PENN CAPITAL FUNDS, INC.
216 Boulevard fo the Allies
Pittsburgh, PA 15222
Dear Shareholder:
In March 1996 you received the annual report for your Asset
Allocation Fund that focused on changes to reduce expenses,
improve performance and provide outstanding services to the Fund
shareholders. At the semi-annual point in the year we have begun
to implement these changes which we hope will make a significant
difference in the management and performance of the Fund.
Approval by proxy to implement the recommended restructuring of
the Fund is the final step necessary to realize this initiative.
Currently, our focus must be on attaining one critical benchmark;
the Fund must increase total assets. The achievement of this
turning point directly affects the Fund s expenses management and
performance. An increase in total assets will immediately help
the Fund to cover expenses thus, lowering the expense ratio and
will enable the investment advisor to manage the portfolio at a
size that will promote desired returns.
We are prepared to take the necessary steps to realize our
critical goal. With our new underwriter and the organization of
distribution resources to generate sales, we expect to increase
sales upon the approval by the Fund s shareholders of the matters
discussed in the Fund s proxy statement.
On another point, the Fund s level of services to shareholders
has improved dramatically this year. Timely shareholder
statements, prompt turnaround time on callbacks and transactions
and the delivery of scheduled reports have been established as an
expected standard. Although we have made progress in this area
we will continue to implement quality improvements and an
expansion of services to shareholders.
We are confident that as we attain the benchmarks mentioned above
your Fund will realize the improvement to long term performance
you expect. Your Board of Directors wishes to thank you for your
continued support and we look forward to attaining our goals for
improved performance and cost-effective management for our
shareholders.
Sincerely Yours,
James M. Beimel Jr.
President
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Statement of Assets and Liabilities
March 31, 1996
(Unaudited)
ASSETS:
Investments at market value (Cost $166,397) $ 166,462
Receivable for dividends and interest 954
Deferred organization expense (Note 1) 13,125
Other assets 3,008
---------
TOTAL ASSETS 183,549
---------
LIABILITIES:
Payable for capital stock reacquired 4,731
Accrued expenses and other 16,384
---------
TOTAL LIABILITIES 21,115
---------
NET ASSETS: $ 162,434
=========
Net Assets consist of:
Paid in capital $ 333,782
Undistributed net investment loss (38,991)
Undistributed realized capital loss (132,422)
Net unrealized appreciation on investments 65
---------
Net Assets for 35,814 shares outstanding $ 162,434
=========
Net Asset Value and Redemption Price
Per Share (162,434/35,814 Shares) $ 4.54
=========
The accompanying notes are an integral part of these financial
statements.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Statement of Operations
October 1, 1995 to March 31, 1996
(Unaudited)
INVESTMENT INCOME:
Interest $ 2,273
Dividends 2,797
---------
TOTAL INCOME 5,070
---------
EXPENSES:
Advisory fees (Note 4) 1,838
Legal expenses 2,530
Audit expenses 4,150
Regulatory & filing fees 434
Custodial fees 7,164
Transfer agent fees 2,600
Accounting fees 6,400
Administrative fees (Note 4) 7,276
Amortized organizational expense (Note 1) 8,450
Other expenses 3,219
--------
TOTAL EXPENSES 44,061
--------
Net Investment Loss (38,991)
--------
REALIZED AND UNREALIZD GAIN (LOSS)
Net realized gain on investments 40,660
Net unrealized loss on investments (40,629)
--------
Net realized and unrealized gain
on investments 31
---------
Net decrease in net assets from operations $(38,960)
=========
The accompanying notes are an integral part of these financial
statements.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Statement of Changes in Net Assets
For the six For the year
months ended ended
March 31, 1996 September
(Unaudited) 30, 1995
-------------- ------------
INCREASE (DECREASE)IN NET ASSETS
FROM OPERATIONS:
Net investment loss $(38,991) $(106,784)
Net realized gain on investments 40,660 53,670
Change in unrealized appreciation
(depreciation) of investments (40,629) 44,616
---------- ---------
Net decrease in net assets
from operations (38,960) (8,498)
Dividends Paid to Shareholders From:
Net realized gain on investments 0 0
Return of capital 0 0
Capital shares transactions
(Note 2) (496,094) 220,825
--------- -------
Total increase (decrease)
in net assets (535,054) 212,327
NET ASSETS:
Beginning of Period 697,488 485,161
-------- -------
End of Period $162,434 $697,488
======== ========
The accompanying notes are an integral part of these financial
statements.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Schedule of Investments
March 31, 1996
(Unaudited)
Shares Value
------ -----
COMMON STOCKS 51.26%
AUTOMOTIVE 25.72%
General Motors Corporation (Class E)........ 400 $ 22,800
General Motors Corporation (Class H)........ 300 18,975
--------
41,775
--------
CAPITAL GOODS 10.28%
Deere & Company............................. 400 16,700
--------
FOOD & BEVERAGES 15.26%
Coca Cola Company........................... 300 24,788
--------
TOTAL COMMON STOCKS (Cost $83,198) $ 83,263
--------
SHORT TERM INVESTMENTS 51.22%
Star Treasury Fund (Cost $83,199)........... 83,199 $ 83,199
--------
TOTAL INVESTMENTS 102.48%
(Cost $166,397)** $166,462
Other Assets Less Liabilities (2.48)% (4,028)
---------
Total Net Assets 100% $162,434
=========
** Cost for federal income tax purposes is the same.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Financial Highlights
(for a share outstanding throughout a period)
<TABLE>
<CAPTION>
Period from
Six months November 12,
ended March 31, 1991* through
1996 Year Ended September 30, September 30,
(Unaudited) 1995 1994 1993 1992
____________________________________________________________
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.30 $5.47 $6.29 $7.41 $10.00
Income from investment
operations:
Net investment loss (.48) (1.07) (0.88) (0.60) (0.16)
Net realized and unrealized
gains (losses)on investments (0.28) 0.90 0.06 (0.12) (2.43)
---- ------ ----- ------ ------
Total from investment operations(0.76) (0.17) (0.82) (0.72) (2.59)
Less Distributions:
Distributions from net
realized gains 0.00 0.00 0.00 (0.36) 0.00
Return of capital 0.00 0.00 0.00 (0.04) 0.00
---- ----- ------ ------ -----
Total Distributions 0.00 0.00 0.00 (0.40) 0.00
Change in net asset value (0.76) (0.17) (0.82) (1.12) (2.59)
------ ------ ------ ------ ------
Net asset value, end of period $4.54 $5.30 $5.47 $6.29 $7.41
Total return*** (14.34)% (3.11)% (13.04)% (10.49)% (25.90)%
Ratios/Supplemental data
Net assets, end of period (000) 162 697 485 664 1,065
Ratios to average net assets:
Expenses 21.05%** 21.92% 12.56% 8.40% 4.93%**
Net investment income (loss) (18.63)%** 20.61% (11.55)% (6.48)% (2.82)%**
Portfolio turnover rate 73% 141% 200% 116% 23%
* Commencement of operations
** Annualized
*** Total return does not reflect sales commissions
</TABLE>
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Notes to Financial Statements
March 31, 1996
(Unaudited)
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Penn Capital Funds, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as an open -
end diversified management investment company. The Fund
currently has one series, the Asset Allocation Fund.
Its financial statements are prepared in accordance
with generally accepted accounting principles for
investment companies as follows:
SECURITY VALUATION
Investments securities listed or traded on a recognized
national stock exchange or NASDAQ are valued at the
last reported sales prices on the principal exchange on
which the securities are traded. Over-the-counter
securities and listed securities for which no sale is
reported are valued at the mean between the last
current bid and asked prices. Securities for which
market quotations are not readily available are valued
at fair value in accordance with standards determined
in good faith by the Board of Directors.
FEDERAL INCOME TAXES
The Fund's policy is to comply with requirements of the
Internal Revenue Code that are applicable to regulated
investment companies and to distribute all its taxable
income to its shareholders. Therefore, no federal
income tax provision is required.
DEFERRED ORGANIZATION EXPENSE
Organization costs have been deferred and are being
amortized over a five year period ending November 12,
1996.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Notes to Financial Statements
March 31, 1996
(Unaudited)
OTHER
Investment transactions are accounted for on a trade
date basis. Realized gains and losses from securities
transactions are reported on the identified cost basis.
Dividend income is recognized on the ex-dividend date,
and interest income is recorded on an accrual basis.
Dividends and capital gain distributions to
shareholders are recorded on the ex-dividend date.
NOTE 2. CAPITAL SHARE TRANSACTIONS
As of March 31, 1996, there were 300,000,000 shares of
no par value capital stock authorized of which
10,000,000 shares have been allocated to the Asset
Allocation Fund. Transactions in capital stock were as
follows:
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
Shares Amount Shares Amount
-------- ---------- -------- ----------
Shares sold 0 $ 0 100,274 $ 533,680
Shares redeemed (95,682) (496,094) (57,480) (305,288)
Net increase (decrease)(95,682) $ (496,094) 42,794 $ 228,392
====== ======= ====== =======
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Notes to Financial Statements
March 31, 1996
(Unaudited)
NOTE 3. INVESTMENT TRANSACTIONS
During the six months ended March 31, 1996, the cost of
purchases and proceeds from sales of investment
securities (excluding short-term securities) were
$274,413 and $798,412, respectively. At March 31, 1996,
the Fund had tax basis net capital losses of $132,422,
which may be carried forward to offset future capital
gains. Such losses expire September 30, 2001 and 2002.
At March 31, 1996, the aggregate gross unrealized
appreciation and depreciation of securities was as
follows:
Unrealized appreciation $ 1,332
Unrealized depreciation $ (1,267)
---------
Net unrealized appreciation $ 65
=========
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Notes to Financial Statements
March 31, 1996
(Unaudited)
NOTE 4. INVESTMENT ADVISORY FEES AND OTHER AFFILIATES
International Investments, Inc. (the "Adviser") serves
as the Fund s investment adviser, subject to the
overall authority of the PCF s Board of Directors. For
its services as Fund Adviser, it is paid an advisory
fee at an annual rate of 1.00% of the average daily net
asset value of the Fund on the first $25 million of
average daily net asset value; 0.75% on the next $75
million of average daily net asset value; and 5/8th of
1% on any amount over $100 million in average daily net
asset value.
American Data Services, Inc. ("ADS"), provides the Fund
with accounting services, pursuant to a Fund Accounting
Services Agreement dated November 1, 1995. For these
services ADS is paid a monthly fee based on the average
net assets of the Fund during the prior month on the
following scale: under $2 million--$600; from $2
million to $5 million--$800; from $5 million to $10
million--$1,100; from $10 million to $15 million--
$1,400; from $15 million to $20 million--$1,700; from
$20 million to $25 million--$2,000; and for amounts
over $25 million--$2,000 plus 1/12th of .0275% on all
average net assets in excess of $25 million. Fees are
subject to increase to reflect the annual change in the
Consumer Price Index for the Northeast region. The
Fund is also to reimburse ADS for its out-of-pocket
expenses incurred in connection with this work.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Notes to Financial Statements
March 31, 1996
(Unaudited)
NOTE 4. INVESTMENT ADVISORY FEES...(CONT.)
ADS is also acting as the tranfer agent for the Fund.
For these services it will receive a monthly fee of the
greater of $200.00 or $10.00 per account which is open
at any time during the year plus certain transaction
fees. These fees are subject to annual increase to
reflect the Consumer Price Index for the Northeast
region.
The Fund has entered into an administrative services
agreement with James M. Beimel, Jr., the President of
the Fund. Under this agreement Mr. Beimel, who does
not receive a salary from the Fund, will perform all
the needed administrative services for the Fund,
including providing space for PCF s offices in
Pittsburgh. Mr. Beimel has entered into a sub-
administrator agreement with ADS whereby it will
perform certain of the administrative functions needed
by the Fund. The total monthly fee for both Mr. Beimel
and ADS under these agreements is 1/12 of 0.5% of the
combined average net assets of PCF s funds, with a
minimum fee of $5,000 per month ($6,000 per month if
PCF adds another fund). If PCF adds another fund, the
fee will be apportioned between the two funds based on
their respective net assets. The fees are subject to
annual increase to reflect the Consumer Price Index for
the Northeast region. Of the total fee amount, Mr.
Beimel will receive each month a minimum of $4,000
($5,000 if PCF adds another fund). Mr. Beimel and ADS
will be reimbursed for their out-of-pocket expenses in
connection with performing the agreements other than
those costs which Mr. Beimel has specifically agreed to
assume on the Fund s behalf. The Fund has no
employees.
Dunwoody Brokerage Services, Inc.("Dunwoody") is the
Fund s distributor. Dunwoody retained $4,265 from
brokerage fees on execution of portfolio transactions.
<PAGE>
PENN CAPITAL ASSET ALLOCATION FUND
Notes to Financial Statements
March 31, 1996
(Unaudited)
NOTE 5. RECLASSIFICATION
In accordance with AICPA Statement of Position 93-2 the
components of net assets of the Fund have been
reclassified to the extent that the net investment
loss of $106,784 sustained during the fiscal year ended
September 30, 1995, which represents a permanent
difference for income tax purposes, has been
reclassified as a decrease in net capital paid in.
NOTE 6. FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments which
have any off-balance sheet risk as of March 31, 1996.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 166397
<INVESTMENTS-AT-VALUE> 166462
<RECEIVABLES> 954
<ASSETS-OTHER> 3008
<OTHER-ITEMS-ASSETS> 13125
<TOTAL-ASSETS> 183549
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21115
<TOTAL-LIABILITIES> 21115
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 333782
<SHARES-COMMON-STOCK> 35814
<SHARES-COMMON-PRIOR> 131496
<ACCUMULATED-NII-CURRENT> (38991)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (132422)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 65
<NET-ASSETS> 162434
<DIVIDEND-INCOME> 2797
<INTEREST-INCOME> 2273
<OTHER-INCOME> 0
<EXPENSES-NET> 44061
<NET-INVESTMENT-INCOME> (38991)
<REALIZED-GAINS-CURRENT> 40660
<APPREC-INCREASE-CURRENT> (40629)
<NET-CHANGE-FROM-OPS> (38960)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 95682
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (535054)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (173082)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1838
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44061
<AVERAGE-NET-ASSETS> 419000
<PER-SHARE-NAV-BEGIN> 5.30
<PER-SHARE-NII> (.48)
<PER-SHARE-GAIN-APPREC> (.28)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.54
<EXPENSE-RATIO> 21.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
