Dear Shareholder:
The early part of the new fiscal year was extremely
eventful. The main catalyst was the storm that blew in
from South East Asia which rocked more than a few
boats. In addition, there was a major transfer from
the Equity Portfolio to the Income Portfolio. Finally,
there was the change in the name of the Fund,
mentioned in the last Financial Statement, as the
result of a legal challenge.
The directors did not consider it appropriate to pay
the high price that would have been necessary to
preserve the Mercator name, even if, as seemed
likely, the challenge would be upheld. Even so, there
was some additional legal cost associated with
dealing with this issue and implementing the name
change. Additional measures are being taken to hold
costs down. The Fund is now called The Penn Street
Fund, and the name of the management company has
been changed to Penn Street Advisors. Penn Street is
the name of a village in England in the area that
William Penn came from, and returned to.
The Global Income Portfolio continued to outperform
the Salomon Government World Bond Index over the
first half year that ended on April 30, 1998, rising
4.12% compared with the index that showed a total
return of 2.8%. The 12 month comparisons were
10.4% and 6.4% respectively. The Equity Portfolio
returned 6.51% over the first six months, and 15.2%
for the 12 months, which came in below the global
equity index but was close to the return on balanced
funds. The Morgan Stanley Capital International
Global Index was up 18% over six months and 27.4%
over 12 months, while Morningstar Hybrid
International Index showed a return of 8.3%, for the
half year and 15.3% for the year.
The Equity Portfolio's return was hurt by the crisis in
South East Asia. The Portfolio had no holdings in the
area when the crisis hit, but was still affected by the
repercussions that extended around the world. In
addition, there was a substantial withdrawal from the
Portfolio at the end of 1997, and switch into the
Income Portfolio. The extent and timing of the
exchange was highly disruptive, and did incur
transactions costs. There are benefits for
shareholders going forward in that the Portfolio was
able to eliminate all existing capital gains, thereby
improving the tax outlook for the future.
The fiscal year started in crisis, with the turmoil in
Asia creating fears that pulled down stock prices
around the world. The uncertainty continued to build
through the end of the new year, with all markets
affected to some degree. In South East Asia, the
markets and currencies were decimated. The IMF
rushed to the rescue and put support plans in place,
more to prevent the contagion spreading than with
the expectation of producing an immediate solution.
Around the middle of January, world markets turned
and virtually all markets staged a strong rally. This
time, leadership was taken by the European markets.
The US turned in a respectable performance, while
Canada and Australia were held back by the
weakness in commodity prices.
The Japanese market joined in the early stages of the
rally, but the recovery quickly ran out of steam on
further signs of economic weakness. The Asian
developing countries followed a similar pattern,
rebounding strongly from extreme weakness at the
end of 1997, but prices remained down sharply from
year-ago levels. The first crisis had passed, but, as
with the passing of any major storm, there was still a
lot of cleaning up and rebuilding to do. In this case,
it is the balance sheets that have suffered the
damage, and it will be a long time before conditions
return to normal.
Conditions in Indonesia continued to deteriorate and
the political pressure on Suharto to step down grew
dramatically. This instability had a negative
influence on the other markets in the area, and
brought home the realization that there was going to
be no quick fix. There remain major concerns that
there are further crises to come, particularly if China
devalues.
In Europe, the positive influences of improved
cyclical growth, continued low inflation and
improving perceptions about the approaching single
currency offset the negative of reduced Asian
demand. At the end of last year, the Asian crisis was
dominating markets and the news media. The effect
on the developed countries was expected to be
significant, and in some cases dramatic. What
happened was that these concerns faded into virtual
insignificance, and this allowed the positive
influences to dominate expectations. Around the
same time, a more positive attitude developed
towards the single currency.
For a period of time, the situation developed into the
best of all worlds, in sharp contrast to the imminent
disaster perceived at the end of last year. The fears of
the Asian contagion spreading to the west died down,
but the benefits of lower demand on inflation
persisted. Lower inflation meant lower interest rates,
and that supported higher stock prices. This positive
outlook will not continue forever, but has been
extended by renewed concerns in Asia as the negative
economic effects kick in, leading to further weakness
in commodity prices and lower interest rates.
The developing countries have been struggling to
adapt to circumstances that have deteriorated so
dramatically. Small changes can be dealt with, big,
sudden change is extremely disruptive. The countries
will adapt eventually, and the longer it takes the
more likely it becomes that demand in other countries
will be affected. So far, the impact of lower inflation
and lower interest rates has been far more significant
than the actual, or expected, reduction in demand.
At the same time, it has been impossible to ignore the
major structural changes taking place around the
world. For a very long time the financial sector,
particularly banking, has been highly controlled.
This has been true both within countries and across
national borders. A combination of circumstances is
opening up this sector to much greater competition,
greatly increasing the incentives for combining
operations. In addition, barriers to entry in national
markets, and to the type of business that can be
conducted, are being brought down.
The US is finally seeing a breakdown of the
restrictions on interstate banking and the separation
of financial activities. This process has been going on
for a while, but the pace is just moving into
overdrive. In Europe, the single currency is
concentrating minds on the advantages of European
wide coverage of financial services in a way the
single market on its own never achieved. At the same
time, the Asian markets are finally opening up to
foreign competition, and takeovers, as a result of
economic necessity.
Expanding markets, along with improving living
standards in large areas of the world that had
avoided most of twentieth century progress until the
1990's, have the effect of extending and deepening
the business cycle. There is a lot of potential to make
up lost ground, even with this latest stumble by some
of the developing countries. As a result, conditions
remain favorable in general, although markets are
beginning to discount much of the potential. The US,
in particular, is starting to approach fully-valued
levels. That is most true in the case of the growth
stocks that have been leading this strong cyclical
advance.
Europe is not as cheap as it was, but there is still
room for stock prices to rise before interest rates
move up and impose limits on prices. Japan
continues to offer the greatest potential and the
greatest risk. Pessimism is so great that stock prices
have been unable to sustain a decent rally, but that
same pessimism is preventing the recognition of
improving underlying values.
Government action is required to restore confidence,
and domestic demand. It is hard to know exactly what
will get prices moving, but a commitment by the
Japanese government to speed up the passage of the
stimulus package and consider other actions,
combined with US agreement to support the
yen,should prove effective. It would not only help
restore confidence in Japan, but also help stabilize
the whole region. Once on course, stocks should keep
going for some time, despite periodic bursts of
anxiety.
Sincerely,
Richard T. Coghlan
Chairman & President
GLOBAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30. 1998 (unaudited)
The Penn Street Fund, Inc.
COMMON STOCKS (94.0%)
Shares U.S. $ Value
NORTH AMERICA (48.4%)
United States (45.9%)
Adobe Systems Inc. 2,500 $125,156
Banc One Corp. 1,400 82,338
Boeing Co. 2,300 115,431
Caterpillar, Inc. 1,600 91,200
C-Cube Microsystem (a) 6,000 145,125
Centocor, Inc. 1,800 75,937
Chase Manhattan Bank 1,100 152,419
Compaq Computers 4,400 123,750
Corning, Inc. 2,750 110,000
Englehard Corp. 8,000 169,000
Federal Express Corp. 2,000 136,000
Genzyme Corp. 5,500 170,156
Global Marine Inc. 3,400 79,794
Hercules, Inc. 2,800 133,875
Johnson Controls Inc. 900 53,438
Motorola, Inc. 2,200 122,650
National Semiconductor 4,500 99,000
Nations Bank 3,200 243,200
Newmont Mining Corp. 1,622 52,208
Oxford Health Plan 5,000 85,625
Philip Morris 1,900 71,013
Qualcomm, Inc. 1,600 90,000
Read-Rite Corp. (a) 7,000 96,688
Roper Indus. 3,300 102,300
Sybase, Inc. (a) 10,000 85,313
US Steel 2,300 89,988
2,901,604
Canada (1.2%)
Newbridge Network - ADR 2,700 79,144
Mexico (1.3%)
Telephone de Mexico 1,400 79,275
GLOBAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS-continued
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
Shares U.S. $ Value
EUROPE (25.8%)
France (5.7%)
Club Mediterranee 1,950 178,614
CIE Generale Des Eaux 994 184,738
363,352
Germany (13.2%)
Deutsche Lufthansa 11,000 263,436
Deutsche Telekom 6,500 171,031
Metro Holdings AG 4,000 197,382
Volkswagen AG 253 201,357
833,206
United Kingdom (6.9%)
British Petroleum-Spons ADR 1,000 94,406
Reuters Group PLC 8,000 86,640
Rio Tinto PLC 7,000 100,553
Williams Holdings 20,000 153,424
435,023
ASIA (19.8%)
Australia (5.7%)
Broker Hill Properties 12,000 116,937
CSR Limited 42,000 133,698
Pacific Dunlop Ltd. 60,000 110,700
361,335
Hong Kong (1.2%)
Hong Kong Tele ADR 4,000 77,250
GLOBAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS-continued
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
Shares U.S. $ Value
Japan (12.9%)
Fanuc Ltd. 3,000 110,179
Japan Equity Fund 13,500 101,250
Kajima Corporation 18,000 52,154
Mitsubishi Heavy Industry 20,000 73,753
Nippon Steel Corporation 50,000 80,150
Nomura Securities Co. Ltd 10,000 121,543
Pioneer Electronic 5,200 84,922
The Bank of Tokyo-Mitsubishi Ltd. 7,000 86,344
Toyota Motor Corp. 4,000 103,857
814,152
TOTAL COMMON STOCK (Cost: $5,670,408) 5,944,341
FIXED INCOME SECURITIES (4.9%)
Principal Amt. (b) U.S. $ Value
United States (4.6%)
Credit Lyonnais Corp. 6.75% due 9/19/2049 300,000 294,000
France (0.3%)
Club Mediterranee Bond 4.5% due 03/02/2003 225 17,767
TOTAL FIXED INCOME SECURITIES (Cost: $316,699) 311,767
SHORT-TERM INVESTMENTS (4.6%)
Highmark Money Market Fund 291,714 291,714
TOTAL SHORT-TERM INVESTMENT (Cost $291,714) 291,714
TOTAL INVESTMENT IN SECURITIES
(Cost: $6,278,821) (Notes 2A and 3) (103.5%) 6,547,822
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-NET (-3.5%) (224,081)
TOTAL NET ASSETS (100.0%) $6,323,741
(a) non-income producing security (b) in local currency
(a) non-income producing security
(b) in local currency
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
FIXED INCOME SECURITIES (61.6%)
Principal U.S.$ Value
Amt. (a)
NORTH AMERICA (51.6%)
United States (51.6%)
Credit Lyonnais 6.75% due 09/19/2049 800,000 $784,000
Italian Government Bond 6.87% due 09/27/2023 500,000 533,364
Korea Development Bank 6.5% due 11/15/2002 500,000 455,025
PDV America Inc. 7.25% due 08/01/1998 100,000 100,000
Republic of Korea 8.75% due 04/15/2003 550,000 553,615
US Treasury Bond 8.00% due 08/15/1999 1,800,000 1,853,719
US Treasury Bond 5.68% due 03/31/2000 500,000 499,297
US Treasury Bond 5.50% due 12/31/2000 600,000 598,219
US Treasury Bond 7.75% due 02/15/2001 400,000 421,687
US Treasury Bond 8.00% due 05/15/2001 550,000 585,922
US Treasury Bond 8.625% due 02/15/2006 1,000,000 991,875
US Treasury Bond 8.00% due 11/15/2021 500,000 621,641
US Treasury Bond 7.50% due 11/15/2024 300,000 357,937
US Treasury Bond 7.625% due 02/15/2025 300,000 363,141
US Treasury Bond 6.132% due 02/15/2026 1,000,000 997,656
US Treasury Bond 6.75% due 08/15/2026 500,000 548,828
YPF Corp 8.0% due 02/15/2004 350,000 355,705
10,621,631
EUROPE (9.0%)
European CC (4.1%)
Council of Europe Bond 6.75% due 05/11/2004 300,000 360,941
United Kingdom Bond 9.125% due 02/21/2001 400,000 494,266
855,207
Italy (2.4%)
International Bank Recon & Devel 6.50% due 07/30/2007
800,000,000 494,839
Germany (2.5%)
Greece Floating Rate Note 4.00% due 02/10/2003 910,000 508,090
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS-continued
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
Shares/ U.S.$ Value
Principal Amt.
OTHER COUNTRIES (1.0%)
Australia (1.0%)
First Australia Prime Income Fund 28,000 $199,500
TOTAL FIXED INCOME SECURITIES (Cost: $12,082,778) 12,679,267
COMMON STOCKS (3.0%)
Canada (2.0%)
Bell Canada 10,000 425,625
United States (1.0%)
Southern Co. 7,500 198,750
TOTAL COMMON STOCK (Cost: $338,525) 624,375
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS-continued
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
Shares/ U.S.$ Value
Principal Amt.
SHORT-TERM INVESTMENTS (29.7%)
United States (27.6%)
Banco Rio Plata 6.179% due 08/10/1998 500,000 497,812
Apex Fnd 5.62% due 05/20/1998 500,000 499,850
Broadway Cap 5.81% due 05/13/1998 600,000 598,836
Gothan 5.80% due 06/02/1998 350,000 348,194
Minebea CP Inc. 6.00% due 06/03/1998 300,000 298,350
Nabisco Inc. 5.59% due 05/08/1998 600,000 599,346
Norfolk SO. 5.72% due 05/08/1998 500,000 499,445
US Treasury Bill 4.871% due 05/21/1998 600,000 598,404
US Treasury Bill 4.950% due 06/18/1998 500,000 496,700
US Treasury Bill 5.311% due 05/28/1998 1,000,000 996,410
Highmark Money Market Fund 241,729 241,729
5,675,076
Italy (2.1%)
Government of Italy Treasury Bill 5.8124% due 05/15/1998
775,000,000 436,731
TOTAL SHORT-TERM INVESTMENTS (Cost: $6,071,865) 6,111,807
TOTAL INVESTMENT IN SECURITIES (Cost: $18,493,168) (Notes 2A and 3) (94.3%)
19,415,449
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-NET (5.7%) 1,175,421
TOTAL NET ASSETS (100.0%) $20,590,870
(a) in local currencies
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
ASSETS
Investment in securities, at value (identified cost$6,278,821 and $18,493,168
respectively)(Notes 1 and 2A) $6,547,822 $19,415,449
Cash (including foreign currencies) - 966,752
Receivables:
Interest and dividends 2,363 225,492
Tax reclaims 7,946 -
Prepaid expenses 2,487 7,054
Deferred organization expenses(Note 2G) 15,591 15,642
Total assets 6,576,209 20,630,389
LIABILITIES
Payable for securities purchased 82,873 -
Payable for capital stock redeemed 145,320 -
Accrued expenses 24,275 39,519
Total liabilities 252,468 39,519
NET ASSETS (Note 4) $6,323,741 $20,590,870
Shares outstanding 521,982 2,117,086
Net asset value, offering and redemption price per share
$12.11 $9.73
At April 30, 1997, the components of net assets were as follows:
Paid-in capital $6,315,101 $19,383,261
Accumulated net investment income (deficit)
(6,194) 263,468
Accumulated net realized gain (loss) on investments and foreign currency
transactions (254,090) 6,989
Unrealized appreciation of investments and translation of foreign currency
denominated assets and liabilities 268,924 937,152
$6,323,741 $20,590,870
STATEMENT OF OPERATIONS
For the six months ended April 30, 1998 (unaudited) The Penn Street Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
INVESTMENT INCOME
INCOME
Interest $84,355 $497,675
Dividends (net of foreign taxes withheld of $1,371 and $475 respectively)
29,686 7,103
Total income 114,041 504,778
EXPENSES
Investment management fees (Note 5) 53,285 76,097
Distribution expenses (Note 6) 1,686 471
Shareholder servicing fees (Note 6) 14,801 21,138
Administration (Note 5), accounting and transfer agent
23,185 32,562
Professional fees 7,029 9,362
Custody fees 5,483 1,828
Amortization of organization expenses 3,312 3,261
Directors' fees and expenses 3,377 3,332
Other operating expenses 8,077 5,290
Total expenses 120,235 153,341
Net investment income (loss) (6,194) 351,437
REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) from investments 5,243,166 (29,746)
Net realized gain (loss) from foreign currency
transactions 63,892 36,735
Net change in unrealized appreciation of investments and foreign currency
denominated assets and liabilities (5,045,115) 295,802
Net gain on investments and foreign currency denominated asset and
liabilities 261,943 302,791
Net increase in net assets resulting from operations
$255,749 $654,228
GLOBAL EQUITY PORTFOLIO
Statement of Changes in Net Assets The Penn Street Fund, Inc.
Six months ended Year ended
April 30, 1998 October 31, 1997
(unaudited)
OPERATIONS
Net investment income (loss) ($6,194) $56,840
Net realized gain on investments and foreign
currency transactions 5,307,058 1,920,558
Net change in unrealized appreciation of investments and foreign currency
denominated assets and liabilities (5,045,115) 1,636,759
Net increase in net assets resulting from operations
255,749 3,614,157
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ( $0.07 per share)
- (103,025)
Distribution from realized gains ($0.84 per share)
- (1,931,165)
CAPITAL SHARE TRANSACTION
Net increase (decrease) in net assets from capital
share transactions (a) (19,987,528) (1,661,764)
Net increase (decrease) in net assets (19,731,779) (81,797)
Net assets at the beginning of the period 26,055,520 26,137,317
Net assets at the end of the period (including accumulated net investment
income (deficit) of $(6,194) and -0- respectively)
$6,323,741 $26,055,520
(a) A summary of capital share transactions is as
follows:
Six months ended Year ended
April 30, 1998 (unaudited) October 31, 1997
Shares Value Shares Value
Shares sold 30,310 $342,792 46,525 $514,080
Shares issued in reinvestment of distributions to
shareholders - - 182,905 2,034,170
30,310 342,792 229,430 2,548,250
Shares redeemed (1,799,909) (20,330,320) (353,430) (4,210,014)
Net increase (decrease)
(1,769,599) ($19,987,528) (124,000) ($1,661,764)
*Commencement of operations
GLOBAL INCOME PORTFOLIO
Statement of Changes in Net Assets The Penn Street Fund, Inc.
Six months ended Year ended
April 30, 1998 October 31, 1997
(unaudited)
OPERATIONS
Net investment income $351,437 $635,117
Net realized gain on investments and foreign currency transactions
6,989 217,370
Net change in unrealized appreciation of investments and foreign currency
denominated assets and liabilities 295,802 (387,862)
Net increase in net assets resulting from operations
654,228 464,625
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ($0.08 and $0.90 per share,
respectively) (87,968) (1,071,807)
Distributions from realized gains ($0.57 per share)
- (676,413)
CAPITAL SHARE TRANSACTION
Net increase (decrease) in net assets from capital share transactions (a)
8,613,877 (175,271)
Net increase (decrease) in net assets 9,180,137 (1,458,866)
Net assets at the beginning of the period 11,410,733 12,869,599
Net assets at the end of the period (including undistributed net investment
income of $263,468 and -0- respectively) $20,590,870 $11,410,733
(a) A summary of capital share transactions is as
follows:
Six months ended Year ended
April 30, 1998 (unaudited) October 31, 1997
Shares Value Shares Value
Shares sold 1,065,494 $10,145,908 - -
Shares issued in reinvestment of distributions to shareholders
9,266 87,969 180,658 1,748,229
1,074,760 10,233,877 180,658 1,748,229
Shares redeemed (169,285) (1,620,000) (197,017) (1,923,500)
Net increase (decrease)
905,475 $8,613,877 (16,359) ($175,271)
*Commencement of operations
GLOBAL EQUITY PORTFOLIO
Financial Highlights For a share outstanding throughout each period
The Penn Street Fund, Inc.
Six months ended Year ended November 8, 1995+
April 30, 1998 October 31, 1997 to October 31, 1996
(unaudited)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period
$11.37 $10.82 $10.00
Net income (loss) from investment operations
Net investment income (loss)
(0.01) 0.02 0.05
Net realized and unrealized gain on investments and foreign currency
transactions
0.75 1.41 0.84
Total from investment operations
0.74 1.43 0.89
Less distributions
Distributions from net investment income
- (0.04) (0.07)
Distributions from realized gains
- (0.84) -
Total distributions
- (0.88) (0.07)
Net asset value, end of period
$12.11 $11.37 $10.82
TOTAL RETURN
6.51%* 13.57% 8.89%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)
$6,324 $26,056 $26,137
Ratio to average net assets
Expenses
2.03%** 1.71% 1.82%**
Net investment income (loss)
(0.10%)** 0.20% 0.40%**
Portfolio turnover rate
24% 25% 42%
Average commission rate paid
$0.035 $0.054 $0.0327
+ Commencement of operations
* Total return has not been annualized
** Annualized
GLOBAL INCOME PORTFOLIO
Financial Highlights For a share outstanding throughout each period
The Penn Street Fund, Inc.
Six months ended Year ended November 8, 1995+
April 30, 1998 October 31, 1997 to October 31, 1996
(unaudited)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period
$9.42 $10.48 $10.00
Net income from investment operations
Net investment income
0.20 0.47 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency transactions
0.19 (0.06) 0.26
Total from investment operations
0.39 0.41 0.76
Less distributions
Distributions from net investment income
(0.08) (0.90) (0.28)
Distributions from net realized gains
- (0.57) -
Total distributions
(0.08) (1.47) (0.28)
Net asset value, end of period
$9.73 $9.42 $10.48
TOTAL RETURN
4.12%* 4.19% 7.79%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)
$20,591 $11,411 $12,870
Ratio to average net assets
Expenses
1.81%** 1.72% 1.84%**
Net investment income
4.16%** 5.39% 4.88%**
Portfolio turnover rate
21% 22% 29%
Average commission rate paid
n/a n/a n/a
+ Commencement of operations
* Total return has not been annualized
** Annualized
Notes to Financial Statements
April 30, 1998 (unaudited) The Penn Street Fund, Inc.
(1) Organization
The Penn Street Fund, Inc. (formerly S.I.S. Mercator
Fund, Inc.) (the "Fund"), is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment
company and is authorized to issue shares in separate
series. The Fund currently offers shares in two
diversified series, the Global Equity Portfolio and the
Global Income Portfolio (the "Portfolios").
The Fund was incorporated on July 6, 1995, and
between that date and November 8, 1995 the Fund
had no operations other than those relating to
organizational matters and the registration of its
shares under applicable securities laws. On
November 8, 1995 the Fund sold 10,000 shares of the
Global Equity Portfolio for $100,000 and 5,000
shares of the Global Income Portfolio for $50,000 to
an Officer and Director of the Fund and principal
shareholder of East Coast Consultants, Inc. ("East
Coast"), the Fund's principal underwriter, and Penn
Street Advisors, Inc. ("Penn Street", formerly
Strategic Investment Services, Inc.), the Fund's
investment advisor.
(2) Significant Accounting Policies
The Global Equity Portfolio's investment objective is
to achieve a high rate of return, with emphasis on
capital appreciation, by investing principally in
equity securities of companies located anywhere in
the world, but predominately in the developed
countries. The Global Income Portfolio's investment
objective is to achieve a relatively stable rate of total
return with emphasis on yield, by investing
principally in fixed income securities and, to a lesser
extent, in equity securities of high quality companies
located predominately in the developed countries
with, at most, very limited exposure to less developed
countries. The price of each Portfolio's shares will
fluctuate daily and there can be no assurance that the
Portfolios will be successful in achieving their stated
investment objectives.
The following is a summary of the significant
accounting policies followed by the Portfolios in the
preparation of their financial statements. These
policies are in accordance with generally accepted
accounting principles.
A. Security Valuation. The securities held by the
Portfolios are valued as of the close of the New York
Stock Exchange (the "NYSE"). Listed securities are
valued at the last quoted sales price on the exchange
were the security is principally traded. Securities
listed on foreign exchanges are valued at the latest
quoted market price available prior to the close of the
NYSE. Debt securities may be valued on the basis of
prices provided by a pricing service using methods
approved by the Fund's Board of Directors. Other
assets and securities for which no quotations are
readily available are valued in good faith by, or under
the direction of, the Fund's Board of Directors.
B. Currency Translation. The market values of all
assets and liabilities denominated in foreign
currencies are recorded in the financial statements
after translation to the U.S. dollar based upon the bid
price of such currencies against the U.S. dollar last
quoted by a major bank or broker. The cost basis of
such assets and liabilities is determined based upon
historical exchange rates. Income and expenses are
translated at average exchange rates in effect as
accrued or incurred.
The Portfolios do not isolate that portion of the
results of operations resulting from changes in
foreign exchange rates on investments from the
fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with
the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or
losses arise from sales and maturities of short-term
securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement
dates on securities transactions, the difference
between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Portfolios'
books, and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the
value of assets and liabilities other than investments
in securities at fiscal year end, resulting from changes
in the exchange rate.
C. Forward Currency Contracts. The Portfolios
may enter into forward purchases or sales of foreign
currencies to hedge certain foreign currency
denominated assets and liabilities against declines in
market value relative to the U.S. dollar. Forward
currency contracts are marked-to-market daily and
the change in market value is recorded by the
Portfolios as an unrealized gain or loss. When the
forward currency contract is closed, the Portfolios
record a realized gain or loss equal to the difference
between the value of the forward currency contract at
the time it was opened and the value at the time it
was closed.
Investments in forward currency contracts may
expose the Portfolios to risks resulting from
unanticipated movements in foreign currency
exchange rates or failure of the counterparty to the
agreement to perform in accordance with the terms of
the contract.
D. Federal Income Taxes. The Portfolios intend to
comply with the requirements of the Internal
Revenue Code applicable to regulated investment
companies and to distribute all of their taxable
income to their shareholders. Therefore, no federal
income tax provision is required.
E. Security Transactions, Interest and Dividends.
As is common in the industry, security transactions
are recorded on the trade date. Interest income is
accrued as earned. Discounts and premiums are
amortized in accordance with Federal income tax
requirements. Dividends are recorded on the ex
dividend date.
F. Distributions to Shareholders. Distributions to
shareholders are recorded on the ex-dividend date.
The character of distributions paid to shareholders is
determined by reference to income as determined for
income tax purposes, after giving effect to temporary
differences between the financial reporting and tax
basis of assets and liabilities, rather than income as
determined for financial reporting purposes.
G. Deferred Organization Expenses. All of the
expenses incurred by the Fund in connection with the
organization and the registration of the Portfolios'
shares were borne equally by each Portfolio and are
being amortized to expense on a straight-line basis
over a period of five years.
H. Use of Estimates. In preparing financial
statements in accordance with generally accepted
accounting principles, management is required to
make estimates and assumptions that affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the
date of the financial statements, and revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
(3) Investments
For the six months ended April 30, 1998, the cost of
securities purchased and the proceeds from securities
sold, excluding short-term notes, was $2,555,008 and
$18,388,030, respectively, for the Global Equity
Portfolio, and $6,517,529 and $2,400,479,
respectively, for the Global Income Portfolio.
At April 30, 1998 net unrealized appreciation of
investment securities consisted of gross unrealized
appreciation and gross unrealized depreciation of
$829,462 and $(560,461), respectively, for the
Global Equity Portfolio and $970,385 and $(48,104)
respectively, for the Global Income Portfolio.
(4) Capital Stock
At April 30, 1998, the authorized capital of the Fund
consisted of one billion shares of $.01 par value
common stock with 100 million shares designated
and classified the Global Equity Portfolio and 100
million shares designated and classified the Global
Income Portfolio.
(5) Investment Management Fee and
Administration Fee
Investment Advisory Agreement. Penn Street
provides investment management services to each of
the Portfolios under an Investment Advisory
Agreement. Penn Street provides the Portfolios with
continuous investment programs, a trading
department, and selects brokers and dealers to effect
securities transactions. As compensation for its
services Penn Street is paid a monthly fee which is
equal to the annual rate of 0.90% of each Portfolio's
average daily net assets.
Administration Agreement. Penn Street also serves
as the Administrator of the Fund under an
Administration Agreement. The services include the
administration of the Fund's business affairs,
supervision of services provided by other
organizations providing services to the Fund,
including the custodian, dividend disbursing agent,
legal counsel and independent accountants,
preparation of certain Fund records and documents,
record keeping and accounting services. As
compensation for these services Penn Street is paid a
monthly fee which is equal to the annual rate of
0.25% of each Portfolio's average daily net assets.
(6) Distribution Plans
Distribution Plan. The Portfolios have adopted
Distribution Plans pursuant to rule 12b-1 under the
'40 Act, whereby each Portfolio may make monthly
payments at the annual rate of 0.25% of each
Portfolio's average net assets to East Coast for
providing certain distribution services. These services
can include: promotion of the sale of Portfolio shares,
preparation of advertising and promotional materials,
payment of compensation to persons who have been
instrumental in the sale of Portfolio shares, and for
other services and materials, including the cost of
printing Fund prospectuses, reports and advertising
material provided to investors, and to defray
overhead expenses of East Coast incurred in
connection with the promotion and sale of Fund
shares.
Shareholder Services Plan. The Portfolios have also
adopted Shareholder Services Plans (the "Plans")
which are designed to promote the retention of
shareholder accounts. Under these Plans, the
Portfolios are authorized to pay East Coast a monthly
fee which, on an annual basis, may not exceed 0.25%
of the average net assets of each Portfolio. Payments
under the Plans would be used, among other things,
to compensate persons and/or organizations that
provide services to shareholders that are designed to
encourage them to maintain their investments in the
Portfolios.
(7) Other Transactions with Affiliates
Certain officers and directors of the Fund are also
officers and/or directors of Penn Street and East
Coast.
