firm to financial institutions,
since 1990. She is also a realtor in Bozeman, Montana with the firm of
Gallatin River Realty. She holds a Bachelor of Science degree in
Marketing from the University of Miami, Florida.
The following table provides information concerning the
compensation paid to directors of the Fund for the fiscal year ended
October 31, 1996.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation from
Aggregate Benefits Accrued Estimated Annual Fund and Fund
Compensation as Part of Fund Benefits Upon Complex Paid to
Name of Person from Fund Expenses Retirement Directors
<S> <C> <C> <C> <C>
Dianne Chaykin Click -0- -0- -0- -0-
David S. Maglich $1,000 -0- -0- $1,000
Gerald W. Perritt -0- -0- -0- -0-
</TABLE>
As of January 31, 1997, all officers and directors of the Fund
owned in the aggregate 2,148.59 shares of the Fund representing .34% of
the Fund's then issued and outstanding shares.
PRINCIPAL SHAREHOLDERS
As of January 31, 1997, no person known to the Fund owned
greater than 5% of the issued and outstanding shares of the Fund.
INVESTMENT ADVISER
Perritt Capital Management, Inc., 120 South Riverside Plaza,
Suite 1745, Chicago, Illinois (the "Adviser"), currently serves as
investment adviser to the Fund pursuant to an investment advisory
agreement dated April 12, 1988 (the "Advisory Agreement"). The Adviser is
a wholly owned subsidiary of Investment Information Services, Inc., an
Illinois corporation ("IIS"). Mr. Gerald W. Perritt, President of the
Adviser, owns 60% of the outstanding common stock of IIS and controls both
IIS and the Adviser.
The Advisory Agreement is required to be approved annually by
the Board of Directors of the Fund or by vote of a majority of the Fund's
outstanding voting securities. In addition, in either case, each annual
renewal must be approved by the vote of a majority of the Fund's directors
who are not parties to the Advisory Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement is terminable without penalty,
on 60 days' written notice, by the Board of Directors of the Fund, by vote
of a majority of the Fund's outstanding voting securities, or by the
Adviser, and will terminate automatically in the event of its assignment.
The Advisory Agreement was last approved by the shareholders of the Fund
on June 2, 1990 and by the Board of Directors on November 23, 1996.
Under the terms of the Advisory Agreement, the Adviser manages
the Fund's investments subject to the supervision of the Fund's Board of
Directors. The Adviser is responsible for investment decisions and
supplies investment research and portfolio management. At its expense,
the Adviser provides office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Fund. The
Adviser, at its expense, places all orders for the purchase and sale of
the Fund's portfolio securities.
Except for expenses assumed by the Adviser as set forth above,
the Fund is responsible for all its other expenses including, without
limitation, interest charges, taxes, brokerage commissions and similar
expenses, expenses of issue, sale, repurchase or redemption of shares,
expenses of registering or qualifying shares for sale, the expenses for
printing and distribution costs of prospectuses and quarterly financial
statements mailed to existing shareholders, charges of custodians,
transfer agent fees (including the printing and mailing of reports and
notices to shareholders), fees of registrars, fees for auditing and legal
services, fees for clerical services related to recordkeeping and
shareholder relations (including determination of net asset value), the
cost of stock certificates and fees for directors who are not "interested
persons" of the Adviser.
As compensation for its services, the Fund pays to the Adviser a
monthly advisory fee at the annual rate of 0.70% of the average daily net
asset value of the Fund. See "Determination of Net Asset Value" in the
Prospectus. The Adviser received $47,525, $44,174 and $53,327 in
management fees for fiscal years 1994, 1995 and 1996, respectively.
The Advisory Agreement requires the Adviser to reimburse the
Fund in the event that the expenses and charges payable by the Fund in any
fiscal year, including the advisory fee but excluding taxes, interest,
brokerage commissions and similar fees, exceed that percentage of the
average net asset value of the Fund for such year, as determined by
valuations made as of the close of each business day of the year, 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. If the
states in which the Fund's common stock is qualified for sale impose no
restrictions, the Adviser shall reimburse the Fund in the event the
expenses and charges payable by the Fund in any fiscal year (as described
above) exceed 2%. As of the date of this Statement of Additional
Information, the Fund's common stock is not qualified for sale in any
state which imposes an expense limitation. Reimbursement of expenses in
excess of the applicable limitation will be made on a monthly basis and
will be paid to the Fund by reduction of the Adviser's fee, subject to
later adjustment month by month for the remainder of the Fund's fiscal
year. The Adviser may from time to time, at its sole discretion,
reimburse the Fund for expenses incurred in addition to the reimbursement
of expenses in excess of applicable limitations.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Fund are made by
the Adviser subject to review by the Fund's Board of Directors. In
placing purchase and sale orders for portfolio securities for the Fund, it
is the policy of the Adviser to seek the best execution of orders at the
most favorable price in light of the overall quality of brokerage and
research services provided, as described in this and the following
paragraph. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations.
Among these are the Adviser's evaluation of the broker's efficiency in
executing and clearing transactions, block trading capability (including
the broker's willingness to position securities) and the broker's
financial strength and stability. The most favorable price to the Fund
means the best net price without regard to the mix between purchase or
sale price and commission, if any. Over-the-counter securities are
generally purchased and sold directly with principal market makers who
retain the difference in their cost in the security and its selling price.
In some instances, better prices may be available from non-principal
market makers who are paid commissions directly. While some brokers with
whom the Fund effects portfolio transactions may recommend the purchase of
the Fund's shares, the Fund may not allocate portfolio brokerage on the
basis of recommendations to purchase shares of the Fund.
In allocating brokerage business for the Fund, the Adviser may
take into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients.
Section 28(e) of the Securities Exchange Act of 1934 ("Section
28(e)") permits an investment adviser, under certain circumstances, to
cause an account to pay a broker or dealer who supplies brokerage and
research services a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction. Brokerage and research services include (a)
furnishing advice as to the value of securities, the advisability of
investing, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (b) furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and the performance of accounts and (c)
effecting securities transactions and performing functions incidental
thereto (such as clearance, settlement and custody).
The Agreement provides that the Adviser may cause the Fund to
pay a broker which provides brokerage and research services to the Adviser
a commission for effecting a securities transaction in excess of the
amount another broker would have charged for effecting the transaction, if
(a) the Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of brokerage and research services
provided by the executing broker viewed in terms of either the particular
transaction or the Adviser's overall responsibilities with respect to the
Fund and the other accounts as to which he exercises investment
discretion, (b) such payment is made in compliance with the provisions of
Section 28(e), other applicable state and federal laws, and the Advisory
Agreement and (c) in the opinion of the Adviser, the total commissions
paid by the Fund will be reasonable in relation to the benefits to the
Fund over the long term. The investment advisory fee paid by the Fund
under the Advisory Agreement is not reduced as a result of the Adviser's
receipt of research services.
The Adviser places portfolio transactions for other advisory
accounts. Research services furnished by firms through which the Fund
effects its securities transactions may be used by the Adviser in
servicing all of its accounts; not all of such services may be used by the
Adviser in connection with the Fund. In the opinion of the Adviser, it is
not possible to measure separately the benefits from research services to
each of the accounts (including the Fund) managed by the Adviser. Because
the volume and nature of the trading activities of the accounts are not
uniform, the amount of commissions in excess of those charged by another
broker paid by each account for brokerage and research services will vary.
However, in the opinion of the Adviser, such costs to the Fund will not be
disproportionate to the benefits received by the Fund on a continuing
basis.
The Adviser seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by
the Fund and another advisory account. In some cases, this procedure could
have an adverse effect on the price or the amount of securities available
to the Fund. In making such allocations between the Fund and other
advisory accounts, the main factors considered by the Adviser are the
respective investment objectives, the relative size of portfolio holdings
of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held, and
opinions of the persons responsible for recommending the investment.
For the one year periods ended October 31, 1994, 1995 and 1996,
the Fund paid brokerage commissions in the amounts of $22,335, $25,319 and
$20,352, respectively.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Fund. As such, Firstar Trust
Company holds all securities and cash of the Fund, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments and performs other duties, all as
directed by officers of the Fund. Firstar Trust Company does not exercise
any supervisory function over the management of the Fund, the purchase and
sale of securities or the payment of distributions to stockholders.
Firstar Trust Company also acts as the Fund's transfer agent and dividend
disbursing agent.
DETERMINATION OF NET ASSET VALUE
A more complete discussion of the Fund's determination of net
asset value is contained in the Prospectus. Generally, the net asset value
of the Fund will be determined as of the close of trading on each day the
New York Stock Exchange is open for trading. The Fund does not determine
net asset value on days the New York Stock Exchange is closed and at other
times described in the Prospectus. The New York Stock Exchange is closed
on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding
Monday, unless unusual business conditions exist, such as the ending of a
monthly or the yearly accounting period. If any of the aforementioned
holidays falls on a Saturday, the Exchange will not be open for trading on
the preceding Friday.
TAXES
As set forth in the Prospectus under the caption "Distributions
and Taxes," the Fund will endeavor to qualify annually for and elect tax
treatment applicable to a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund
did so qualify for the year ended October 31, 1996.
A dividend or capital gains distribution received shortly after
the purchase of shares reduces the net asset value of the shares by the
amount of the dividend or distribution and, although in effect a return of
capital, will be subject to income taxes. Net gain on sale of securities
when realized and distributed, actually or constructively, is taxable as
capital gain. If the net asset value of shares were reduced below a
shareholder's cost by distribution of gains realized on sales of
securities, such distribution would be a return of investment though
taxable as stated above.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered
investment companies, such as the Fund, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting
is not required by the Investment Company Act of 1940. The Fund has
adopted the appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in which the election
of directors is not required to be acted on by stockholders under the
Investment Company Act of 1940.
The Fund's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Fund shall promptly call a special
meeting of stockholders for the purpose of voting upon the question of
removal of any director. Whenever ten or more stockholders of record who
have been such for at least six months preceding the date of application,
and who hold in the aggregate either shares having a net asset value of at
least $25,000 or at least one percent (1%) of the total outstanding
shares, whichever is less, shall apply to the corporation's Secretary in
writing, stating that they wish to communicate with other stockholders
with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request
which they wish to transmit, the Secretary shall within five business days
after such application either: (1) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the
books of the Fund; or (2) inform such applicants as to the approximate
number of stockholders of record and the approximate cost of mailing to
them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
MISCELLANEOUS
A shareholder's account with the Fund may be terminated by the
Fund on not less than 30 days' notice if, at the time of any transfer or
redemption of shares in the account, the value of the remaining shares in
the account, at the current offering price, falls below $500. Upon any
such termination, the shares will be redeemed at the then current net
asset value and a check for the proceeds of redemption sent within seven
days of such redemption.
PERFORMANCE INFORMATION
As described in the Prospectus under "Performance Information,"
the Fund may quote its performance in the form of an average annual
compounded total return. The average annual return is computed by finding
the average annual compounded rates of return over specified periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the stated periods at
the end of the stated periods.
The Fund's average annual compounded returns for the one, three and five
year periods ended October 31, 1996 and for the period April 11, 1988
(inception of the Fund) to October 31, 1996 were 18.56%, 13.79%, 11.10%
and 8.33%, respectively. These figures are historical. An investor may
have a gain or loss when his/her shares are sold.
INDEPENDENT PUBLIC ACCOUNTANTS
Checkers Simon & Rosner LLP, Chicago, Illinois, audited the
Fund's financial statements for the fiscal year ended October 31, 1996 and
have been selected as the Fund's accountants for fiscal year 1997.
FINANCIAL STATEMENTS
The following audited financial statements of the Fund and
Report of Independent Accountants are incorporated by reference to the
Fund's Annual Report to Shareholders for the fiscal year ended October 31,
1996, File No. 811-05308, as filed with the Securities and Exchange
Commission on December 28, 1996:
(a) Statement of Net Assets.
(b) Statement of Changes in Net Assets.
(c) Financial Highlights.
(d) Statement of Operations.
(e) Notes to Financial Statements.
(f) Report of Independent Public Accountants.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Audited Financial Statements (Financial Highlights included in
Part A and all incorporated by reference to the Perritt Capital Growth
Fund, Inc. Annual Report dated October 31, 1996 (File No. 811-05308) (as
filed with the Securities and Exchange Commission on December 28, 1996) in
Part B
Perritt Capital Growth Fund, Inc.
Statement of Net Assets.
Statement of Changes in Net Assets.
Financial Highlights.
Statement of Operations.
Notes to Financial Statements.
Report of Independent Public Accountants.
(b) Exhibits
*(1) Registrant's Articles of Incorporation (incorporated by
reference to Registrant's Registration Statement on Form
N-1A)
*(2) Registrant's By-Laws (incorporated by reference to
Registrant's Registration Statement on Form N-1A)
*(2.1) Amendment to Registrant's By-Laws (incorporated by
reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
*(2.2) By-Laws, as amended (incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
*(2.3) Amendment to Registrant's By-Laws dated February 20,
1991 (incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement
on Form N-1A)
*(2.4) By-Laws, as amended through February 20, 1991
(incorporated by reference to Post-Effective Amendment
No. 4 to Registrant's Registration Statement on Form N-
1A)
(3) None
*(4) Specimen Stock Certificate (incorporated by reference to
Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
*(5) Investment Advisory Agreement (incorporated by reference
to Registrant's Registration Statement on Form N-1A)
(6) None
(7) None
*(8) Custodian Agreement with Firstar Trust Company
(incorporated by reference to Registrant's Registration
Statement on Form N-1A)
*(9) Shareholder Servicing Agent Agreement (incorporated by
reference to Registrant's Registration Statement on Form
N-1A)
*(10) Opinion of Foley & Lardner, counsel for Registrant
(incorporated by reference to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A)
(11) Consent dated February 25, 1997 of Checkers, Simon &
Rosner LLP to the use of their report dated December 27,
1996
(12) None
*(13) Subscription Agreement of Gerald W. Perritt
(incorporated by reference to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A)
*(14.1) Prototype Defined Contribution Retirement Plan
(incorporated by reference to Registrant's Registration
Statement on Form N-1A)
*(14.2a) Prototype Defined Contribution Retirement Plan, as
amended (incorporated by reference to Post-Effective
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A)
*(14.2b) Prototype Defined Contribution Retirement Plan, as
amended (incorporated by reference to Post-Effective
Amendment No. 4 to Registrant's Registration Statement
on Form N-1A)
*(14.3) Individual Retirement Custodial Account (incorporated by
reference to Registrant's Registration Statement on Form
N-1A)
*(14.4) Prototype Cash or Deferred Profit Sharing Plan
(incorporated by reference to Registrant's Registration
Statement on Form N-1A)
*(14.5) Section 403(b)(7) Retirement Plan (incorporated by
reference to Registrant's Registration Statement on Form
N-1A)
*(14.6) Section 403(b)(7) Retirement Plan, as amended
(incorporated by reference to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A)
(15) None
(16) Statement of Calculation of Performance Figures
(17) Financial Data Schedule
(18) None
_______________
* Previously filed and incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common
control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of November 30, 1996
Common Stock, $.01 par value 806
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following By-Law which is in full force and effect and has
not been modified or cancelled:
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate
representatives against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly
absolves the corporate representative, or in the event of a settlement,
each corporate representative shall be indemnified hereunder only if there
has been a reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall create a rebuttable presumption that the person
was guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the
preparation of and/or presentation of the defense of a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized in
the manner provided in Section 2-418(F) of the Maryland General
Corporation Law upon receipt of: (i) an undertaking by or on behalf of
the corporate representative to repay such amount unless it shall
ultimately be determined that he or she is entitled to be indemnified by
the corporation as authorized in this bylaw; and (ii) a written
affirmation by the corporate representative of the corporate
representative's good faith belief that the standard of conduct necessary
for indemnification by the corporation has been met.
E. The indemnification provided by this bylaw shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under these bylaws, any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person subject to the limitations
imposed from time to time by the Investment Company Act of 1940, as
amended.
F. This corporation shall have power to purchase and
maintain insurance on behalf of any corporate representative against any
liability asserted against him or her and incurred by him or her in such
capacity or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such
liability under this bylaw provided that no insurance may be purchased or
maintained to protect any corporate representative against liability for
gross negligence, willful misfeasance, bad faith or reckless disregard of
the duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or
was a director, officer, agent or employee of the corporation or who
serves or served another corporation, partnership, joint venture, trust or
other enterprise in one of these capacities at the request of the
corporation and who, by reason of his or her position, is, was, or is
threatened to be made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of Registrant pursuant to the
foregoing provisions or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person or Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to the information contained under
"MANAGEMENT OF THE FUND" in the Prospectus and under "DIRECTORS AND
OFFICERS OF THE FUND" in the Statement of Additional Information, all
pursuant to Rule 411 under the Securities Act of 1933.
Item 29. Principal Underwriters
Registrant has no principal underwriters.
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder are in the physical possession of
Registrant's Treasurer, Gerald W. Perritt, at Registrant's corporate
offices, 680 North Lake Shore Drive, 2038 Tower Offices, Chicago, Illinois
60611.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
(c) The Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 ("Act"), the Registrant hereby
represents that this Amended Registration Statement on Form N-1A meets all
of the requirements for effectiveness pursuant to Rule 485(b) of the Act
and that Registrant has duly caused this Amended Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Chicago and State of Illinois on the 27th day of February,
1997.
PERRITT CAPITAL GROWTH FUND,
INC.
By: /s/ Gerald W. Perritt
Gerald W. Perritt
President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the dates indicated.
Name Title Date
/s/ Gerald W. Perritt Principal Executive
Gerald W. Perritt Officer and Director February 27, 1997
/s/ Allison B. Hearst Principal Financial
Allison B. Hearst and Accounting
Officer February 27, 1997
/s/ David S. Maglich Director February 27, 1997
David S. Maglich
/s/ Dianne C. Click Director February 27, 1997
Dianne C. Click
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
*(1) Registrant's Articles of Incorporation
*(2) Registrant's By-Laws
*(2.1) Amendment to Registrant's By-Laws
*(2.2) By-Laws, as amended
*(2.3) Amendment to Registrant's By-Laws dated February 20,
1991
*(2.4) By-Laws, as amended through February 20, 1991
(3) None
*(4) Specimen Stock Certificate
*(5) Investment Advisory Agreement
(6) None
(7) None
*(8) Custodian Agreement with First Wisconsin Trust Company
(now known as Firstar Trust Company)
*(9) Shareholder Servicing Agent Agreement
*(10) Opinion of Foley & Lardner, counsel for Registrant
(11) Consent dated February 25, 1997 of Checkers, Simon &
Rosner to the use of their report dated December 27,
1996
(12) None
*(13) Subscription Agreement of Gerald W. Perritt
*(14.1) Prototype Defined Contribution Retirement Plan
*(14.2(a)) Prototype Defined Contribution Retirement Plan, as
amended
*(14.2(b)) Prototype Defined Contribution Retirement Plan, as
amended
*(14.3) Individual Retirement Custodial Account
*(14.4) Prototype Cash or Deferred Profit Sharing Plan
*(14.5) Section 403(b)(7) Retirement Plan
*(14.6) Section 403(b)(7) Retirement Plan, as amended
(15) None
(16) Statement of Calculation of Performance Figures
(17) Financial Data Schedule
(18) None
______________
* Previously filed and incorporated herein by reference.
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated December 27, 1996 accompanying the
financial statements of Perritt Capital Growth Fund, Inc., contained in
the Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus.
/s/ Checkers, Simon & Rosner LLP
Chicago, Illinois
February 25, 1997
EXHIBIT 16
PERRITT CAPITAL GROWTH FUND, INC.
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS
COMPOUNDED ANNUAL
TOTAL RETURN
A. Formula
n n _________
P (1 + T) = ERV OR T = \ /ERV/P - 1
Where: P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $10,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof):
B. Calculation
n _________
T = \ /ERV/P - 1
1. One-year period 10-31-95 through 10-31-96
1 ______________
18.56% = \ /11,856/10,000 - 1
2. Three-year period 10-31-93 through 10-31-96
3 ______________
13.79% = \ /14,734/10,000 - 1
3. Five-year period 10-31-91 through 10-31-96
5 ______________
11.10% = \ /16,927/10,000 - 1
4. Since inception (4-11-88) through 10-31-96
8.56 ______________
8.33% = \ /19,836/10,000 - 1
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 6,405,675
<INVESTMENTS-AT-VALUE> 8,049,707
<RECEIVABLES> 104,555
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,154,262
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,675
<TOTAL-LIABILITIES> 24,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 567,510,189
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 322,972
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 961,764
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,644,032
<NET-ASSETS> 8,129,587
<DIVIDEND-INCOME> 39,051
<INTEREST-INCOME> 19,034
<OTHER-INCOME> 0
<EXPENSES-NET> 146,403
<NET-INVESTMENT-INCOME> (88,318)
<REALIZED-GAINS-CURRENT> 835,018
<APPREC-INCREASE-CURRENT> 554,632
<NET-CHANGE-FROM-OPS> 1,301,332
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 439,517
<DISTRIBUTIONS-OF-GAINS> 584,161
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 115,983
<NUMBER-OF-SHARES-REDEEMED> (104,320)
<SHARES-REINVESTED> 80,986
<NET-CHANGE-IN-ASSETS> 92,649
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 53,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,403
<AVERAGE-NET-ASSETS> 7,619,074
<PER-SHARE-NAV-BEGIN> 14.17
<PER-SHARE-NII> (0.16)
<PER-SHARE-GAIN-APPREC> 2.42
<PER-SHARE-DIVIDEND> (0.90)
<PER-SHARE-DISTRIBUTIONS> (1.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.33
<EXPENSE-RATIO> 1.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
