Annual Report
(Perritt MicroCap Opportunities Fund, Inc. Logo)
A NO-LOAD MUTUAL FUND THAT INVESTS IN THE STOCKS OF RAPIDLY GROWING COMPANIES
THAT AT THE TIME OF PURCHASE HAVE EQUITY MARKET VALUES BELOW $300 MILLION.
October 31, 2000
(Perritt MicroCap Opportunities Fund, Inc. Logo)
No Sales Charges
No Redemption Charges*<F1>
No 12b-l Fees
Minimum Initial Investment $1000
IRA Minimum Initial Investment $250
Dividend Reinvestment Plan
Systematic Withdrawal Plan
Automatic Investment Plan
Retirement Plans Including:
o IRA o Keogh
o SEP o Roth IRA
o 403b o Education IRA
*<F1> 2% redemption fee imposed for shares held less than 90 days
INVESTMENT PHILOSOPHY
The Perritt MicroCap Opportunities Fund invests in a diversified portfolio of
equity securities. At the time of purchase, these companies generally possess
a market capitalization of $300 million or less. The Fund seeks to invest in
micro-cap companies that management believes have the potential for long term
capital appreciation based on superior or niche products or services, excellent
operating characteristics, superior management or other exceptional factors.
Investors should expect the Fund's portfolio to contain both value and growth
stocks.
President's Message
The Perritt MicroCap Opportunities Fund ended its fiscal year with a 40.9
percent 12-month total return. The Fund's total return surpassed that of the
Dow Jones Industrial Average, the Standard & Poor's 500 Index, and the Nasdaq
Composite Index. This total return compares favorably to the Fund's small-cap
benchmark Russell 2000 Index, which posted a 16.1 percent return over the same
period. More impressive is the fact that the average stock performed quite
poorly during the last 12 months. For example, the Value Line Geometric Index,
which weighs equally each of its 1,700 component stocks, declined by 1.1
percent. On average, stock prices have actually declined during the past three
years. A few months ago, it seemed that everyone was talking about the never
ending strength of technology stocks and the Nasdaq Composite Index. Yet
technology stocks and the Nasdaq Composite Index have experienced significant
declines in 2000. As witnessed by the Value Line Index, the average stock has
been in a bear market for more than three years. Therefore, it is not
surprising that the bear market has finally made its way to technology stocks
and the Nasdaq.
FISCAL YEAR RETURN
------------------
Perritt MicroCap 40.9%
Russell 2000 16.1
Last year we introduced a market behavior approach to our security selection
process. This approach has helped us enhance returns as well as reduce
volatility. The market behavior approach requires that we take profits on
winners and admit our mistakes on bad investments. While this approach has
enhanced our returns, the market's increased volatility this past year has
presented additional trading challenges. We are still working to actively
improve our trading procedures. In these times of constantly changing market
conditions, it is imperative that we adapt to the dynamics of this marketplace.
However, we will not change our value-based model. We will continue to seek and
invest in attractively valued growth companies.
I also believe diversification played a significant role in the Fund's
performance last year. The Fund's portfolio has always been broadly diversified
within the micro-cap sector of the market. We maintain investments in several
different industries, whose stocks can behave differently during a typical
market cycle. For example, technology stocks boosted the Fund's return in the
early part of the fiscal year, energy stocks provided a lift in the middle part
of the fiscal year, and health care and medical stocks provided return
enhancement in the latter part of the fiscal year. While concentrated
portfolios were the better return generators in the 1990s, we believe that
diversified portfolios will be the return leaders during the first decade of the
new millennium.
We also received performance improvement from IPO (initial public offering)
activity and short-term redemption fees. We participated in several IPO's in
late 1999. However, we have avoided investing in IPO's since the market
weakness in March 2000. As some shareholders may remember, a few years ago we
instituted a two percent redemption fee on shares held less than 90 days. This
two percent redemption fee is returned to shareholders. The combination of IPO
activity and redemption fees enhanced the Fund's return by approximately two
percentage points last year. As a side note, the Fund's turnover ratio this
year was 89 percent, which is higher than normal. The reason for the increased
turnover ratio was increased shareholder activity. During the fiscal year, the
Fund's assets doubled due to inflows and then fell by 50 percent due to
outflows. We estimate our turnover ratio would have been approximately 50
percent lower absent the increased shareholder activity. However, we believe
that the imposition of this redemption fee has discouraged many short-term
traders from investing in the Fund.
Has the long-awaited small-cap overperformance cycle finally beguno During the
past 12 months, the small-cap benchmark Russell 2000 Index returned 16.1
percent, 1000 basis points more than the 6.1 percent return for the large cap
dominated S&P 500 Index. While stock market volatility during the past twelve
months has increased substantially, small-cap stocks, on average, have out
performed large caps. As I have stated before, small stock performance tends to
run in streaks that can last several years. Recent returns suggest that small
cap stocks are in an overperformance cycle. Furthermore, valuations in the
small cap sector suggest that the over performance leg of the cycle may be
extended.
I have never been a strong believer in the adage that "history always repeats
itself," but recent market events and trends lend support to that adage.
Today's stock market environment has exhibited similarities to that existing in
the early 1970's. Back then the stock market indices suggested a prosperous
market. However, a group of stocks, called the Nifty-Fifty, were far and away
the stock market's leaders and the investors who made the most money were the
ones who owned these stocks. These fifty companies were large multi-national
brand-named companies. The attitude in those days was that every investor
should own these stocks and that their share prices would never go down. This
sounds very similar to the Nasdaq 100 stocks of today. Most of these stocks are
large-cap technology companies that everyone will be using to get connected or
use their software in the new information world. The Nifty-Fifty stocks
collapsed in the 1973 and 1974 bear market, and the Nasdaq 100 is collapsing in
2000.
Other similarities include the existence of high-energy prices and rising
inflation back then and today. How do these similarities relate to small cap
investingo Small cap stocks had a horrible performance period in the early
1970s. They then posted their best eight-year performance in history. In fact,
the average small cap stock rose by more than 10-fold in less than eight years.
The similarity is that small stocks have had a horrible period during the past
three to five years. Whether the future is as bright for small cap stocks as in
the late 1970s remains to be seen. However, the odds seem to favor a strong
market for small cap stocks and a continuation of the small-cap overperformance
cycle.
At fiscal year end, the portfolio contained the common stocks of 58 companies,
29 of which were added during the year. (The Fund's 10 largest holdings are
described on page five.) In each of the last two quarters, the average company
in the portfolio experienced a 28 percent growth in revenues and a 30 percent
expansion in earnings. The Fund's portfolio is priced at 14 times 2000
estimated earnings and 10 times estimated earnings for the year 2001. On
average, stocks in the portfolio are priced at less than 1.4 times revenue.
Given above-average growth rates and reasonable valuation multiples, I believe
the Fund's portfolio remains very attractively priced. With the abundance of
attractively priced small cap stocks existent in today's market, it would not be
a big surprise to see a significant expansion of merger and acquisition activity
in the small cap sector of the market next year.
I would like to thank my fellow shareholders of the Perritt MicroCap
Opportunities Fund for their support. Given the current valuations and growth
potential, I urge you to consider making an additional investment in the Fund at
this time. As I stated last year, I believe the small-cap market is on the
verge of a dynamic and prosperous decade. We are one of the few mutual funds
that offer a broad array of accounts. Not only can you open a regular account
with our transfer agent and several brokerage firms, you can open several
different types of IRA accounts, including an Education IRA for your children or
grandchildren. I look forward to a prosperous decade for small and micro-cap
stocks.
Michael Corbett, President
PORTFOLIO MANAGERS
Dr. Gerald W. Perritt and Michael Corbett share the portfolio management duties
of the Fund. Dr. Perritt received a doctorate in finance and economics from the
University of Kentucky. He has taught courses in investments and finance at a
number of colleges and universities and has authored several books on investing.
Mr. Corbett joined the firm in 1990 as a research analyst. He was appointed co-
manager of the Fund in 1996 and President and lead manager in 1999. A graduate
of DePaul University, Mr. Corbett has been a contributor to several investment
books and newsletters.
Performance
PERRITT MICROCAP OPPORTUNITIES FUND, INC.
versus Russell 2000 Index
Perritt MicroCap
Opportunities Fund, Inc. Russell 2000 Index
------------------------ ------------------
10/90 10 10
10/91 14 16
10/92 14 17
10/93 16 22
10/94 16 21
10/95 20 25
10/96 24 29
10/97 32 36
10/98 21 31
10/99 19 35
10/00 28 41
There are several ways to evaluate a fund's historical performance. You can look
at the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. Each performance figure
includes changes in a fund's share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells stocks that
have grown in value).
Cumulative Total Returns
Periods ended October 31, 2000
Past 1 Year Past 5 Years Past 10 Years
Perritt MicroCap
Opportunities Fund, Inc. 40.89% 55.62% 211.24%
Russell 2000 Index 16.11% 67.99% 318.82%
CPI 3.45% 13.21% 30.34%
Cumulative total returns reflect the Fund's actual performance over a set time
period. For example, if you invested $1,000 in a fund that had a 5% return over
one year, you would end up with $1,050. You can compare the Fund's returns to
the Russell 2000 Index, which currently reflects a popular measure of the stock
performance of small companies. CPI is the rate of inflation as measured by the
government's consumer price index.
Average Annual Total Returns
Periods ended October 31, 2000
Past 1 Year Past 5 Years Past 10 Years
Perritt MicroCap Opportunities
Fund, Inc. 40.89% 9.25% 12.02%
Russell 2000 Index 16.11% 10.93% 15.40%
CPI 3.45% 2.51% 2.69%
Average annual total returns take the Fund's actual (or cumulative) return and
show you what would have happened if the Fund had performed at a constant rate
each year.
Total returns and yields are based on past results and are not an indication of
future performance.
Ten Largest Holdings
U.S. PHYSICAL THERAPY (USPH) operates outpatient physical and occupational
therapy clinics that provide post-operative care and treatment for a variety of
orthopedic-related disorders and sports-related injuries, treatment for
neurological related injuries, rehabilitation of injured workers and
preventative care. The firm has more than 130 clinics operating in 30 states.
PLATO LEARNING (TUTR), formerly known as TRO Learning, Inc., is a developer and
marketer of computer-based, interactive, self-paced instructional systems and
related services. The company offers more than 2,000 hours and 10,000 learning
objectives of comprehensive academic and applied skills courseware designed for
adolescents and adults.
WOODHEAD INDUSTRIES (WDHD) is an integrated group of companies that operates in
two business segments serving a diverse group of customers and industries
worldwide; Industrial Communications/Connectivity and Electrical
Safety/Specialty. The Industrial Communications/Connectivity segment provides
system components on a global basis to connect devices in open networks. The
Electrical/Safety/Specialty segment manufactures highly customized products to
improve safety and productivity in the industrial workplace.
REMINGTON OIL & GAS (ROIL) is an independent oil and gas exploration and
production company. The Company explores for, acquires, develops and produces
oil and gas in the offshore Gulf of Mexico and onshore along the Gulf Coast.
The Company has more than eight million barrels of proven oil reserves and 65
billion cubic feet of proven gas reserves.
ST. MARY LAND & EXPLORATION (MARY) is an independent energy company engaged in
the exploration, development, acquisition and production of natural gas and
crude oil. St. Mary's operations are focused in five core operating areas in
the United States; the Mid-Continent region, the ArkLaTex region, onshore Gulf
Coast and offshore Gulf of Mexico, the Williston Basin and the Permian Basin.
The Company has more than 19 million barrels of proven oil reserves and 321
billion cubic feet of proven gas reserves.
ENGINEERED SUPPORT SYSTEMS (EASI) is engaged in the design and manufacture of
military support equipment and electronics for the United States armed forces.
The Company also engineers and manufactures air handling and heat transfer
equipment, material handling equipment and custom molded plastic products for
commercial and industrial products.
EXCALIBUR TECHNOLOGIES CORP. (EXCA) offers a suite of intelligent search
solutions for corporate intranets, Internet e-commerce, online publishing and
the OEM market through the Excalibur Applications Group which develops, markets,
licenses and services the Excalibur RetrievalWare suite of multimedia search
solutions. The company has agreed to merge with a division of Intel, and has
received a cash infusion of $250 million from Intel.
GABELLI ASSET MANAGEMENT, INC. (GBL) is a provider of investment advisory and
brokerage services to mutual fund, institutional and high net worth investors,
primarily in the United States. The Company generally manages assets on a
discretionary basis and invests in a variety of U.S. and international
securities through various investment styles. The Company has approximately $24
billion of assets under management, 90% of which are invested in equity
securities.
IKOS SYSTEMS, INC. (IKOS) develops, manufactures, markets and supports hardware
and software systems for the verification of integrated circuits (ICs). IKOS
differentiates its verification solutions with hardware acceleration, emulation
hardware and software for compilation and integration of both emulation and
acceleration hardware into the design flow. The Company also provides services
to customers to assist in the integration and deployment of IKOS solutions.
BARRINGER TECHNOLOGIES, INC. (BARR) is a manufacturer of high sensitivity
equipment used for detecting and identifying trace amounts of plastic and other
explosives and illegal drugs. The Company designs and produces products that
employ a proprietary application of ion mobility spectrometry technology that
can detect and identify targeted compounds in amounts smaller than one-billionth
of a gram in approximately six seconds. The company recently introduced its new
Sentinel Walk-Through Portal. Not only can this product detect metals, it can
also detect plastic and other explosives and illegal drugs.
Statement of Net Assets
October 31, 2000
COMMON STOCKS - 98.9% (a)<F3>
BIOTECHNOLOGY-3.7%
14,000 Cytoclonal*<F2> $ 116,813
15,000 Nabi*<F2> 91,640
20,000 SFBC International Inc.*<F2> 152,500
----------
360,953
BUILDING MATERIALS-1.5%
6,000 Oglebay Norton 144,750
BUSINESS SERVICES-4.4%
18,000 Euro 909.com A/S Spons ADR*<F2> 59,625
16,500 ICT Group, Inc.*<F2> 177,375
11,000 Pomeroy Computer Resources*<F2> 192,500
----------
429,500
CHEMICALS AND RELATED PRODUCTS-2.0%
10,000 Arch Chemicals 194,375
CONSUMER PRODUCTS - DISTRIBUTING-3.7%
14,000 Central European Distribution Corp.*<F2> 50,750
8,000 Guest Supply Inc.*<F2> 131,000
10,000 Lillian Vernon Corporation 92,500
18,000 TBC Corp.*<F2> 87,750
----------
362,000
CONSUMER PRODUCTS - MANUFACTURING-1.8%
12,000 Boston Acoustics 175,500
CONSUMER SERVICES-2.1%
7,000 Lesco, Inc. 105,000
14,000 Prosoft Training.Com*<F2> 98,000
----------
203,000
FINANCIAL SERVICES-4.5%
8,000 Gabelli Asset Management*<F2> 288,000
25,000 Gilman & Ciocia*<F2> 150,000
----------
438,000
FOOD-1.5%
19,000 Suprema Specialties Inc.*<F2> 147,250
LAND DEVELOPMENT-1.6%
7,000 Tejon Ranch*<F2> 157,500
LEISURE-1.0%
9,000 Winnebago Industries 103,500
MEDICAL SUPPLIES & SERVICES-12.2%
16,000 Candela Corp.*<F2> 103,000
13,500 Exactech*<F2> 256,500
18,500 Interpore International*<F2> 99,437
4,000 Rehabcare Group*<F2> 172,750
24,000 U.S. Physical Therapy, Inc.*<F2> 456,000
37,000 Zila, Inc.*<F2> 106,375
----------
1,194,062
MILTARY EQUIPMENT-5.0%
16,000 Engineered Support Systems, Inc. 296,000
9,500 Herley Industries Inc.*<F2> 193,563
----------
489,563
OIL & GAS RELATED SERVICES-14.9%
14,500 AZZ Inc. 225,656
20,000 Bellweather Exploration*<F2> 146,250
15,000 Beta Oil & Gas Inc.*<F2> 126,563
12,000 Input/Output Inc.*<F2> 101,250
15,000 Petroleum Helicopters Vtg*<F2> 170,625
40,000 Remington Oil & Gas Corp.*<F2> 367,500
14,000 Saint Mary Land & Exploration 328,125
----------
1,465,969
RETAIL-6.5%
15,000 Barbeques Galore Limited*<F2> 93,750
14,000 Finlay Enterprises Inc.*<F2> 194,250
19,000 Marinemax Inc.*<F2> 105,687
16,000 Wilsons The Leather Experts Inc.*<F2> 245,000
----------
638,687
SEMI-CONDUCTOR RELATED PRODUCTS-3.7%
20,000 IKOS Systems, Inc.*<F2> 273,750
20,000 Micro Component Technology*<F2> 90,000
----------
363,750
SOFTWARE-14.0%
55,671 Altris Software, Inc.*<F2> 97,424
5,000 Excalibur Technologies Corp.*<F2> 294,375
5,000 Integrated Silicon Solutions*<F2> 66,875
5,000 JDA Software Group Inc.*<F2> 75,313
6,000 LTX Corp.*<F2> 84,000
7,500 MapInfo Corp.*<F2> 245,156
18,000 PLATO Learning Inc.*<F2> 441,000
40,000 Vtel Corp.*<F2> 75,000
----------
1,379,143
SPECIALTY MANUFACTURING-6.6%
30,000 Barringer Technologies Inc.*<F2> 262,500
17,500 Woodhead 385,000
----------
647,500
TELECOMMUNICATIONS-8.2%
10,000 Com 21 Inc.*<F2> 108,125
10,000 Corsair Communications, Inc.*<F2> 60,625
25,000 P COM Inc.*<F2> 140,625
14,000 Radyne Comstream*<F2> 109,375
35,000 Rohn Industries*<F2> 161,875
5,000 Tut Systems, Inc.*<F2> 166,250
10,500 Westell Technologies Inc.*<F2> 57,750
----------
804,625
----------
TOTAL COMMON STOCKS (COST $9,166,039) 9,699,627
----------
WARRANTS-0.15% (A)<F3>
BIOTECHNOLOGY-0.15%
10,000 SFBC Corp. Warrants 14,375
----------
TOTAL WARRANTS (COST $2,500) 14,375
----------
TOTAL COMMON STOCKS AND WARRANTS (COST $9,168,539) 9,714,002
DEMAND NOTES-1.35% (A)<F3>
$131,721 FIRSTAR BANK 6.37% DUE 12/31/2031 131,721
----------
TOTAL DEMAND NOTES (COST $131,721) 131,721
----------
TOTAL INVESTMENTS (COST $9,300,260) 9,845,723
----------
LIABILITIES NET OF CASH AND RECEIVABLES-(0.4)% (A)<F3> (38,424)
----------
TOTAL NET ASSETS - 100% $9,807,299
----------
----------
(Equivalent to $14.92 per share based on 657,372 shares of capital stock
outstanding.)
*<F2> Non-income producing security
(a)<F3> Percentages for various classifications relate to total net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Statement of Operations
For the
Year Ended
October 31, 2000
----------------
INCOME:
Dividends $ 27,832
Interest 18,333
Other 164,536
----------
Total income 210,701
----------
EXPENSES
Advisory Fees 106,964
Fund Accounting Expense 27,781
Transfer Agent Fees 22,729
Custodian Fees 9,608
Legal Fees 9,770
Auditing & Tax Fees 19,958
Printing & Postage 10,337
State Registration Fees 14,996
Directors & Annual Meetings 6,088
Insurance 1,606
Other Expenses 720
----------
Total expenses 230,557
Expense Reimbursement by Advisor 43,583
----------
Total net expenses 186,974
----------
Net investment income 23,727
----------
Net Realized Gain on Investments 875,196
Net Increase In Unrealized Appreciation of Investments 2,725,774
----------
Net Gain on Investments 3,600,970
----------
Net Increase in Net Assets Resulting from Operations $3,624,697
----------
----------
The accompanying notes to financial statements are an integral part of this
statement.
Statements of Changes in Net Assets
<TABLE>
For the For the
Year Ended Year Ended
October 31, 2000 October 31, 1999
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income/(loss) $ 23,727 $ (123,051)
Net realized gain/(loss) on investments 875,196 (36,067)
Net increase in unrealized appreciation/(depreciation) of investments 2,725,774 (755,233)
---------- ----------
Net increase/(decrease) in net assets resulting from operations 3,624,697 (914,351)
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income -0- -0-
Distributions from net realized gains from investment transactions -0- -0-
---------- ----------
Decrease in net assets resulting from distributions -0- -0-
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued
(618,299 and 131,598 shares, respectively) 8,861,171 1,596,207
Cost of shares redeemed
(763,165 and 193,893 shares, respectively) (11,177,919) (2,355,895)
Reinvested dividends -0- -0-
---------- ----------
Decrease in net assets derived from capital share transactions (2,316,748) (759,688)
---------- ----------
Total increase/(decrease) 1,307,949 (1,674,039)
NET ASSETS AT THE BEGINNING OF THE PERIOD 8,499,350 10,173,389
---------- ----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment loss of
($495,507) and ($519,233), respectively) $9,807,299 $8,499,350
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Financial Highlights
Years Ended October 31
2000 1999 1998 1997
Selected Per-Share Data
Net asset value, beginning of period $10.59 $11.77 $17.75 $14.33
------ ------ ------ ------
Income from investment operations:
Net investment income (loss) 0.03a (0.15)a (0.17)a (0.05)
<F4> <F4> <F4>
Net realized and unrealized
gain (loss) on investments 4.30 (1.03) (3.55) 4.78
------ ------ ------ ------
Total from Investment Operations 4.33 (1.18) (3.72) 4.73
------ ------ ------ ------
Less Distributions:
From net investment income 0.00 0.00 (0.26) (0.04)
From net realized gains 0.00 0.00 (2.00) (1.27)
------ ------ ------ ------
Total Distributions 0.00 0.00 (2.26) (1.31)
------ ------ ------ ------
Net asset value, end of period $14.92 $10.59 $11.77 $17.75
------ ------ ------ ------
------ ------ ------ ------
Total Return 40.89% (10.03%) (23.83%) 35.95%
Ratios and Supplemental Data
Net assets, end of period
(in thousands) $9,807 $8,499 $10,173 $24,831
Ratio of expenses to average
net assets 1.75% 1.72% 1.81% 1.52%
Ratio of net investment income 0.2% (1.2%) (1.1%) (0.6%)
Portfolio turnover rate 89.2% 53.4% 24.0% 83.1%
a:<F4> Net investment income per share has been calculated based on average
shares outstanding during the period.
<TABLE>
Years Ended October 31
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net asset value, beginning of period $14.17 $11.89 $12.54 $11.43 $11.36 $ 8.17
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (0.16) (0.13) (0.13) (0.14) (0.12) (0.02)
Net realized and unrealized
gain (loss) on investments 2.42 3.01 0.02 1.61 0.31 3.27
------ ------ ------ ------ ------ ------
Total from Investment Operations 2.26 2.88 (0.11) 1.47 0.19 3.25
------ ------ ------ ------ ------ ------
Less Distributions:
From net investment income (0.90) -- -- (0.08) -- (0.06)
From net realized gains (1.20) (0.60) (0.54) (0.28) (0.12) --
------ ------ ------ ------ ------ ------
Total Distributions (2.10) (0.60) (0.54) (0.36) (0.12) (0.06)
------ ------ ------ ------ ------ ------
Net asset value, end of period $14.33 $14.17 $11.89 $12.54 $11.43 $11.36
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total Return 18.56% 25.60% (1.05%) 12.97% 1.70% 40.06%
Ratios and Supplemental Data
Net assets, end of period
(in thousands) $8,130 $6,729 $6,279 $7,208 $6,942 $6,183
Ratio of expenses to average
net assets 1.92% 2.07% 2.00% 1.96% 2.30% 2.50%
Ratio of net investment income (1.2%) (1.0%) (1.0%) (1.1%) (1.1%) (0.2%)
Portfolio turnover rate 58.0% 67.4% 39.2% 34.6% 24.4% 37.4%
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Notes to Financial Statements
October 31, 2000
The Perritt MicroCap Opportunities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as an open-end Diversified Management
Investment Company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of
significant policies of the Fund:
a. Listed securities are valued at the last sale price reported by the
principal security exchange on which the issue is traded, or if no
sale is reported, the mean between the latest bid and ask price.
Securities that are traded over-the-counter are valued at the mean
between the latest bid and ask price if no sale was effected. Demand
notes and commercial paper are valued at amortized cost, which
approximates fair value. Investment transactions are recorded no later
than the first business day after the trade date. Cost amounts, as
reported on the statement of net assets, are the same for federal
income tax purposes. For the year ended October 31, 2000, purchases
and sales of investment securities (excluding demand notes and
commercial paper) were $9,462,356 and $11,688,000 respectively.
b. Net realized gains and losses on securities are computed using the
first-in, first-out method.
c. Dividend income is recognized on the ex-dividend date, and interest
income is recognized on the accrual basis. Discounts and premiums on
securities purchased are amortized over the life of the respective
securities.
d. Provision has not been made for federal income tax since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. The Fund will distribute approximately
$1,278,000 as an ordinary income distribution. A capital gain
dividend distribution is not required for the year ended October 31,
2000. The Fund has a capital loss carryover of approximately $552,000
expiring in 2008.
e. Dividends to shareholders are recorded on the ex-dividend date.
f. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
2. INVESTMENT ADVISORY AGREEMENT, CUSTODIAL AGREEMENT, AND TRANSACTIONS WITH
RELATED PARTIES:
The Fund has an investment advisory agreement with Perritt Capital
Management, Inc. ("PCM"), with whom certain officers of the Fund are
affiliated. Effective May 1, 1998, under the terms of the agreement, the
Fund pays PCM a monthly advisory fee at the annual rate of 1% of the daily
net assets of the Fund. Assets of the Fund include $11,139 receivable from
PCM.
The investment advisory agreement requires PCM to reimburse the Fund in the
event that the Fund's expenses, as a percentage of the average net asset
value, exceeds the most restrictive percentage as these terms are defined.
Effective May 1, 1998, the most restrictive percentage is 1.75%.
3. SOURCES OF NET ASSETS:
As of October 31, 2000, the sources of net assets are as follows:
Fund shares issued and outstanding $8,928,554
Unrealized appreciation of investments 545,463
Accumulated net realized gain on investments 828,789
Undistributed net investment loss (495,507)
----------
Total $9,807,299
----------
----------
Aggregate net unrealized depreciation as of October 31, 2000 consists of the
following:
Aggregate gross unrealized appreciation $2,145,348
Aggregate gross unrealized depreciation (1,599,885)
----------
Net unrealized appreciation $ 545,463
----------
----------
As of October 31, 2000, there were 20,000,000 shares of $0.01 par value capital
stock authorized.
Independent Auditor's Report
To the Shareholders and Board of Directors of the Perritt MicroCap Opportunities
Fund, Inc.:
We have audited the accompanying statement of net assets of the Perritt MicroCap
Opportunities Fund, Inc. (a Maryland corporation) as of October 31, 2000, the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the ten years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 2000 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Perritt MicroCap Opportunities Fund, Inc. as of October 31, 2000, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the ten years in the period then ended in conformity with generally accepted
accounting principles.
ALTSCHULER, MELVOIN and GLASSER LLP
Chicago, Illinois
December 12, 2000
For assistance with your existing account, call our
Shareholder Service Center at 1-800-332-3133
BOARD OF DIRECTORS
David Maglich
Gerald W. Perritt
Dianne C. Click
INVESTMENT ADVISOR
Perritt Capital Management, Inc.
10 S. Riverside Plaza
Suite 1520
Chicago, IL 60606-3911
800-331-8936
OFFICERS OF THE FUND
Michael J. Corbett - President/Treasurer
Gerald W. Perritt - Vice President
Robert A. Laatz - Vice President/Secretary
INDEPENDENT ACCOUNTANTS
Altschuler, Melvoin and Glasser LLP
One South Wacker Drive
Chicago, IL 60606-3392
LEGAL COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
BROKERAGE FIRM AVAILABILITY
Charles Schwab & Company
Kennedy-Cabot
T D Waterhouse
Notes
WWW.PERRITTCAP.COM
FUND UPDATES ON THE WORLDWIDE WEB
A portion of the Perritt Capital Management, Inc. website is devoted to the
Perritt MicroCap Opportunities Fund, Inc. Every month, the Fund's portfolio
holdings are updated and portfolio managers Dr. Gerald W. Perritt and Michael
Corbett comment on the financial markets and on changes in the Fund's portfolio.
In addition, news and notes regarding the Fund's current holdings are posted
every week so that Fund shareholders can keep abreast of the factors affecting
the Fund's performance. Also included are the Fund's annual and quarterly
financial reports and an updated Fund prospectus.
(Perritt MicroCap Opportunities Fund, Inc. Logo)
10 South Riverside Plaza o Suite 1520 o Chicago, IL 60606-3911
Tel 312-669-1650 o 800-331-8936 o Fax: 312-669-1235
E-mail: [email protected] o Web Site: www.PerrittCap.com
This report is authorized for distribution only to shareholders and others who
have received a copy of the prospectus of the Perritt MicroCap Opportunities
Fund, Inc.
