As filed with the Securities and Exchange Commission on January 7, 1999
1940 Act Registration No. 811-9078
1933 Act File No. 33-95102
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. [4]File No. 33-95102 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. [5] File No. 811-9078
(Check appropriate box or boxes)
The Penn Street Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
30 Valley Stream Parkway, Malvern PA 19355
(Address of Principal Executive Offices) (Zip Code)
(610) 578-9944
Registrant's Telephone Number, Including Area Code
The Penn Street Fund, Inc.
Dr. Richard T. Coghlan, President
30 Valley Stream Parkway
Malvern, PA 19355
(Name and Address of Agent for Service)
Please send copies of communications to
Stephen W. Kline, Esq.
Stradley, Ronon, Stevens & Young, LLP
30 Valley Stream Parkway
Malvern, PA 19355-1481
It is proposed that this filing will become effective
/ / immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on 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.
CROSS-REFERENCE SHEET
Prospectus for Penn Street Fund, Inc.
Part A
Item No. Information Required in a Prospectus
Item 1. Front and Back Cover Pages
Front and
Back Cover Pages
Item 2. Summary; Risks; The Global Equity
Risk/Return Portfolio; The Global Income Portfolio;
Summary: Investments, Past Performance
Risks and Performance
Item 3. Fees and Expenses
Risk/Return
Summary: Fee Table
Item 4. Summary; The Global Equity Portfolio;
Investment Objectives, The Global Income Portfolio; Risks
Principal Investment
Strategies, and Related
Risks
Item 5. Past Performance
Management's Discussion
of Fund Performance
Item 6. Management
Management, Organization
and Capital Structure
Item 7. How To Purchase Shares; How To
Shareholder Information Exchange Shares; How To Redeem
Shares; Account Instructions; How
To Contact The Fund
Item 8. Dividends, Distributions and Taxes
Distribution Arrangements
Item 9. Financial Highlights
Financial Highlights
Information
Statement of Additional Information
Part B Information Required in a Statement of
Item No. Additional Information
Item 10. Cover Page and Table of Contents
Cover Page and
Table of Contents
Item 11. General Information
Fund History
Item 12. Investment Objectives and Policies;
Description of the Fundamental Policies; Operating Policies
Fund and Its Investments
and Risks
Item 13. Management of the Fund
Management of the Fund
Item 14. Management of the Fund;
Control Persons and Principal Shareholders
Principal Holders of
Securities
Item 15. Investment Management Services
Investment Advisory
and Other Services
Item 16. Sale of Fund Shares; Distribution
Brokerage Allocation
and Other Practices
Item 17. General Information
Capital Stock and
Other Securities
Item 18. Sale of Fund Shares
Purchases, Redemption,
and Pricing of Shares
Item 19. Distribution; Tax Status
Taxation of the Fund
Item 20. Distribution
Underwriters
Item 21. Investment Performance
Calculation of
Performance Data
Item 22. Cover Page
Financial Statements
Part C
Item No. Other Information.
Item 23. Exhibits
Exhibits
Item 24. Persons Controlled by or Under Common
Persons Controlled by or Control with the Fund
Under Common Control with
the Fund
Item 25. Indemnification
Indemnification
Item 26. Business and Other Connections of the
Business and Other Investment Adviser
Connections of the
Investment Adviser
Item 27. Principal Underwriters
Principal Underwriters
Item 28. Location of Accounts and Records
Location of Accounts and Records
Item 29. Management Services
Management Services
Item 30. Undertakings
Undertakings
PROSPECTUS
TABLE OF CONTENTS
THE FUND
2. SUMMARY
3. THE GLOBAL EQUITY PORTFOLIO
4. THE GLOBAL INCOME PORTFOLIO
5. RISKS
6. GLOBAL EQUITY PERFORMANCE
7. GLOBAL INCOME PERFORMANCE
8. FEES AND EXPENSES
9. MANAGEMENT
10. FINANCIAL HIGHLIGHTS
YOUR INVESTMENT
12. HOW TO PURCHASE SHARES
12. HOW TO EXCHANGE SHARES
13. HOW TO REDEEM SHARES
14. DIVIDENDS, DISTRIBUTIONS, AND TAXES
15. ACCOUNT INSTRUCTIONS
17. HOW TO CONTACT THE FUND
The Penn Street Fund, Inc. The Fund
The Fund is made up of two separate, diversified
portfolios: The Global Equity Portfolio and The
Global Income Portfolio. The Fund is designed for
individual and institutional investors seeking globally
diversified investment portfolios, based on active
research and management, which take changing
business cycle conditions into account in different
countries. The Portfolios are intended for long-term
investors who can accept the risks entailed in investment
in foreign securities. The Fund provides a flexible
investment approach that tries to anticipate, and protect
against, the business cycle risks involved. The Portfolios
should not be relied upon as a complete investment
program, or used to play short-term swings in the
investment markets.
Portfolio allocations are adjusted according to
international business cycle developments in order to
take advantage of, and also minimize, the special risks
associated with changing economic conditions. The
Portfolios provide a flexible investment approach that
tries to anticipate, and protect against, business cycle
risks. Portfolio allocation decisions are based on the
Advisor's long-term view, but are also constantly
monitored for changes in economic conditions, the
political situation and investment markets to determine
whether events are consistent with the Advisor's
expectations and whether any developments are
occurring that might cause those expectations to change.
The composition of each Portfolio is adjusted to reflect
the Advisor's view of changing conditions.
Each Portfolio ordinarily will invest at least 65% of its
total assets in securities of companies and/or
governments of at least three different countries. The
Global Equity and Global Income Portfolios may invest
in securities of governments or companies in developing
countries, but only when conditions are appropriate.
This will not be a primary activity, and such holdings
may have some speculative characteristics.
THE GLOBAL EQUITY PORTFOLIO
The Global Equity Portfolio's investment objective is to
achieve a high rate of total return, with emphasis on
capital appreciation. This Portfolio invests principally in
equity securities of companies located anywhere in the
world, but predominantly in industrialized countries.
Most investments will be made in equity securities,
which Penn Street Advisors, Inc. ("Advisor") believes
have the potential for capital appreciation. The receipt
of dividend income of the Portfolio also will be a factor
in selecting equity investments, but of lesser
importance. Also, the Portfolio may hold fixed-income
securities when, in the Advisor's judgment, these
securities offer an attractive rate of total return in
relation to anticipated returns on equity securities,
taking into account the expected risk involved.
The Advisor adopts a balanced value approach to
selecting securities to include in the Portfolio. A
balanced portfolio is considered to be one that will
typically include broad diversification across individual
assets, sectors, asset types, countries and time, applied
consistently according to quantitative forecasts of
changing business cycle conditions in the U.S. and other
countries. Such diversification is an important
consideration in reducing risk while still achieving a
high level of total return.
The value approach identifies companies that the
Advisor believes offer future growth at an attractive
price, i.e. that will provide consistent growth in the
future at a current price that reflects a less optimistic
outlook. The Advisor looks at standard measures of
value such as the price-to-earnings ratio, the expected
growth rate of earnings, price-to-book and the return on
equity. The Advisor also evaluates the quality of
companies and their future prospects for success. This
analysis will depend on less quantifiable things such as
product penetration, new product development and the
quality of management etc.
THE GLOBAL INCOME PORTFOLIO
The Global Income Portfolio's investment objective is
to seek a rate of total return which fluctuates less than
that of the Global Equity Portfolio by putting emphasis
on income. This Portfolio invests principally in medium
and long-term, liquid, high quality fixed income
securities issued by governments, supranational
organizations and companies located in industrialized
countries. To a lesser extent, the Portfolio may also
invest in equity securities which have an attractive rate
of return and whose market prices the Advisor expects
will remain relatively stable in relation to the price of
fixed income securities.
Market and maturity selections are based on relative and
absolute business-cycle developments in order to
maximize income and capital gains potential while
minimizing risk. Allocation decisions will depend on the
level of interest rates available in different countries,
relative interest rates within the country, i.e., the yield
curve, the expected change in interest rates and the
outlook for exchange rates.
Normally, the Portfolio's assets will be invested
principally in fixed income securities issued or
guaranteed by the U.S. or foreign governments, their
agencies and instrumentalities and supranational
organizations. By investing in both international and
domestic fixed-income securities, the Portfolio can
expand its investment horizons while providing an
effective means of reducing volatility associated with
concentration in a single country or region. The fact that
countries follow different business cycles provides an
effective means of diversification.
RISKS
Each Portfolio is subject to risks associated with
business cycles in the countries in which it invests. The
global nature of the Portfolios has the potential to
reduce risks substantially, but also introduces risks that
do not exist in a single country fund. The value of the
Portfolios may go up and down, which means that you
could lose money.
Foreign Currency
Investments in foreign securities will normally be
denominated in foreign currencies. As a result, the
Portfolios can be significantly effected by the changes in
foreign currency exchange rates.
Economic Factors
The economies of the countries in which the Fund
may invest ("Portfolio Countries") may be less
developed or diverse than the U.S., and the outlook
may be more uncertain.
Political Factors
The internal politics of many Portfolio Countries
may not be as stable as in the U.S. Some
governments continue to participate, though
ownership interest or regulation, in their respective
economies and securities markets, and may impose
restrictions on foreign investment, or could take
other actions that may affect the value of the
Portfolios' investments.
Market Characteristics
The securities markets of Portfolio Countries may
have substantially less volume than the New York
Stock Exchange ("NYSE") or U.S. bond markets,
which may result in less liquidity and greater price
volatility. Securities settlement may also be subject
to delays and otherwise differ from those practices
customary in the U.S. markets.
Legal and Regulatory
Certain Portfolio Countries use different financial
reporting standards, and may have less
governmental supervision of securities markets.
There may also be difficulty in enforcing the Fund's
legal rights outside the U.S. As a result, global
investing carries the additional risk that the
securities in the Portfolio Countries may not
perform consistent with the Advisor's expectations.
Year 2000
The Fund could be adversely affected if the
computer systems used by the Fund or its service
providers do not function properly when processing
date-related information on and after January 1,
2000. This is commonly known as the "Year 2000
Issue." The Fund is taking steps that it believes are
reasonably designed to address the Year 2000 Issue
with respect to computer systems that it uses. The
Fund is also obtaining reasonable assurances that
comparable steps are being taken by the Fund's
other major service providers. At this time, it is
impossible to ensure that these steps will be
sufficient to avoid any adverse impact to the Fund.
GLOBAL EQUITY PORTFOLIO PERFORMANCE
The two tables below show annual total returns for the
last three years. The bar chart shows how Portfolio
returns have changed from year to year. The second
table shows how the Portfolio's average annual returns
for certain periods compare with those of the
Morningstar World Equity Index. Both tables reflect all
expenses of the Portfolio and assume that all dividends
and capital gain distributions have been reinvested in
new shares of the Portfolio. Past performance is not
necessarily an indication of how the Portfolios will
perform in the future.
Year by year total return as of 12/31 each year (%)
10.25% 7.20% XXX
96 97 98
Best Quarter 11.54% Q2' 97
Worst Quarter -11.31% Q3' 98
The Portfolio value fell 3.29% in the latest fiscal quarter to
end October 1998.
Average annual total return as of 12/31/97
Inception
1 Year (11/08/95 )
Global Equity Portfolio 7.20% 9.8%
Morningstar World Equity Index 10.79%
GLOBAL INCOME PORTFOLIO PERFORMANCE
The two tables below show annual total returns for the
last three years. The bar chart shows how Portfolio
returns have changed from year to year. The second
table shows how the Portfolio's average annual returns
for certain periods compare with those of the Salomon
Brothers World Bond Index and the Morningstar
International Income Index. Both tables reflect all
expenses of the Portfolio and assume that all dividends
and capital gain distributions have been reinvested in
new shares of the Portfolio. Past performance is not
necessarily an indication of how the Portfolios will
perform in the future.
Year by year total return as of 12/31 each year (%)
6.13% 5.15% XXX
96 97 98
Best Quarter 3.70% Q4' 96
Worst Quarter -2.90% Q1' 97
The Portfolio value increased 3.25% in the latest fiscal quarter
to end October 1998.
Average annual total return as of 12/31/97
Inception
1 Year (11/08/95)
Global Income Portfolio 5.15% 6.62%
Morningstar International Income Index 2.63%
Salomon Brothers World Bond Index 0.23%
FEES AND EXPENSES
This table describes the fees and expenses that you
may pay if you buy and hold shares of the Fund.
There are no sales charges or shareholder
transaction expenses. Management fees, and other
expenses were reduced effective November 7, 1998.
The expenses shown here are based on these revised
numbers.
Annual Portfolio Operating Expenses, Global Equity, Global Income
(expenses that are deducted from Portfolio assets)
Management Fees 0.75% 0.75%
12b-1 Fees 0.01% 0.00%
Other Expenses 0.87% 0.71%
Total Annual Fund Operating Expenses 1.63% 1.46%
The following Examples are intended to help you
compare the cost of investing in each Portfolio with
the cost of investing in other mutual funds. The
Examples assume that you invest $10,000 in the
Portfolio for the time periods indicated and then
redeem all of your shares at the end of those
periods. The Examples also assume that your
investment has a 5% return each year and that the
Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
Expense Examples
Global Equity Portfolio
1 year 3 years 5 years 10 years
$163 $514 $901 $2049
Global Income Portfolio
1 year 3 years 5 years 10 years
$146 $460 $806 $1835
MANAGEMENT
The Fund is managed by Penn Street Advisors, Inc.,
("Advisors") 30 Valley Stream Parkway, Great
Valley Corporate Center, Malvern, PA 19355.
Advisor was founded in 1989. For its services, the
Fund pays Advisor a fee at the annual rate of 0.75%
of the Fund's average net assets. Until January 14,
1998 the name of the Advisor was Strategic
Investment Services, Inc. The Advisor is a wholly
owned subsidiary of Millennium Bank, a full
service bank, providing banking and trust services.
The Advisor provides the Portfolios with
continuous investment programs, and a trading
department, and selects brokers and dealers to effect
securities transactions. Portfolio securities
transactions are placed with a view to obtaining best
price and execution and, subject to this goal, may be
placed with brokers which have assisted in the sale
of a Portfolio's shares. Mr. Richard T. Coghlan,
founder and President of the Advisor, is primarily
responsible for the day-to-day management of the
Fund's investments.
DISTRIBUTION OF FUND SHARES:
East Coast Consultants, Inc. (the "Distributor")
serves as distributor of the Fund's shares pursuant
to an agreement which provides that the Distributor
will use its best efforts to promote the sale and
retention of Fund shares.
FINANCIAL HIGHLIGHTS
GLOBAL EQUITY PORTFOLIO
The financial highlights table is intended to help
you understand the Global Equity Portfolio's
financial performance for the past three years.
Certain information reflects financial results for a
single Fund share. The total returns in the table
represent the rate that an investor would have
earned on an investment in the Fund (assuming
reinvestment of all dividends and distribution). This
information has been audited by Briggs, Bunting &
Dougherty, LLP, whose report, along with the
Fund's financial statements, are included in the
annual report, which is available upon request.
year ended year ended Nov 8, 1995+
Oct 31, 1998 Oct 31,1997 to Oct 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.37 $10.82 $10.00
Net income from investment operations
Net investment income 0.05 0.02 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions (0.41) 1.41 0.84
Total from investment operations (0.36) 1.43 0.89
Less distributions
Distributions from net investment income (0.05) (0.04) (0.07)
Distributions from realized gains (0.07) (0.84) _____
Total distributions (0.12) (0.88) (0.07)
Net asset value, end of period $10.89 $11.37 $10.82
TOTAL RETURN (3.18%) 13.57% 8.89%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,060 $26,056 $26,137
Ratio to average net assets
Expenses 1.99% 1.71% 1.82%**
Net investment income 0.17% 0.20% 0.40%**
Portfolio turnover rate 44% 25% 42%
+ Commencement of operations
* Total return has not been annualized
** Annualized
FINANCIAL HIGHLIGHTS
GLOBAL INCOME PORTFOLIO
The financial highlights table is intended to help
you understand the Global Equity Portfolio's
financial performance for the past three years.
Certain information reflects financial results for a
single Fund share. The total returns in the table
represent the rate that an investor would have
earned on an investment in the Fund (assuming
reinvestment of all dividends and distribution). This
information has been audited by Briggs, Bunting &
Dougherty, LLP, whose report, along with the
Fund's financial statements, are included in the
annual report, which is available upon request.
Year ended Year ended Nov 8, 1995+
Oct 31, 1998 Oct 31,1997 to Oct 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.42 $10.48 $10.00
Net income from investment operations
Net investment income 0.43 0.47 0.50
Net realized and unrealized gain on
investments and foreign currency
transactions 0.43 (0.06) 0.26
Total from investment operations 0.86 0.41 0.76
Less distributions
Distributions from net investment income (0.43) (0.90) (0.28)
Distributions from realized gains (0.30) (0.57) _____
Total distributions (0.73) (1.47) (0.28)
Net asset value, end of period $9.55 $9.42 $10.48
TOTAL RETURN 9.15% 4.19% 7.79%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $20,321 $11,411 $12,870
Ratio to average net assets
Expenses 1.81% 1.72% 1.84%**
Net investment income 4.46% 5.39% 4.88%**
Portfolio turnover rate 43% 22% 29%
+ Commencement of operations
* Total return has not been annualized
** Annualized
HOW TO PURCHASE SHARES
Purchase Price:
You pay no sales charges to invest in the Fund. The
price for Fund shares is the Fund's net asset value
per share (NAV), which is calculated at the close of
the New York Stock Exchange ("NYSE") each day
that the exchange is open for trading. All orders are
priced at the next NAV calculated after the order is
accepted by the Fund. The Fund's investments are
valued based on market value, or where no
quotations are readily available
are valued at fair value as determined in good faith
by, or under the direction of, the Board of Directors.
Minimum Purchases:
An initial purchase must be in the amount of at
least $100,000, which can be invested in either
Portfolio. The Fund, in its discretion, is authorized
to waive the minimum initial purchase requirement.
There is no minimum purchase requirement for
subsequent investments.
Shares may be purchased in conjunction with an
Individual Retirement Account (IRA). This will
require additional forms to be completed which
are available from the Distributor. Shareholders
interested in this option need to give careful
consideration to the tax implications and the
restrictions that apply. Interested investors
should consult with their tax advisor before
investing.
Calculating the price of portfolio shares
NAV:
The total market value of the Portfolio's investments and
other assets, less any expenses and liabilities, is divided
by the number of outstanding shares of the Portfolio.
HOW TO EXCHANGE SHARES
Shares of each Portfolio may be exchanged for
shares of the other Portfolio, at the relative NAV of
the shares, without payment of a fee. Exchanges
may be made only for shares of a Portfolio which, at
the time of exchange, may be legally sold in the
shareholder's state of residence. For federal income
tax purposes, an exchange of shares is treated as if
you had redeemed shares of one Portfolio and
reinvested the proceeds in shares of the other
Portfolio. For information on how to exchange your
shares, please contact the Fund.
HOW TO REDEEM (SELL) SHARES
You may redeem shares of a Portfolio, without charge,
on any day when the NYSE is open. The sale price will be
the next NAV calculated after your order is accepted by
the Fund. Redemption proceeds will ordinarily be sent
on the next business day, but, in any event, they will be
sent later than seven calendar days following the receipt of
a redemption request in proper form.
Wire Redemption:
Payment may also be made directly to any
bank previously designated by the shareholder
in his or her Account Registration Form. The
Fund makes no charge for redemptions by
wire, however, your bank may
impose a fee for wire services.
Check Redemption:
The Fund will honor redemption requests
of shareholders who recently purchased
shares by check, but will not send the
proceeds until it is reasonably satisfied
that the purchase check has cleared, which
may take up to 15 days from the purchase date.
Proper Form:
means the written redemption request must include the
following:
1. shareholder's account # and name.
2. amount of transaction (specified either in $ or shares)
3. the signatures of all owners exactly as they are registered
4. other supporting legal documentation that might be
required, in the case of estates, corporations, trusts, and certain
other accounts
5. telephone confirmation, if required.
GENERAL POLICIES
The Fund reserves the right to:
*refuse any exchange request in excess of 1% of
the Fund's total assets
*change or discontinue its exchange privilege, or
temporarily suspend this privilege during
unusual market conditions.
*delay sending out redemption proceeds for up to
seven days (generally applies only in cases of
very large redemptions, excessive trading or
during unusual market conditions)
*make a "redemption in kind" - payment in
portfolio securities rather than cash- if the
amount you are redeeming is large enough to
affect Fund operations, or if the redemption
would otherwise disrupt the Fund (for example,
if the amount represents more than 1% of the
Fund's assets).
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Both Portfolios pay shareholders' dividends from its
net investment income, and distributes any realized
capital gains. These distributions are generally paid
annually at the end of October and December.
Dividends and distributions are automatically
reinvested in additional shares of the Portfolio
unless the shareholder has notified the
Administrator, in writing, of an election to receive
dividends and/or distributions in cash. Dividends
are reinvested on the ex-dividend date, at the net
asset value of the shares, determined as of the close
of the NYSE on that date.
Dividends (including short-term capital gains) are
treated as ordinary income and distributions are
treated as long-term capital gains for US federal tax
purposes, whether received in cash or reinvested in
additional shares, and regardless of the length of
time the Portfolio's shares have been held.
Dividends and distributions paid on shares
purchased shortly before the record date for
dividend or distribution will have the economic
effect of a return of capital, even though such
dividends and distributions are subject to taxes.
Dividends and distributions may also be subject to
state and local taxes. The Fund will notify
shareholders each year of the amount of dividends
and any distributed long-term capital gains.
Prospective investors should consult their own
tax advisors concerning the tax consequences of
any investment.
TO OPEN AN ACCOUNT
Initial purchase of at least $50,000
For initial accounts: Complete an Application and
return to:
Penn Street Advisors, Inc.
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
*For an IRA be sure to include the tax year of
contribution
By Check:
Checks should be made out to:
Penn Street Global Equity Portfolio or
Penn Street Global Income Portfolio
and mailed to:
Union Bank of California Global Custody
475 Sansome Street, 15th Floor
San Francisco, CA 94111
attn.: Jennifer Tse
*Separate checks are required if investing in both
Portfolios. For an IRA be sure to include the tax
year of contribution
By Wire:
Must notify Transfer Agent by calling:
610-578-9944
to obtain an account number and to provide your
federal tax identification number. For an IRA
include the tax year of Contribution.
Must have bank wire transmitted to:
Union Bank of California
ABA#1210-0001-5 for credit to Union Bank of
California Global Custody
Account #001-054831
then to A/C #01643 Global Equity Portfolio
or A/C #01644 Global Income Portfolio
TO ADD TO AN ACCOUNT
No minimum purchase for subsequent investments
Must notify the Transfer Agent in writing, stating
account # and investment amount. Send it to:
Penn Street Advisors
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
*For an IRA be sure to include the tax year of
contribution
Mail Checks to:
Union Bank of California Global Custody
475 Sansome Street, 15th Floor
San Francisco, CA 94111
attn.: Jennifer Tse
make sure you write which portfolio it is for.
Penn Street Global Equity Portfolio or
Penn Street Global Income Portfolio.
*Separate checks are required if investing in both
Portfolios. For an IRA be sure to include the tax
year of contribution
By Wire:
Must notify the Transfer Agent by calling:
610-578-9944
must provide them with account #, investment
amount and portfolio that you wish to invest in. For
an IRA include the tax year of Contribution.
Must have bank wire transmitted to:
Union Bank of California
ABA#1210-0001-5
for credit to Union Bank of California Global
Custody
Account #001-054831
then to A/C #01643 Global Equity Portfolio
or A/C #01644 Global Income Portfolio
REDEMPTION OF SHARES
By mail:
Write a letter of instruction that includes:
Shareholder's account number and Portfolio name.
Amount of the transaction (specified in dollars or shares).
Signatures of all owners exactly as they are registered.
How and where to send the proceeds.
In the case of a Redemption from IRA:
state whether the 10% TEFRA should be withheld.
Mail your request to:
Penn Street Advisors, Inc.
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
By phone:
Call us to request your transaction at 1-610-587-9944.
You may be asked to provide proof of identification, as
provided in your original application. You can request
that proceeds be wired or sent by check.
By Wire: Be sure the Fund has your bank account
information on file. Proceeds will be wired to your bank.
By Check: A check will be sent to the address of
record.
FOR MORE INFORMATION
THE PENN STREET FUND, INC.
THE GLOBAL EQUITY PORTFOLIO
THE GLOBAL INCOME PORTFOLIO
More information on this fund is available free upon
request, including the following:
Annual/Semiannual Report
These reports describe the Fund's performance, list
portfolio holdings and contain a letter from the
manager discussing recent market conditions,
economic trends and portfolio strategies.
Statement of Additional Information (SAI)
The SAI provides more details about the Fund and
its policies. and is incorporated by reference into
this Prospectus (and is legally considered to be part
of this prospectus.)
You may review and copy the SAI and other
information about the Fund by visiting the
Securities and Exchange Commission's Public
Reference Room in Washington, DC or by visiting
the Commission's Internet site at
http:/www.sec.gov. Copies of this information also
may be obtained, upon payment of a duplicating
fee, by writing to the Public Reference Section of
the Commission, Washington, DC 20549-6009.
You may call the Commission at 1-800-SEC-0330
for information about the operation of the public
reference room.
To obtain information:
By telephone:
610-578-9944
By mail, write to:
Penn Street Advisors, Inc.
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
By e-mail: [email protected]
STATEMENT OF ADDITIONAL INFORMATION
THE PENN STREET FUND, INC.
This Statement of Additional Information is not a
prospectus, and should be read in conjunction with
the prospectus, for The Penn Street Fund, Inc. (the
"Fund"). The audited financial statements of the
Fund for its fiscal year ended October 31, 1998 as
set forth in the Fund's Annual Report to
Shareholders, and the report therein of Briggs,
Bunting & Dougherty independent accountants, also
appearing therein are incorporated herein by
reference. The Prospectus and Annual Report are
available without charge from East Coast
Consultants, Inc., the Distributor of the Fund, at 30
Valley Stream Parkway, Great Valley Corporate
Center, Malvern, PA, Telephone No. 610-578-9944.
The date of this Statement of Additional Information,
and the prospectus to which it relates, is
March 1, 1999
TABLE OF CONTENTS
Page
General Information 1
Investment Objectives and Policies 1
Fundamental Policies 1
Operating Policies 2
Fixed Income Securities 4
Writing Listed Covered Call Options 4
Purchasing Listed Call Options 5
Purchasing Listed Put Options 5
Dealer Options 6
Futures Contracts 7
Lending Portfolio Securities 8
Repurchase Agreements 9
Foreign Currency Transactions 9
Investment Performance 10
Management of the Fund 11
Investment Management Services 12
Sale of Fund Shares 14
Distribution 14
Tax Status 15
Principal Shareholders 17
GENERAL INFORMATION
The Fund is an open-end, diversified management
investment company organized as a corporation in
the State of Maryland on July 6, 1995, but did not
issue any shares until November 8, 1995 The Fund
is currently authorized to issue shares, par value ,
and may issue such shares in multiple series and
classes. The Fund currently issues shares in two
series (portfolios): the Global Equity Portfolio and
the Global Income Portfolio (individually a
"Portfolio" and collectively the "Portfolios"). Each
series represents interests in a separate portfolio of
securities, and all shares of a series have identical
voting powers, preferences, restrictions and other
terms. The Fund is registered under the Investment
Company Act of 1940. Until January 14, 1998, the
name of the Fund was S.I.S. Mercator Fund, Inc.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the
discussion under "Investment Objectives and
Policies" in the prospectus. The "Fundamental
Policies" of the Portfolios are described below and
may not be changed without the approval of the
lesser of: a vote of the holders of a majority of the
outstanding shares of the Portfolio or, 67% of the
shares represented at a meeting of shareholders of
the Portfolio at which the holders of at least 50% or
of the shares are represented.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, each Portfolio
will not:
(1) borrow money, except from banks as a
temporary measure for extraordinary or emergency
purposes, including redemption of its shares, and
then only in amounts not exceeding 33 1/3% of its
total assets, valued at market. The Portfolios also
may acquire futures contracts and options thereon as
set forth in (2) below;
(2) purchase or sell commodities or commodity
contracts; except that the Portfolios may (i) enter
into financial (including currency) futures contracts
and options thereon on an initial and variation
margin basis;
(3) purchase the securities of any issuer if, as a
result, more than 25% of the value of the Portfolio's
total assets would be invested in the securities of
issuers having their principal business activities in
the same industry;
(4) make loans, although a Portfolio may enter
into repurchase agreements and lend its portfolio
securities;
(5) as to 75% of its total assets, purchase the
securities of an issuer if as a result: (a) more than
5% of the value of the Portfolio's assets would be
invested in the securities of that issuer or (b) it
would own more than 10% of the voting securities
of that issuer;
(6) purchase or sell real estate although it may
purchase securities secured by real estate or
representing interests therein;
(7) issue senior securities;
(8) underwrite securities issued by other persons,
except to the extent that a Portfolio or the Fund may
be deemed to be an underwriter within the meaning
of the Securities Act of 1993 in connection with the
purchase and sale of securities in the ordinary
course of pursuing its investment program.
OPERATING POLICIES
The following operating policies have been
established by the Board of Directors. A Portfolio
will not:
(1) invest in companies for the purpose of
exercising management or control;
(2) purchase a security if, as a result of such
purchase, more than 15% of the value of the
Portfolio's net assets would be invested in illiquid
securities, including repurchase agreements which
do not provide for payment within seven days;
(3) purchase securities of any investment
company, except in compliance with the Investment
Company Act of 1940; or
(4) sell securities short.
Operating policies are established, and may be
changed, by the Board of Directors without
approval of shareholders.
In determining the appropriate distribution of
investments among various countries and
geographic regions, the Advisor ordinarily
considers the following factors: prospects for
relative economic growth between foreign
countries; expected levels of inflation; government
policies influencing business conditions; the
outlook for currency relationships; and the range of
individual investment opportunities available to
international investors.
In analyzing companies for investment in the
Global Equity Portfolio, the Advisor ordinarily
looks for one or more of the following
characteristics: an above-average earnings growth
per share; high return on invested capital, healthy
balance sheet; sound financial and accounting
policies and overall financial strength; strong
competitive advantages; effective research and
product development and marketing; efficient
service; pricing flexibility; strength of management;
and general operating characteristics which will
enable the companies to compete successfully in
their market place. While current dividend income
is not a prerequisite in the selection of companies,
the companies in which the Portfolio invests
normally will have a record of paying dividends,
which the Advisor expects to increase in future
years as earnings increase.
The Global Equity Portfolio invests principally in
common stocks of liquid, relatively high-
capitalization companies in the major industrialized
countries which, the Advisor believes, have the
potential for growth of capital or income or both.
The Portfolio may invest in American Depository
Receipts and Global Depository Receipts for which
there is, in the Advisor's judgment, a liquid market.
In order to increase total return, the Portfolio may
invest up to 25% of its assets in other types of
securities, including warrants, that have higher
current yields, including convertible securities,
preferred stocks, bonds, notes and other debt
securities.
In analyzing investments in the Global Income
Portfolio, the Advisor will ordinarily look for a high
and sustainable real and nominal income flow. The
bonds included in the Portfolio will generally be
issued by national governments, supranational
institutions or securities of high-quality companies
with liquid markets. The Global Income Portfolio
may also invest in relatively high yielding equities
of good quality companies at times when the
Advisor believes the market price of the equity
securities is likely to be more stable than that of
debt securities. Ordinarily, most investments will be
in government debt or the debt of supranational
institutions rated at least AA by Standard & Poor's
Corporation ("S&P") or a comparable rating by
Moody's Investors Services, Inc. ("Moody's").
Ordinarily, the Portfolio will hold at least 65% of
its investments in at least three different countries,
but may invest in fixed income obligations of only
one country for temporary, defensive purposes.
Normally, the Portfolio's assets will be invested
principally in fixed income securities issued or
guaranteed by the U.S. or foreign governments,
their agencies and instrumentalities and
supranational organizations. To a lesser extent,
investments may be made in domestic and foreign
corporate obligations rated at least investment grade
(BBB), and obligations of, or guaranteed by, foreign
governments rated at least BB, or its equivalent; see
the section on "Fixed Income Securities." There
may also be circumstances when the Portfolio will
hold equities, including preferred and convertible
stocks, and relatively high yielding, high quality
common stocks, but not in excess of 40% of the
total value of the Portfolio. Such investments will
be made, if conditions seem appropriate, in order to
protect the capital value of the Portfolio while
continuing to emphasize income. This will depend
on circumstances at the time, and available
investment opportunities, and will become more
likely if interest rates are expected to increase.
Allocation decisions will depend on the level of
interest rates available in different countries,
relative interest rates within the country, i.e., the
yield curve, the expected change in interest rates
and the outlook for exchange rates. These
conditions will depend on, among other things,
fiscal policy, monetary policy, the balance of
payments, inflation and the growth rate of the
economy. Country allocations, sector and asset
selections, as well as duration and maturity
decisions will be based on the Advisor's continuing
research of economic, financial and political
developments in the major industrialized countries.
Portfolio holdings will be widely diversified. The
Portfolios may invest in securities of companies and
governments in the Far East, Western Europe, South
Africa, Australia, Canada, as well as the U.S. and
other areas. The Global Equity and Global Income
Portfolios do not intend to invest more than 10% of
the value of their total assets in securities of
governments or companies in developing countries.
The investment objectives of the Portfolios may not
be changed without shareholder approval.
The Global Equity and Global Income Portfolios
are managed in accordance with the concept that
broad diversification across individual assets,
sectors, asset types, countries and time, applied
consistently according to quantitative forecasts of
changing business cycle conditions in the United
States and other countries, can reduce risk and
increase returns. Asset selection is based, in part, on
the Advisor's view of the business cycle, not only in
a single country but within all the major economies.
Considerations that the Advisor believes are crucial
to rational asset allocation include: the expected
direction of interest rates, including movements in
the yield curve, the anticipated direction of
exchange rates, the perceived direction of economic
activity and corporate profitability, inflation and
inflationary expectations, central bank policies,
taxes, other fiscal policies as well as money and
credit growth.
FIXED INCOME SECURITIES
Both Portfolios may invest in fixed-income
securities of the types described below, having
intermediate and long maturities. Ratings are
determined at the time of purchase and the
Portfolios are not obligated to sell securities in the
event of a subsequent rating reduction.
The Portfolios may invest in debt securities issued
by the U.S. Treasury, including bills, notes and
bonds, U.S. Government Agency Obligations issued
or guaranteed by U.S. government-sponsored
instrumentalities and federal agencies, debt
securities issued by foreign governments and
supranational organizations, such as the European
Coal and Steel Community, the European Economic
Community and the World Bank rated at least AA
by S&P or a comparable rating by Moody's. In
addition, the Portfolios may invest in U.S. and
foreign corporate debt securities, including banks
(e.g., bonds and debentures) which are rated at least
Baa by Moody's or BBB by S&P or, if unrated,
when the Advisor determines that they are of
comparable quality to similar issues of the same
issuer rated at least BBB or Baa. The Portfolios may
also invest in debt securities issued, or guaranteed,
by governments if they are rated at least Ba by
Moody's or BB by S&P and the Fund's manager
considers the risk/return to be acceptable. Debt
securities rated Ba or BB may have some
speculative characteristics.
WRITING LISTED COVERED CALL OPTIONS
The Portfolios may write (sell) listed (exchange
traded) covered call options and purchase listed
options to close out options previously written. In
writing covered call options, a Portfolio would
expect to generate premium income, which should
serve to enhance the Portfolio's total return and
reduce the effect of any price decline of the
optioned security or currency. Covered call options
will generally be written on securities or currencies
which, in the Advisor's opinion, are not expected to
experience any major price increases in the near
future but which, over the long term, are deemed to
be attractive investments.
A call option gives the buyer the right to purchase
a security or currency at a specified price (the
exercise price), at expiration of the option
(European options) or at any time until the
expiration date of the option (American options). As
long as the obligation of the writer of a call option
continues, the buyer may require the seller to
deliver the underlying security or currency against
payment of the exercise price. This obligation
terminates upon the expiration of the option, or such
earlier time when the writer effects a closing
transaction by purchasing an identical option. To
secure the obligation to deliver the underlying
security or currency, the option seller must deposit
in escrow the underlying security or currency or
other assets in accordance with the rules of the
clearing corporation. The Portfolio will sell covered
call options, only. This means that the Portfolio will
own the security or currency subject to the option,
or an option to purchase the same underlying
security or currency, having an exercise price equal
to or less than the exercise price of the option it has
sold, or will establish and maintain with its
custodian for the term of the option, a segregated
account consisting of cash, U.S. government
securities or other liquid, high-grade debt
obligations having a value equal to the market value
of the optioned securities or currencies, and marked
to market daily. A Portfolio will not write a covered
call option if, as a result, the aggregate market value
of all optioned portfolio securities or currencies and
put option obligations exceeds 25% of the market
value of the Portfolio's net assets.
Portfolio securities or currencies on which call
options may be written will be purchased solely on
the basis of investment considerations consistent
with the Portfolios' investment objectives. The
Advisor believes writing covered call options is a
conservative investment technique involving
relatively little risk (in contrast to writing uncovered
options), but capable of enhancing a Portfolio's
total return. When writing a covered call option, the
Portfolio, in return for the premium, gives up the
opportunity for profit from a price increase of the
optioned security or currency above the exercise
price, but conversely retains the risk of loss should
the price of the security or currency decline. If a call
option which the Fund has written expires, the Fund
will realize income in the amount of the premium. If
the call option is exercised, the Fund will realize a
gain or loss from the sale of the underlying security
or currency.
The premium received is the market value of an
option. This value is established by market factors
and ordinarily fluctuates from day to day. In
determining whether a particular call option should
be written on a particular security or currency, the
Advisor will consider the reasonableness of the
anticipated premium and the likelihood that a liquid
secondary market will exist for the option.
Closing transactions will be effected in order to
realize a profit on an outstanding call option, to
prevent an underlying security or currency from
being called, to permit the sale of the underlying
security or currency, or to permit the Portfolio to
write another call option on the underlying security
or currency with either a different exercise price or
expiration date or both. There is, of course, no
assurance that a Portfolio will be able to effect such
closing transactions at favorable prices. If the
Portfolio cannot enter into such a transaction, it may
be required to hold a security or currency that it
might otherwise have sold.
Call options written by a Portfolio will normally
have expiration dates of less than nine months from
the date written. From time to time, a Portfolio may
purchase an underlying security or currency for
delivery in accordance with an exercise notice of a
call option assigned to it, rather than delivering such
security or currency from its portfolio. In such
cases, additional costs may be incurred.
A Portfolio will realize a profit or loss from a
closing purchase transaction depending on whether
the cost of the transaction is less or more than the
premium received from writing the option. Because
increases in the market price of a call option will
generally reflect increases in the market price of the
underlying security or currency, 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 or currency owned by the Fund.
PURCHASING LISTED CALL OPTIONS
The Portfolios may purchase listed call options.
As the holder of a call option, the Portfolio has the
right to purchase the underlying security or
currency, at the exercise price, at any time during
the option period (American option) or at the
expiration date of the option (European option). The
Portfolio may enter into closing sale transactions
with respect to such options, exercise them or
permit them to expire. Call options may be
purchased for the purpose of increasing current
return, to avoid tax consequences which might
reduce its current return, or to acquire the optioned
securities or currencies.
The purchase of a call option enables the Portfolio
to acquire the optioned securities or currencies at
the exercise price of the call option plus the
premium paid. At times the net cost of acquiring
securities or currencies in this manner may be less
than the cost of acquiring the securities or
currencies directly. This technique may also enable
a Portfolio to purchase a large block of securities or
currencies that would be difficult to acquire by
direct market purchases. So long as it holds such a
call option rather than the underlying security or
currency itself, the Fund is partially protected from
any unexpected decline in the market price of the
underlying security or currency and in such event
could allow the call option to expire, incurring a
loss only to the extent of the premium paid for the
option and transaction costs.
A Portfolio may also purchase call options on
securities or currencies it owns in order to protect
unrealized gains on call options previously written
by it. A call option would be purchased for this
purpose where tax considerations make it
inadvisable to realize such gains through a closing
purchase transaction. Call options may also be
purchased at times to avoid realizing losses.
Purchasing call options entails the risk that the price
of the optioned securities will not exceed the
exercise price of the option in which case the option
will expire without value.
PURCHASING LISTED PUT OPTIONS
The Portfolios may purchase listed put options.
As the holder of a put option, the Portfolio has the
right to sell the optioned security or currency at the
exercise price at any time during the option period.
A Portfolio may enter into closing sale transactions
with respect to such options, exercise them or
permit them to expire. A Portfolio may purchase put
options for defensive purposes in order to protect
against an anticipated decline in the value of its
securities or currencies. Such an option would
permit the Portfolio to sell the optioned security or
currency at the exercise price regardless of any
decline in the value of the security or currency. For
example, a put option may be purchased in order to
protect unrealized appreciation of a security or
currency where the Advisor deems it desirable to
continue to hold the security or currency because of
tax considerations. The premium paid for the put
option and any transaction costs would reduce any
capital gain otherwise available for distribution
when the security or currency is eventually sold.
A Portfolio may also purchase put options when it
does not own the optioned security or currency. By
purchasing put options on a security or currency it
does not own, the Fund seeks to benefit from a
decline in the market price of the underlying
security or currency. If the put option is not sold
when it has remaining value, and if the market price
of the underlying security or currency remains equal
to or greater than the exercise price during the life
of the put option, the Fund will lose its entire
investment in the put option. In order for the
purchase of a put option to be profitable, the market
price of the underlying security or currency must
decline sufficiently below the exercise price to
cover the premium and transaction costs, unless the
put option is sold in a closing sale transaction, in
which case the Portfolio's profit or loss on the
transaction will depend on whether the price it paid
for the option exceeds the price it received on its
sale (plus transaction costs).
DEALER OPTIONS
The Portfolios may also buy and sell dealer
options. Certain risks are specific to these options.
While the Portfolio looks to a clearing corporation
to exercise listed options, if a Portfolio were to
purchase a dealer option, it would rely on the dealer
from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so
would result in the loss of the premium paid by the
Portfolio, as well as loss of the expected benefit of
the transaction.
Listed options generally have a continuous liquid
market while dealer options have none.
Consequently, a Portfolio will generally be able to
realize the value of a dealer option it has purchased
only by exercising it or reselling it to the dealer who
issued it. Similarly, when a Portfolio writes a dealer
option, it generally will be able to close out the
option prior to its expiration only by entering into a
closing purchase transaction with the dealer to
which the Portfolio sold the option. While the
Portfolio will seek to enter into dealer options only
with dealers who will agree, and which the Advisor
believes, will be capable of entering into closing
transactions, there can be no assurance that a
Portfolio will be able to liquidate a dealer option at
a favorable price at any time prior to expiration.
Until the Portfolio, as a covered dealer call option
writer, is able to effect a closing purchase
transaction, it will not be able to liquidate the option
securities or currency until the option expires or is
exercised. In the event of insolvency of the contra
party, the Portfolio may be unable to liquidate a
dealer option. The inability to enter into a closing
transaction may result in material losses to a
Portfolio.
Dealer options and the assets used to secure dealer
options currently are considered illiquid securities.
Accordingly, dealer options will be subject to the
Portfolios' restriction that not more than 15% of the
value of a Portfolio's assets may be invested in
illiquid securities.
FUTURES CONTRACTS
The Portfolios may enter into financial futures
contracts, including stock index, interest rate and
currency futures. Futures contracts provide for the
future sale by one party and purchase by another
party of a specified amount of specific securities or
currencies at a specified future time and at a
specified price. Financial futures contracts which
are standardized as to maturity date and the
underlying financial instruments are traded on
national futures exchanges, and include futures
contracts on equity securities, debt securities and
foreign currencies. The Portfolios will only buy and
sell standardized contracts.
Securities index futures contracts may be used to
provide a hedge for a portion of a Portfolio's, as a
cash management tool, or as an efficient way for the
Advisor to implement either an increase or decrease
in portfolio market exposure in response to
changing market conditions. A Portfolio may
purchase or sell securities index futures with respect
to any securities index whose movements are
expected by the Advisor to have a significant
correlation with movements in the prices of all or
portions of the Portfolio's securities.
Interest rate or currency futures contracts may be
used as a hedge against changes in prevailing levels
of interest rates or currency exchange rates in order
to establish more definitely the effective return on
securities or currencies held or intended to be
acquired by the Portfolio or protect the Portfolio
from effects of currency fluctuations. In this regard,
a Portfolio might sell interest rate futures as an
offset (hedge) against the effect of expected
increases in interest rates or currency exchange rates
and purchase such futures as an offset against the
effect of expected declines in interest rates or
currency exchange rates. The Portfolios will engage
in transactions in financial futures contracts and
options thereon only for bona fide hedging, return
enhancement and risk management purposes.
Transactions in financial futures contracts, and
options thereon, will be limited so that margin on
transactions not considered hedging under the rules
of the Commodities Futures Trading Corporation
will not exceed 5% of a Portfolio's net assets. When
a Portfolio has a long position in a futures contract
or sells a put option on futures contracts or
securities, it must establish a segregated account
with its custodian bank containing cash or highly
liquid, short-term U.S. government securities in an
amount equal to the purchase price of the contract
or the strike price of the put option (less any margin
on deposit). When the Portfolio sells a call option
on a futures contract, it must establish a segregated
account with its custodian bank containing cash or
highly liquid, short-term U.S. government securities
in an amount that, when added to the amount of the
margin deposit, equals the market value of the
instruments underlying the call option (but are not
less than the strike price of the call option).
Successful use of futures contracts for hedging
purposes is subject to the Advisor's ability to
correctly predict movements in the direction of the
market. It is possible that, when a Portfolio has sold
futures to hedge its portfolio against a decline in a
market, the index or indices, securities or currencies
on which the futures are written might advance and
the value of securities or currencies held in the
Portfolio might decline. If this were to occur, the
Portfolio would lose money on the futures and also
would experience a decline in value in its portfolio
securities or currencies. However, while this might
occur to a certain degree, the Advisor believes that
over time the value of the Portfolio's investments
will tend to move in the same direction as the
securities or currencies underlying the futures,
which are intended to correlate to the price
movements of the portfolio securities or currencies
sought to be hedged. It is also possible that if a
Portfolio were to hedge against the possibility of a
decline in the market (adversely affecting securities
or currencies held in its portfolio) and prices instead
increased, the Portfolio would lose part or all of the
benefit of increased value of those securities or
currencies that it has hedged, because it would have
offsetting losses in its futures positions. In addition,
in such situations, if the Portfolio had insufficient
cash, it might have to sell securities or currencies to
meet daily variation margin requirements. Such
sales of securities or currencies might be, but would
not necessarily be, at increased prices (which would
reflect the rising market). A Portfolio might have to
sell securities or currencies at a time when it would
be disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all,
between price movements in the futures contracts
and the portion of the portfolio being hedged, the
price movements of futures contracts might not
correlate perfectly with price movements in the
underlying stock index, security or currency due to
market distortions. All participants in the futures
market are subject to margin deposit and
maintenance requirements. Rather than meeting
additional margin deposit requirements, investors
might close futures contracts through offsetting
transactions which could distort the normal
relationship between the underlying instruments and
futures markets. Also, the margin requirements in
the futures market are less than margin requirements
in the securities markets; as a result the futures
market might attract more speculators than the
securities markets do. Increased participation by
speculators in the futures market might also cause
temporary price distortions. Due to the possibility of
price distortion in the futures market and also
because of the imperfect correlation between price
movements in the underlying instruments and
movements in the prices of futures contracts, even a
correct forecast of general market trends by the
Advisor might not result in a successful hedging
transaction over a very short time period.
LENDING PORTFOLIO SECURITIES
For the purpose of realizing additional income,
each Portfolio may make loans of securities
amounting to not more than 33% of its total assets.
Securities loans would be made to broker-dealers
and financial institutions pursuant to agreements
requiring the loans to be secured by collateral at
least equal to the current value of the securities lent
and "marked-to-market" on a daily basis. Collateral
will consist of cash, U.S. or foreign securities,
letters of credit or cash equivalents. While the
securities are being lent, the Portfolio will continue
to receive the equivalent of the interest or dividends
paid by the issuer of the securities, as well as
interest on the investment of the collateral or a fee
from the borrower. The Portfolio has a right to call a
loan at any time. The Portfolio will not have the
right to vote securities while they are on loan, but it
will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as
with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will only be made after analysis
of the pertinent facts by the Advisor when, in the
judgment of the Advisor, the income from such
loans would justify the risk.
REPURCHASE AGREEMENTS
The Portfolios may enter into repurchase
agreements with banks or broker-dealers. Under the
Investment Company Act of 1940, repurchase
agreements are considered collaterized loans by the
Portfolio to the seller, secured by the securities
transferred to the Portfolio. Repurchase agreements
will be fully collateralized by securities in which the
Portfolios are authorized to invest. Such collateral
will be marked-to-market daily. If the seller of the
underlying security under the repurchase agreement
should default on its obligation to repurchase the
underlying security, the Portfolio might experience
delay or difficulty in recovering its cash. If, in the
meantime, the value of the collateral had decreased,
the Portfolio could experience a loss. The Fund
considers repurchase agreements having a maturity
of more than 7 days to be illiquid securities and they
are subject to the Fund's policy that a Portfolio may
not invest more than 15% of its net assets in illiquid
securities.
FOREIGN CURRENCY TRANSACTIONS
The Portfolios may engage in forward foreign
currency transactions to settle foreign securities
transactions and/or manage foreign currency risk. A
forward foreign currency exchange contract
involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed
number of days from the date of the contract is
agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally
traded in the interbank market conducted directly
between currency traders (usually large, commercial
banks) and their customers. A forward contract
generally has no deposit requirement, and no
commissions are charged for trades.
The Portfolios will generally enter into forward
foreign currency exchange contracts in two
circumstances. First, when a Portfolio enters into a
contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to
lock in the U.S. dollar price of the security, by
entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security
transactions. The Portfolio will be able to protect
itself against a loss resulting from an adverse
change in the relationship between the U.S. dollar
and the foreign currency during the period between
the date the security is purchased or sold and the
date on which payment is made or received.
Second, when the Advisor believes that the
currency of a particular foreign country may suffer
from, or enjoy, a substantial movement against
another currency, it may enter into a forward
contract to sell or buy the amount of one or more
foreign currencies, approximating the value of some
or all of a Portfolio's portfolio securities
denominated in that foreign currency. Alternatively,
where appropriate, a Portfolio may hedge all or part
of its foreign currency exposure through the use of a
basket of currencies or a proxy currency where such
currencies or currency, in the Advisor's judgment,
act as an effective proxy for the Portfolio's currency
exposure. The prediction of short-term currency
market movement is extremely difficult, and the
successful execution of a short term hedging
strategy is highly uncertain. The Advisor will
consider the effect a substantial commitment of
Portfolio assets to forward contracts would have on
the investment program of the Portfolio and the
flexibility of the Portfolio to purchase additional
securities. Other than as set forth above, and
immediately below, a Portfolio also will not enter
into forward contracts or maintain a net exposure to
such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of
the Portfolio's securities or other assets
denominated in that currency. A Portfolio, however,
in order to avoid excess transactions and transaction
costs, may maintain a net exposure to forward
contracts in excess of the value of the Portfolio's
securities or other assets denominated in that
currency provided the excess amount is covered by
liquid, high-grade debt securities, denominated in
any currency, at least equal at all times to the
amount of such excess. Under normal
circumstances, consideration of the prospects for
currencies will be incorporated into the longer term
investment decisions made with regard to overall
diversification strategies. However, the Advisor
believes that it is important to have the flexibility to
enter into such forward contracts when it determines
that the best interests of the Portfolio will be served.
INVESTMENT PERFORMANCE
Total Return
The annual return of the Fund for the latest
fiscal year ending October 31, 1997 was
Global Equity Portfolio -3.18%
Global Income Portfolio 9.15%
The annualized total return of the Fund for the
period beginning November 8, 1995 and ending
October 31, 1998 was as follows:
Global Equity Portfolio 6.90%
Global Income Portfolio 7.78%
The Portfolios compute their average annual total
return by determining the average annual
compounded rate of return during specified periods
that equates the initial amount invested to the
ending redeemable value of such investment. This is
done by dividing the ending redeemable value of
the hypothetical $1,000 initial payment by $1,000
and taking the root of the quotient equal to the
number of years (or fractional portion thereof)
covered by the computation and subtracting one
from the result. Average annual total return figures
are determined in accordance with standard SEC
requirements. The Portfolios compute their
aggregate total return by determining the aggregate
compounded rate of return during a specified period
that likewise equates the initial amount invested to
the ending redeemable value of such investment.
The calculations of average annual total and
aggregate total return assume the reinvestment of all
dividends and capital gain distributions on the
reinvestment dates during the period and the
deduction of all recurring charges. The ending
redeemable value is determined by assuming
complete redemption of the hypothetical investment
and the deduction of all non-recurring charges at the
end of the period covered by the computations.
Yield
The 30 day yield as of October 31, 1998, of
the Global Income Portfolio was as follows:
Global Income Portfolio 4.92%
The yield of the Portfolio may be calculated by
dividing the net investment income per share earned
by the Portfolio during a 30 day (or one month)
period by the net asset value per share on the last
day of the period and annualizing the result on a
semi-annual basis. The Portfolio's net investment
income per share earned during the period is based
on the average daily number of shares outstanding
during the period entitled to receive dividends and
includes dividends and interest earned during the
period minus expenses accrued for the period, net of
reimbursements.
MANAGEMENT OF THE FUND
The Fund is governed by a Board of Directors
which is responsible for protecting the interests of
shareholders. The Directors are experienced persons
who meet throughout the year to oversee the Fund's
activities, review contractual arrangements with
companies that provide services to the Fund, and
review performance.
The officers and directors of the Fund are listed
below. Unless otherwise noted, the address of each
is 30 Valley Stream Parkway, Great Valley
Corporate Center, Malvern, Pennsylvania 19355.
Richard T. Coghlan, Ph.D.* Age 54. President and Chairman of
the Board of Directors. President,
Penn Street Advisors, Inc. Also,
President, director and controlling
stockholder of the Distributor.
Howard W. Gross Age 68. Director. Business Consultant,
West Palm Beach, Florida. Previously,
Executive Vice President, Henkel Corp.
Stephen Michael Alexander Age 48. Director. Chief Executive
Officer, IHI Alchen, Inc., Bryn Mawr,
Pennsylvania.
Lee G. Fishman Age 44. Director. President, BPM Group,
Inc., Merion Station, Pennsylvania.
Josephine Coghlan** Age 23. Portfolio Manager and Treasurer.
Jan Gill Age 41. Secretary.
* Mr. Coghlan is an "interested" director of the
Fund, under the Investment Company Act of
1940, by reason of being affiliated with the
Advisor.
** Josephine Coghlan, Treasurer to the Fund, is the
daughter of Richard T. Coghlan
Total
Pension or Estimated Compensation
Aggregate Retirement Annual From Registrant
Name of Compensation Benefits Accrued Benefits and Fund
Person, From Registrant as Part of Upon Complex Paid to
Position (Director's Fee) Fund expenses Retirement Directors
Richard T. Coghlan, -0- -0- -0- -0-
President and Director
Howard W. Gross, $2,000 -0- -0- $2,000
Director
Stephen Michael $2,000 -0- -0- $2,000
Alexander,
Director
Lee G. Fishman, $2,000 -0- -0- $2,000
Director
The Fund pays directors, except Mr. Coghlan, fees
of $2,000 per year, as shown above, plus
reimbursement of expenses of attending meetings of
the Board.
INVESTMENT MANAGEMENT SERVICES
Under the Management Agreements with the
Fund, the Advisor is responsible for supervising and
directing the investments of the Portfolios in
accordance with the Portfolio's investment
objectives, policies and restrictions. Mr. Coghlan,
President of the Advisor, is also responsible for
placing all security transactions of the Portfolios,
and negotiation of commissions where possible.
In transactions on U.S. stock exchanges,
commissions are negotiated. Traditionally,
commission rates have generally not been
negotiated on foreign stock markets. In recent years,
however, an increasing number of foreign stock
markets have adopted systems of negotiated rates,
although a number of markets continue to operate
with schedules of minimum commission rates. In
the case of securities traded in the over-the-counter
markets, there is generally no stated commission,
but the security price usually includes a markup. In
underwritten offerings, the price includes a
disclosed, fixed commission.
It is expected that securities will ordinarily be
purchased in the primary markets for the securities,
whether over-the-counter or listed, and that listed
securities may be purchased in the over-the-counter
market if such market is deemed, by the Advisor,
the primary market.
In purchasing and selling portfolio securities, the
Advisor seeks to obtain quality execution at the
most favorable prices through responsible broker-
dealers and, in the case of agency transactions, at
competitive commission rates. Commission rates
are checked for competitiveness by reference to
rates paid by other institutional investors similar to
the Fund. The Advisor will consider such factors as
the price of the security, the rate of the commission,
the size and difficulty of the order, the reliability,
integrity, financial condition, general execution and
operational capabilities of competing broker-
dealers, and the brokerage and research services
they provide to the Advisor or the Fund.
The Advisor may cause the Fund to pay a broker-
dealer who furnishes brokerage and/or research
services a commission for executing a transaction
that is in excess of the commission another broker
would have charged for executing the transaction if
the Advisor determines in good faith that the
commission is reasonable in relation to the value of
the brokerage or research services provided. The
Advisor may effect principal transactions on behalf
of the Portfolios with dealers who furnish research
services and designate any such dealer to receive
selling concessions, discounts or other allowances
in connection with the acquisition of securities in
underwritings.
The Advisor receives a wide range of research
services from brokers and dealers covering
investment opportunities throughout the world,
including information on economies, industries,
groups of securities, individual companies,
statistics, political developments, technical market
action, pricing and appraisal services, and
performance analyses of all the countries in which
the Portfolios are likely to invest. Each year, the
Advisor assesses the contribution of the brokerage
and research services provided by broker-dealers,
and allocates a portion of the brokerage business of
its clients, including the Fund, on the basis of these
assessments. In no instance is a broker or dealer
excluded from receiving business because it has not
been identified as providing research services. The
amounts of commissions for each Portfolio were
$25,801 for the fiscal year ending 1998, $48,906 for
the fiscal year ending 1996 and $30,232 for the
fiscal year ending 1997 for the Global Equity
Portfolio and $1,475 for the fiscal year ending 1998,
$3,485 for the fiscal year ending 1996 and $616 for
the fiscal year ending 1997 for the Global Income
Portfolio.
The Investment Management Agreements
between the Advisor and the Fund became effective
on November 7, 1998, pursuant to shareholder
approval. The agreements require the Advisor to
provide the Portfolios with a continuous review of
and recommendations regarding investment of their
assets. The agreements continue in full force until
November 6th, 2000 and may be continued
thereafter from year to year if renewed annually by
a majority vote of the Board of Directors of the
Fund, or by a vote of the holders of a majority of the
outstanding voting securities of the Portfolios, but
in either case, in order to effect any such
continuance the terms of the agreement must also be
approved by a majority vote, cast in person, of those
Fund Directors who are not parties to the agreement
or interested persons of any such party, as defined
by the Investment Company Act of 1940, at a
meeting called for the purpose of considering the
approval of the agreement. The agreement
terminates automatically if it is transferred or
assigned by either party, which would include a
change of control of the Advisor, and may be
terminated by either party without penalty on 60
days written notice. The total amounts paid to the
Advisor by the Fund under the investment advisory
agreements for the period ending October 31, 1996
(since inception) was $240,174, for the fiscal year
ending October 31, 1997 was $250,734 and for the
fiscal year ending October 31, 1998 was $75,745
for the Global Equity Portfolio and $111,282 for the
fiscal year ending 1996, $106,170 for the fiscal year
ending 1997 and $161,923 for the fiscal year ending
1998 for the Global Income Portfolio.
The advisor also serves as the Administrator and
Transfer Agent of the Fund under an Administration
Agreement and Transfer Agent 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. The total
amounts paid to the advisor for these services were
$91,863 for the fiscal year ending 1996, $95,451 for
the fiscal year ending October 31, 1997 and $32,361
for the fiscal year ending 1998 for the Global Equity
Portfolio and $46,167 for the fiscal year ending
1996, $45,044 for the fiscal year ending 1997 and
$68,062 for the year ending 1998 for the Global
Income Portfolio.
SALE OF FUND SHARES
The Fund makes a continuous offering of its
shares, but retains the right to reject any offer to
purchase its shares.
The net asset value per share of each Portfolio is
calculated as of the close of trading on the NYSE on
each day the NYSE is open for trading. The NYSE
is closed on the following days: New Year's Day,
Martin Luther King, Jr. Day, Washington's
Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day, and the Fund does not accept
purchase or redemption orders on these days.
Trading in securities owned by the Portfolios may
take place in various foreign markets on days (such
as Saturday) when the Fund is not open for business
and does not calculate the net asset value of the
Portfolios. Events affecting the values of foreign
portfolio securities that occur after the markets for
these securities are closed but before the time the
Portfolios' net asset values are calculated will not
be reflected in the Portfolios' net asset values unless
the Advisor, in accordance with policies adopted by
the Board of Directors, determines that the
particular event should be taken into account in
computing the Portfolio's net asset value, in which
case the affected securities would be valued in good
faith, at fair value.
Determination of net asset value (and the offering
and redemption price of shares) of the Portfolios
may be suspended when (a) the NYSE is closed,
other than customary weekend and holiday closings,
(b) trading on the NYSE is restricted (c) an
emergency exists as a result of which disposal of
securities owned by a Portfolio is not reasonably
practicable or it is not reasonably practicable for the
Portfolio fairly to determine the value of its net
assets, or (d) when the SEC may, by order, permit
for the protection of a Portfolio's shareholders.
DISTRIBUTION
The Board of Directors of the Fund and
stockholders of each Portfolio approved a
Distribution Plan in accordance with Rule 12b-1
under the Investment Company Act of 1940 (the
"Plan") which provides for payment by each
Portfolio of expenses related to the distribution of
Fund shares and shareholder services. Under the
Plan each Portfolio is authorized to make monthly
payments of 1/48th of 1% of the net asset value of
the Portfolio (.25% on an annual basis) based on the
net asset value of the Portfolio. Payments made to
East Coast Consultants, Inc. as compensation to the
underwriter, for the period ending October 31, 1997
were $5,210 for the Global Equity Portfolio and
$708 for the Global Income Portfolio.
The Plan remains in effect until October 31, 1999
and may be continued for one year terms if
approved at least annually by a majority vote, cast
in person, of both the Board of Directors and
Disinterested Directors of the Fund, at a meeting
called for the purpose of voting on the Plan. The
Plan may be terminated at any time, without
penalty, by a vote of a majority of the Fund's
disinterested directors, or by vote of a majority of
the outstanding voting securities of the Portfolios.
The Plan terminates automatically in the event of an
"assignment" of the Plan as defined in section
2(a)(4) of the Investment Company Act of 1940.
Also while the Plan remains in effect the
nomination of the Disinterested Directors of the
Fund is committed to the discretion of such
Directors.
The Board of Directors believe there is a
reasonable likelihood that the Plan will benefit the
Portfolios and their shareholders by promoting the
sale of shares and encouraging the retention of
shares by holders. The benefits that would accrue to
the Portfolios by an increase in the level of sales of
shares are an enhanced ability to expand investment
opportunities with increased cash and certain costs
of operation would be decreased in proportion to the
size of the Portfolio.
TAX STATUS
Each Portfolio intends to qualify as a "regulated
investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended
("Code"). In order to so qualify, a Portfolio must,
among other things, (i) derive at least 90% of its
gross income from dividends, interest, payments
with respect to certain securities loans, gains from
the sale of securities or foreign currencies, or other
income (including but not limited to gains from
options, futures or forward contracts) derived with
respect to its business of investing in such stock,
securities or currencies; (ii) distribute at least 90%
of its dividend, interest and certain other taxable
income each year; and (iii) at the end of each fiscal
quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of
other regulated investment companies and other
securities of issuers which represent, with respect to
each issuer, no more than 5% of the value of a
Portfolio's total assets and 10% of the outstanding
voting securities of such issuer, and with no more
than 25% of its assets invested in the securities
(other than those of the government or other
regulated investment companies) of any one issuer
or of two or more issuers which the Portfolio
controls and which are engaged in the same, similar
or related trades and businesses.
Provided each of the Portfolios qualifies for
treatment as a regulated investment company, they
will not be subject to federal income tax on income
and net capital gains paid to shareholders in the
form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on
the excess, if any, of each Portfolio's "required
distributions" over actual distributions in any
calendar year. Generally, the "required distribution"
is 98% of a Portfolio's ordinary income for the
calendar year, plus 98% of its capital gain net
income recognized during the one-year period
ending on October 31, plus undistributed amounts
from prior years. The Portfolios intend to make
distributions sufficient to avoid imposition of the
excise tax. Distributions declared by the Funds
during October, November or December to
shareholders of record during such month and paid
by January 31 of the following year will be taxable
to shareholders in the calendar year in which they
are declared, rather than the calendar year in which
they are received.
Gains or losses attributable to fluctuations in
exchange rates which occur between the time a
Portfolio accrues interest or other receivables or
accrues expenses or liabilities denominated in a
foreign currency and the time the Portfolio actually
collects such receivables, or pays such liabilities,
are generally treated as ordinary income or loss.
Similarly, a portion of the gains or losses realized
on disposition of debt securities denominated in a
foreign currency may also be treated as ordinary
gain or loss. These gains, referred to under the Code
as "Section 988" gains or losses, may increase or
decrease the amount of a Portfolio's investment
company taxable income to be distributed to its
shareholders, rather than increasing or decreasing
the amount of the Portfolio's capital gains or losses.
When a Portfolio writes a call, or purchases a put
option, an amount equal to the premium received or
paid by it is included in the Portfolio's assets and
liabilities as an asset and as an equivalent liability.
In writing a call, the amount of the liability is
subsequently "marked-to-market" to reflect the
current market value of the option written. The
current market value of a written option is the last
sale price on the principal Exchange on which such
option is traded or, in the absence of a sale, the
mean between the last bid and asked prices. If an
option which a Portfolio has written expires on its
stipulated expiration date, the Portfolio recognizes a
short-term capital gain. If a Portfolio enters into a
closing purchase transaction with respect to an
option which the Portfolio has written, the Portfolio
realizes a short-term gain (or loss if the cost of the
closing transaction exceeds the premium received
when the option was sold) without regard to any
unrealized gain or loss on the underlying security,
and the liability related to such option is
extinguished. If a call option which a Fund has
written is exercised, the Portfolio realizes a capital
gain or loss from the sale of the underlying security
and the proceeds from such sale are increased by the
premium originally received.
The premium paid by a Portfolio for the purchase
of a put option is recorded in the Portfolio's
statement of assets and liabilities as an investment
and is subsequently adjusted daily to the current
market value of the option. For example, if the
current market value of the option exceeds the
premium paid, the excess would be unrealized
appreciation and, conversely, if the premium
exceeds the current market value, such excess
would be unrealized depreciation. The current
market value of a listed option is the last sale price
on the principal Exchange on which such option is
traded or, in the absence of a sale, the mean between
the last bid and asked prices. If an option which a
Portfolio has purchased expires on the stipulated
expiration date, the Portfolio realizes a capital loss
for federal income tax purposes equal to the cost of
the option. If a Portfolio exercises a put option, it
realizes a capital gain or loss (long-term or short-
term, depending on the holding period of the
underlying security) from the sale which will be
decreased by the premium originally paid.
The amount of any realized gain or loss on closing
out an option on an index future will result in a
realized gain or loss for tax purposes. Such options
held by a Portfolio at the end of each fiscal year on
a broad-based stock index will be required to be
"marked-to-market" for federal income tax
purposes. Sixty percent of any net gain or loss
recognized on such deemed sales or on any actual
sales will be treated as long-term capital gain or loss
and the remainder will be treated as short-term
capital gain or loss. Certain options, futures
contracts and options on futures contracts utilized
by the Portfolios will be "Section 1256 contracts."
Any gains or losses on Section 1256 contracts held
by a Portfolio at the end of each taxable year (and
on October 31 of each year for purposes of the 4%
excise tax) are "marked-to-market" with the result
that unrealized gains or losses are treated as though
they were realized and the resulting gain or loss is
treated as a 60/40 gain or loss.
Dividends eligible for designation under the
dividends received deduction and paid by a
Portfolio will qualify in part for the 70% dividends
received deduction for corporations provided, that
the Portfolio shares have been held for at least 45
days.
The Portfolios will notify shareholders each year
of the amount of dividends and distributions,
including the amount of any distribution of long-
term capital gains and the portion of its dividends
which may qualify for the 70% deduction.
It is expected that certain dividends and interest
received by the Portfolios will be subject to foreign
withholding taxes. If more than 50% in value of the
total assets of a Portfolio at the close of any taxable
year consists of stocks or securities of foreign
corporations, such fund may elect to treat any
foreign taxes paid by it as if paid by its
shareowners. The Portfolios will notify shareowners
in writing each year whether they have made the
election and the amount of foreign taxes it has
elected to have treated as paid by the shareowners.
If they make the election, its shareowners will be
required to include in gross income their
proportionate share of the amount of foreign taxes
paid by the Portfolios and will be entitled to claim
either a credit or deduction for their share of the
taxes in computing their U.S. federal income tax
subject to certain limitations. No deduction for
foreign taxes may be claimed by shareowners who
do not itemize deductions.
Generally, a credit for foreign taxes is subject to
the limitation that it may not exceed the
shareowner's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, the
source of each Portfolio's income flows through to
its shareowners. Gains from the sale of securities
will be treated as derived from U.S. sources and
certain currency fluctuation gains, including
fluctuation gains from foreign currency
denominated debt securities, receivables and
payables, will be treated income derived from U.S.
sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income
(as defined for purposes of foreign tax credit) such
as foreign source passive income received from the
respective Portfolio. Because of changes made by
the Code, shareowners may be unable to claim a
credit for the full amount of their proportionate
share of the foreign taxes paid by the Portfolios.
Shareholders may be subject to a 31%
withholding tax on the dividends, distributions and
redemption payments ("back-up withholding") if
their certified taxpayer identification number is not
on file with the Fund or if, to the Fund's knowledge,
the shareholder has furnished an incorrect number.
The foregoing is a general and abbreviated
summary of the applicable provisions of the Code
and Treasury regulations currently in effect. For the
complete provisions, reference should be made to
the pertinent Code sections and regulations. The
Code and regulations are subject to change by
legislative or administrative action at any time and
retroactively.
Shareholders are urged to consult their tax
advisors regarding specific questions as to federal,
state and local taxes as well as the application of the
foreign tax credit.
The foregoing discussion relates solely to U.S.
federal income tax law. Non-U.S. investors should
consult their tax advisors concerning the tax
consequences of ownership of shares of the Funds,
including the possibility that distributions may be
subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
PRINCIPAL SHAREHOLDERS
As of October 15, 1998 the following entities held
more than 5% of the shares of the Global Equity
Portfolio: Richard T. Coghlan (Chairman) 746 Mt.
Moro Rd., Villanova, PA 19085, with a holding of
7%, Colin Reiff Trust, 1429 Walnut St., 12th Floor,
Philadelphia, PA 19102, holding 7%, Justin Reiff
Trust, 1429 Walnut St., 12th Floor, Philadelphia, PA
19102, holding 7%, Jeffrey M. & Dominique Reiff
1429 Walnut St., 12th Floor, Philadelphia, PA
19102, holding 38%, Marilyn Day 947 Rock Creek
Road, Bryn Mawr, PA 19010, holding 7%, James
Hovey 1325 Morris Drive, Suite 201, Wayne, PA
19087, holding of 11%, and Fred Fox 76 Milita Hill
Drive, Wayne, PA 19087, holding 7%.
There were four shareholders with holdings over
5% of the Global Income Portfolio: the Geraldine
D. Fox Foundation with 8%, the Richard J. Fox
Foundation with 23%, the Institute for Bio-
Information Research with 15% and Fox Family
Partnership with 47% all at 1325 Morris Drive,
Suite 203, Wayne, PA 19087.
The directors and officers of the Fund, as a group,
own less than 1% of the outstanding shares of either
Portfolio, except for Richard Coghlan who owns
7% of the Equity Portfolio. The Fox Family
Partnership and the Richard J. Fox Foundation have
enough votes to control the policies of the Income
Portfolio whose shares they own and to elect the
board of directors.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation.
(1) Articles of Incorporation of Navigator
Fund, Inc.(the "Registrant") are incorporated herein by
reference to Post-Effective Amendment No. 3/4 to the
Registrant's Registration Statementon Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically
with the Securities and Exchange Commission (the "Commission")
via its EDGAR system on February 28, 1997.
(2) Amendment to Articles of Incorporation is
incorporated herein by reference to Post-Effective
Amendment No. 3/4 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-95102 and 811-9078) as filed
electronically with the Commission via its EDGAR system on
February 28, 1997.
(b) The By-Laws of the Registrant are incorporated
herein by reference to Post-Effective Amendment No. 3/4 to
the Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically with
the Commission via its EDGAR system on February 28, 1997.
(c) Instruments Defining the Rights of Security Holders.
(1) Specimen Security of The Global Equity
Portfolio is incorporated herein by reference to Post-Effective
Amendment No. 4/5 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-95102 and 811-9078) as filed
electronically with the Commission via its EDGAR system on
January 20, 1998.
(2) Specimen Security of The Global Income
Portfolio is incorporated
herein by reference to Post-Effective Amendment No. 4/5 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically
with the Commission via its EDGAR system on January 20,
1998.
(d) Investment Advisory Contracts.
(1) Investment Advisory Agreement dated November 7,
1998 between the Registrant and Penn Street Advisors, Inc., on
behalf of the Global Equity Portfolio is filed herewith.
(2) Investment Advisory Agreement dated November 7,
1998 between the Registrant and Penn Street Advisors, Inc., on
behalf of the global Income Portfolio is filed herewith.
(e) Underwriting Contracts.
(1) Distribution Agreement between the Registrant
and East Coast Consultants, Inc. is incorporated herein by
reference to Post-Effective Amendment No. 3/4 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-95102 and
811-9078) as filed electronically with the Commission via its
EDGAR system on February 28, 1997.
(a) FORM OF Dealer Agreement with East
Coast Consultants, Inc.
is incorporated herein by reference to Post-Effective Amendment
No. 3/4 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically with
the Commission via its EDGAR system on February 28, 1997.
(f) Bonus or Profit Sharing Contracts.
None.
(g) Custodian Agreements.
(1) Custodian Agreement between the Registrant
and the with Bank of California, N.A. is incorporated herein
by reference to Post-Effective Amendment No. 3/4 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically
with the Commission via its EDGAR system on February 28, 1997.
(h) Other Material Contracts.
(1) Administration Agreements.
(a) Administration Agreement dated
June 3, 1996 between the Registrant and Strategic Investment
Services, Inc. on behalf of the Global Equity Portfolio is
incorporated herein by reference to Post-Effective Amendment
No. 3/4 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-95102 and 811-9078) as filed electronically
with the Commission via its EDGAR system on February 28,
1997.
(b) Administration Agreement dated
June 3, 1996 between the Registrant and Strategic Investment
Services, Inc. on behalf of the Global Income Portfolio Laws is
incorporated herein by reference to Post-Effective Amendment
No. 3/4 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically with the
Commission via its EDGAR system on February 28, 1997.
(2) Transfer Agency Agreement between the
Registrant and Strategic Investment Services, Inc. is incorporated
herein by reference to Post-Effective Amendment No. 3/4 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically with
the Commission via its EDGAR system on February 28, 1997.
(3) Shareholder Services Plan of the Registrant
dated July 7, 1995 is incorporated herein by reference to
Post-Effective Amendment No. 3/4 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-95102 and 811-9078) as
filed electronically with the Commission via its EDGAR system
on February 28, 1997.
(i) Legal Opinion.
Opinion of Stradley, Ronon, Stevens & Young,LLP is
incorporated herein by reference to the Registrant's Rule
24f-2 Notice, filed electronically with the Commission via
its EDGAR system on January 8, 1998.
(j) Other Opinions.
Consent of Independent Accountants is electronically filed
Herewith.
(k) Omitted Financial Statements.
Not Applicable.
(l) Initial Capital Agreements.
Subscription Agreement under Section 14(a)(3) of Investment
Company Act of 1940, as amended is incorporated herein by
reference to Post-Effective Amendment No. 3/4 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 33-95102 and 811-9078) as filed electronically
with the Commission via its EDGAR system on February 28, 1997.
(m) Rule 12-b1
(1) Distribution Plan of the Registrant is
incorporated herein by reference to Post-Effective Amendment
No. 3/4 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-95102 and 811-9078) as filed
electronically with the Commission via its EDGAR system on
February 28, 1997.
(n) Financial Data Schedules for The Global Equity
Portfolio and the Global Income Portfolio are incorporated by
reference to the Registrants' Form N-SAR, which was filed via
EDGAR on December 30, 1998.
Item 24. Persons Controlled by or Under Common Control with
the Fund. None.
Item 25. Indemnification
Section 1 of Article XI of the Registrant's
By-Laws provides for indemnification, as set forth below.
With respect to the indemnification of the
Officers and Directors of the corporation:
(a) The Corporation shall indemnify
each Officer and Director made party to a proceeding, by
reason of service in such capacity, to the fullest extent,
and in the manner provided under Section 2-418 of the
Maryland General Corporation Law: (i) unless it is proved
that the person seeking indemnification did not meet the
standard of conduct set forth in subsection (b)(1) of such
section; and (ii) provided, that the Corporation shall not
indemnify any Officer or Director for any liability to the
Corporation or its security holders arising from the willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
person's office.
(b) The provisions of clause (i) of
paragraph (a) herein notwithstanding, the Corporation
shall indemnify each Officer and Director against reasonable
expenses incurred in connection with the successful defense
of any proceeding to which such Officer or Director is a
party by reason of service in such capacity.
(c) The Corporation, in the manner and
to the extent provided by applicable law, shall advance to
each Officer and Director who is made party to a proceeding
by reason of service in such capacity the reasonable expenses
incurred by such person in connection therewith.
Item 26. Business and Other Connections of the Investment
Advisor.
Penn Street Advisors, Inc. (the "Advisor") was organized in
March, 1989. The principal place of business of the Advisor
is 30 Valley Street Parkway, Malvern, PA 19355.
The Advisor is engaged in the business of
providing investment advice and will provide registrant with
administrative and transfer agency services and does not act
as an investment advisor to any investment company other than
the Registrant.
Information as to any other business,
profession, vocation or employment of a substantial nature
that each director, officer or partner of the Advisor, is
or has been engaged within the last two fiscal years for his
own account in the capacity of director, officer, employee,
partner or trustee is incorporated herein by reference to the
Form ADV of Penn Street Advisors, Inc. (File No. 801-52231),
as last filed with the Commission.
Item 27. Principal Underwriters.
(a) The principal business of East
Coast Consultants, Inc. is to serve as the Registrants'
principal underwriter.
(b) Herewith is the information required
by the following table with respect to each director, officer
or partner of the only underwriter named in answer to Item 20
of Part B:
(1) (2) (3)
Position and Position and
Name and Principal Offices with Offices with
Business Address Underwriter Fund
Dr. Richard T. Coghlan President President
East Coast Consultants
Inc.
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
(c) Not Applicable.
Item 28. Location of Accounts and Records
Accounts and records are maintained by the
Advisor at the address set forth in response to Item 26 and
at the Custodian, located at 475 Sansome Street, San Francisco,
CA 94111.
Item 29. Management Services.
All management services are covered in the
Investment Advisory Agreements between the Registrant and
Penn Street Advisors, Inc. on behalf of each series, as discussed
in Parts A and B.
Item 30. Undertakings.
Not Applicable.
Signatures
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Fund has duly
caused this Registration Statement to be signed on its behalf of
the undersigned, duly authorized, in East Whiteland Township and
the Commonwealth of Pennsylvania, on the 7th day of January, 1999.
The Penn Street Fund, Inc.
By: /s/ Richard T. Coghlan
Richard T. Coghlan
President
Pursuant to the requirements of the Securities Act,
this registration statement has been signed below the following
persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Richard T. Coghlan President January 7, 1999
Richard T. Coghlan Principal Executive
Officer and Director
/s/ Josephine A.J. Coghlan Treasurer January 7, 1999
Josephine A.J. Coghlan
/s/ Lee G. Fishman
Lee G. Fishman Director January 7, 1999
/s/ Howard W. Gross
Howard W. Gross Director January 7, 1999
PART C
EXHIBIT LIST
EDGAR
EXHIBIT NO. EXHIBIT EXHIBIT NO.
23(d)(1) Investment Advisory Agreement for
the Global Equity Portfolio. EX-99.23(d)(1)
23(d)(2) Investment Advisory Agreement
for the Global Income Portfolio. EX-99.23(d)(2)
23(j) Consent of Independent Accountants. EX-99.23(j)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of November 1998, by and
between PENN STREET FUND, INC., a Maryland corporation
(the "Fund") and Penn Street Advisors, Inc., a Pennsylvania
corporation (the "Manager").
1. Duties of Advisor
The Fund hereby employs the Manager to manage the investment
and reinvestment of the assets of the Global Equity Portfolio
(the "Portfolio"), to continuously review, supervise and administer
the Portfolio's investment program, to determine in its discretion
the securities to be purchased or sold and the portion of the
Portfolio's assets to be uninvested, to provide the Fund with
records concerning the Manager's activities which the Fund is
required to maintain, and to render regular reports to the Fund's
officers and the Board of Directors of the Fund, all in compliance
with the objectives, policies and limitations set forth in the
Fund's registration statement. The Manager accepts such employment
and agrees to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to
perform the services described herein on the terms and for the
compensation provided herein.
2. Portfolio Transactions
The Manager is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio
securities for the Portfolio and is directed to use its best
efforts to obtain the best available price and most favorable
execution. It is understood, however, that the Manager shall
not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Fund or in respect of the Portfolio, or
be in breach of any obligation owing to the Fund or in respect
of the Portfolio under this Agreement, or otherwise, solely by
reason of its having caused the Portfolio to pay a member of a
securities exchange, a broker or a dealer a commission for
effecting a securities transaction for the Portfolio in excess of
the amount of commission another member of an exchange, broker or
dealer would have charged if the Manager determines in good faith
that the commission paid was reasonable in relation to the brokerage
or research services provided by such member, broker or dealer,
viewed in terms of that particular transaction or the Manager's
overall responsibilities with respect to its accounts, including
the Fund, as to which it exercises investment discretion. The
Manager will promptly communicate to the officers and directors
of the Fund such information relating to transactions for the
Portfolio as they may reasonably request.
3. Compensation of the Manager
For the services to be rendered by the Manager as
provided in Section 1 of this Agreement, the Fund shall pay
to the Manager, at the end of each month, a fee equal to one-
twelfth of .75 percent of the average daily net assets of the
Portfolio. In the event that this Agreement is terminated at
other than a month-end, the fee for such month shall be prorated.
4. Reports
The Fund and the Manager agree to furnish to each
other information with regard to their respective affairs as
each may reasonably request.
5. Status of the Manager
The services of the Manager to the Fund or in respect
of the Portfolio, are not to be deemed exclusive, and the Manager
shall be free to render similar services to others as long as its
services to the Fund, or in respect of the Portfolio, are not
impaired thereby. The Manager shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund.
6. Liability of Manager
The Manager shall not be liable to the Fund or any
shareholder thereof for errors of judgment or in absence of
negligence in the performance of its duties hereunder.
No provision of this Agreement shall be deemed to protect
the Manager against any liability to the Fund to which it might
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or the reckless
disregard of its obligations under this Agreement.
7. Duration and Termination
This Agreement shall become effective on November 1,
1998 (the "Effective Date") and shall continue in effect until
October 31, 2000, provided that it has first been approved in
accordance with Section 15 of the Investment Company Act of 1940,
as amended ("Act"). Thereafter, this Agreement may be continued
in effect for successive one-year periods provided each such
continuance is approved at least annually by a vote of the Fund's
Board of Directors, including the vote of a majority of the
directors who are not parties to this Agreement or interested
persons of any such party, cast in person, at a meeting called
for the purpose of voting such approval. In addition, the
question of continuance of this Agreement may be presented
to the shareholders of the Fund; in such event, such continuance
shall be effected only if approved by the affirmative vote of the
holders of a majority of the outstanding voting securities of the
Portfolio.
This Agreement may at any time be terminated without
payment of any penalty either by vote of the Board of Directors
of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Portfolio, on sixty days
written notice to the Manager.
This Agreement shall automatically terminate in the
event of its assignment.
This Agreement may be terminated by the Manager
after ninety days written notice to the Fund.
Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at any office of such party.
As used in this Section 9, the terms "assignment," "
interested persons," and a "vote of the holders of a majority
of the outstanding securities" shall have the respective
meanings set forth in Section 2(a)(4), Section 2(a)(19),
Section 2(a)(42) of the Act and Rule l8f-2 thereunder.
8. Severability
If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this
Agreement to be executed this 30th day of October 1998.
Penn Street Advisors, Inc. Penn Street Fund, Inc.
By:_________________________ By:_________________________
President
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of November 1998, by and
between PENN STREET FUND, INC., a Maryland corporation
(the "Fund") and Penn Street Advisors, Inc., a Pennsylvania
corporation (the "Manager").
1. Duties of Advisor
The Fund hereby employs the Manager to manage the
investment and reinvestment of the assets of the Global Income
Portfolio (the "Portfolio"), to continuously review, supervise
and administer the Portfolio's investment program, to determine
in its discretion the securities to be purchased or sold and the
portion of the Portfolio's assets to be uninvested, to provide
the Fund with records concerning the Manager's activities which
the Fund is required to maintain, and to render regular reports
to the Fund's officers and the Board of Directors of the Fund,
all in compliance with the objectives, policies and limitations
set forth in the Fund's registration statement. The Manager
accepts such employment and agrees to provide, at its own expense,
the office space, furnishings and equipment and the personnel
required by it to perform the services described herein on the
terms and for the compensation provided herein.
2. Portfolio Transactions
The Manager is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio
securities for the Portfolio and is directed to use its best
efforts to obtain the best available price and most favorable
execution. It is understood, however, that the Manager shall
not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Fund or in respect of the Portfolio, or
be in breach of any obligation owing to the Fund or in respect
of the Portfolio under this Agreement, or otherwise, solely by
reason of its having caused the Portfolio to pay a member of a
securities exchange, a broker or a dealer a commission for
effecting a securities transaction for the Portfolio in excess
of the amount of commission another member of an exchange, broker
or dealer would have charged if the Manager determines in good
faith that the commission paid was reasonable in relation to the
brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or
the Manager's overall responsibilities with respect to its
accounts, including the Fund, as to which it exercises investment
discretion. The Manager will promptly communicate to the
officers and directors of the Fund such information relating
to transactions for the Portfolio as they may reasonably request.
3. Compensation of the Manager
For the services to be rendered by the Manager as
provided in Section 1 of this Agreement, the Fund shall pay
to the Manager, at the end of each month, a fee equal to one-
twelfth of .75 percent of the average daily net assets of the
Portfolio. In the event that this Agreement is terminated at
other than a month-end, the fee for such month shall be prorated.
4. Reports
The Fund and the Manager agree to furnish to each
other information with regard to their respective affairs as
each may reasonably request.
5. Status of the Manager
The services of the Manager to the Fund or in respect
of the Portfolio, are not to be deemed exclusive, and the Manager
shall be free to render similar services to others as long as its
services to the Fund, or in respect of the Portfolio, are not
Impaired thereby. The Manager shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund.
6. Liability of Manager
The Manager shall not be liable to the Fund or any
shareholder thereof for errors of judgment or in absence of
negligence in the performance of its duties hereunder.
No provision of this Agreement shall be deemed to
protect the Manager against any liability to the Fund to
which it might otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance
of its duties or the reckless disregard of its obligations
under this Agreement.
7. Duration and Termination
This Agreement shall become effective on
November 1, 1998 (the "Effective Date") and shall continue
in effect until October 31, 2000 provided that it has first
been approved in accordance with Section 15 of the Investment
Company Act of 1940, as amended ("Act"). Thereafter, this
Agreement may be continued in effect for successive one-year
periods provided each such continuance is approved at least
annually by a vote of the Fund's Board of Directors,
including the vote of a majority of the directors who are
not parties to this Agreement or interested persons of any
such party, cast in person, at a meeting called for the
purpose of voting such approval. In addition, the question
of continuance of this Agreement may be presented to the
shareholders of the Fund; in such event, such continuance
shall be effected only if approved by the affirmative vote
of the holders of a majority of the outstanding voting
securities of the Portfolio.
This Agreement may at any time be terminated without
payment of any penalty either by vote of the Board of Directors
of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Portfolio, on sixty days
written notice to the Manager.
This Agreement shall automatically terminate in the
event of its assignment.
This Agreement may be terminated by the Manager after
ninety days written notice to the Fund.
Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at
any office of such party.
As used in this Section 9, the terms "assignment," "
interested persons," and a "vote of the holders of a majority
of the outstanding securities" shall have the respective
meanings set forth in Section 2(a)(4), Section 2(a)(19),
Section 2(a)(42) of the Act and Rule l8f-2 thereunder.
8. Severability
If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this
Agreement to be executed this 30th day of October, 1998.
Penn Street Advisors, Inc. Penn Street Fund, Inc.
By:_________________________ By:_________________________
President
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 2, 1998, accompanying the
October 31, 1998 financial statements of The Penn Street Fund, Inc.
(comprising, respectively, the Global Equity Portfolio and the Global
Income Portfolio) which are incorporated by reference in Part B of
the Post-Effective Amendment to this Registration Statement and
Prospectus. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
December 30, 1998
