Law Offices
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Michael P. O'Hare
(215) 564-8198
mo'[email protected]
June 24, 1999
VIA EDGAR
U.S. Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: The Penn Street Fund, Inc., File Numbers: 33-95102
and 811-9078, Rule 497(e) Filing
Dear Sir or Madam,
Included with this letter for filing pursuant to Rule
497(e) under the Securities Act of 1933, as amended, are
amended and restated copies of the Prospectus and Statement
of Additional Information of The Penn Street Fund, Inc.
The documents are revised to reflect, among other things:
(i) changes in the name, objective, policies, investment
manager and a reduction in investment management fees of
the Global Equity Portfolio (now named McGlinn Balanced
Portfolio); and (ii) a reduction in management fees and the
imposition of a contractual fee waiver for the Global
Income Portfolio.
Please direct any questions regarding this filing at the
number listed above, or, in my absence to Lisa Matson, Esq.
at (215) 564-8003.
Very Truly Yours,
Michael P. O'Hare
cc: Louis J. Sozio
Stephen W. Kline, Esq.
MPO/acf
The Penn Street Fund, Inc.
McGlinn Balanced Portfolio
Global Income Portfolio
Prospectus
Dated March 9, 1999 and
Amended and Restated June 24, 1999
Like all mutual funds, the Securities and Exchange Commission
has not approved or disapproved these securities, or passed upon
the accuracy or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The Penn Street Fund is made up of two separate
investment portfolios: the McGlinn Balanced Portfolio
and the Global Income Portfolio. Shares of the Portfolios
are sold on no-load basis to individual and institutional
investors seeking diversified investment portfolios,
based on active research and management.
Table of Contents
McGlinn Balanced Portfolio
Investment Objective and Philosophy 5
Principal Investment Strategies 5
Principal Investment Risks 6
Fees and Expenses 7
Investment Advisor 8
Historical Performance of McGlinn Capital Management 9
Global Income Portfolio
Investment Objective and Philosophy 11
Principal Investment Strategies 12
Principal Investment Risks 12
Fees and Expenses 13
Performance of Global Income Portfolio 14
Investment Advisor 15
Financial Highlights - Global Income Portfolio 16
Distribution 17
Year 2000 Issues 17
How to Purchase Shares 17
How to Exchange Shares 18
How to Redeem (Sell) Shares 18
General Policies 19
Dividends, Distributions and Taxes 20
Instructions for Opening, Adding to an Account 21
Redemption of Shares 22
For More Information Back Cover
McGLINN BALANCED PORTFOLIO
Investment Objective and Philosophy
The investment objective of the McGlinn Balanced Portfolio is to
provide long-term growth with moderate income. The McGlinn
investment philosophy is conservative and risk averse, built around the
concept of capital preservation. The Portfolio's advisor, McGlinn
Capital Management, Inc., uses a flexible asset allocation approach that
emphasizes the selection of securities that provide sufficient current
return to reduce downside risk. Using this approach, the advisor seeks
to position the Portfolio to participate in advancing markets while
avoiding significant loss of capital in declining markets.
In attempting to meet its objective, the McGlinn Balanced Portfolio
will invest in a combination of equity, debt, and money market
securities. Under normal conditions, the Portfolio will be invested
approximately 60% in equities and 40% in fixed income securities. The
investment mix may vary from time to time depending on the advisor's
view of economic and market conditions. The advisor utilizes a top
down approach based on fundamental analysis, to provide a framework
for its asset allocation and security selection decisions.
The advisor will make asset allocation decisions by
attempting to balance the potential for capital appreciation within the
equity market with the ability to earn income in the more stable and
less volatile fixed income market. In determining the appropriate
balance, the advisor will assess the changing nature of the business
cycle, including the potential for corporate profitability and changing
interest rates, the risk/opportunity inherent in the current valuation of
the fixed income and equity markets and the changing political
environment as it might impact one market versus the other. For
example, improving corporate profitability and an undervalued equity
market relative to the fixed income market, may indicate less risk and
more opportunity for equity securities and consequently, an above
normal allocation to equities versus fixed income securities.
Principal Investment Strategies
Equity Investments. The equity portion of the Portfolio will generally
be invested in the stocks of large and medium size U.S. companies that
the advisor believes are undervalued and offer above average potential
for capital appreciation. In general, undervalued equities will exhibit
valuation parameters such as price/earnings, price/sales and price/book
value ratios below normal for the particular security, as well as a long-
term record of earnings, dividends and reasonable profitability. From
time to time, the Portfolio will invest in securities that do not pay
dividends. The Portfolio will invest primarily in common stocks of
U.S. issuers, and may also purchase securities convertible into common
stocks, or warrants or rights to purchase common stocks. The Portfolio
may invest a small portion of its assets in foreign companies (less than
10%), and normally only invests in foreign companies with global
operations whose shares are traded on U.S. exchanges or through
depository receipts issued by U.S. banks.
Fixed Income Investments. The fixed income portion of the Portfolio
will normally be invested in U.S. Government securities and corporate
bonds. While the Portfolio is authorized to invest in short, intermediate,
or long-term fixed income securities, the Portfolio primarily invests in
intermediate-term issues, and the average weighted maturity of the
Portfolio's fixed income investments is typically in the range
of 5 to 7 years.
The Portfolio generally invests in corporate bonds that have bond
ratings in the top four grades according to a nationally recognized
statistical rating organization such as Moody's Investor Services, Inc.
or Standard & Poor's Ratings Group at the time of purchase. The
securities in the fixed income portion of the Portfolio are expected to
have an average rating of "A," which is the third highest rating by
Moody's or S&P. The Portfolio may, however, invest a portion (not to
exceed 20% of the fixed-income portion of the Portfolio) of its assets in
bonds rated below investment grade, which are known as high yield
securities (commonly called "junk bonds").
The Portfolio normally intends to remain substantially fully invested in
equity or fixed income securities. The Portfolio will also hold a portion
of its assets in high quality money market instruments in order to
satisfy redemption requests, or during times when excess cash is
generated or when cash is held pending the purchase of suitable
investments. Money market instruments include short-term obligations
of the U.S. government, its agencies or instrumentalities, bank
obligations, commercial paper, repurchase agreements or money
market mutual funds. The Portfolio also has authority to invest up to
100% of its assets in such short-term money market instruments for
temporary defensive purposes in response to extreme or adverse
market, economic or other conditions. Under these circumstances, the
Portfolio may be unable to pursue its investment objective and instead,
will focus on preserving investors' capital.
Principal Investment Risks
The McGlinn Balanced Portfolio is subject to risks associated with
investing in stocks and bonds. The value of the Portfolio may go down,
which means that you can lose money.
Equity Securities. One of the principal risks of investing in the Portfolio
is that common stock prices are subject to market, economic and
business risks that will cause their prices to fluctuate over time. While
common stocks have historically been a leading choice of long-term
investors, stock prices may decline over short or even extended periods.
Fixed Income Securities. Market prices of the Portfolio's fixed income
securities respond to economic developments, especially changes in
interest rates, as well as to changes in, or perceptions of, the
creditworthiness of individual issuers. Generally, if interest rates
increase, the prices of fixed income securities will decrease. The
Portfolio's investments in high yield securities expose it to a substantial
degree of credit risk. Prices of high yield securities can rise or fall
dramatically in response to changes in the issuer's financial health.
Asset Allocation Risks. In addition, the Portfolio's investment success
depends on the skill of McGlinn Capital Management in making asset
allocation judgements, and in evaluating, selecting and monitoring the
Portfolio's assets. If the advisor's conclusions about economic
conditions or individual securities are incorrect, the Portfolio may not
perform as anticipated.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy
and hold shares of the McGlinn Balanced Portfolio. There are no sales
charges or shareholder transaction expenses.
Annual Portfolio Operating Expenses*
(expenses that are deducted from Portfolio assets)
Management Fees 0.60%
Distribution (12b-1) Fees** 0.01%
Other Expenses 1.08%
Total Annual Operating Expenses 1.69%
*Management fees were reduced effective June 8, 1999 and other
expenses were reduced effective November 7, 1998. The expenses
shown here are based on these revised numbers.
**The Board of Directors has adopted a Rule 12b-1 Distribution
Plan for the Portfolio under which up to 0.25% of the Portfolio's
average daily net assets can be used to pay for distribution-related
expenses. See "Distribution."
The following example is intended to help you compare the cost of
investing in the McGlinn Balanced Portfolio with the cost of investing
in other mutual funds. The Example assumes 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 Example also assumes 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:
1 year 3 years 5 years 10 years
$172 $533 $918 $1998
Investment Advisor
McGlinn Capital Management, Inc. 850 North Wyomissing Blvd., P.O.
Box 6158 Wyomissing, PA 19610-0158 is the investment advisor for
the McGlinn Balanced Portfolio. McGlinn Capital Management
provides the Portfolio with a continuous investment program and
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 the Portfolio's
shares.
McGlinn Capital Management was established in 1971 and currently
manages approximately $4 billion in assets for clients such as corporate
pension, profit-sharing and 401(k) accounts, multi-employer (union)
pension funds, endowment funds, and accounts for foundations,
religious organizations and substantial individual investors. The
Portfolio pays McGlinn Capital Management a monthly advisory fee at
the annual rate of 0.60% of the average daily net assets of the Portfolio.
The management team responsible for managing the assets of the
Portfolio, along with their positions at McGlinn Capital Management,
are as follows:
Michael J. McGlinn, Chairman and CEO. Mr. McGlinn, age 42,
earned his undergraduate business degree from the University of Notre
Dame, and his MBA from the New York University Graduate School
of Business Administration. Prior to joining the McGlinn Capital
Management team in 1980, he was employed by Ernst & Whinney as a
Senior Accountant and CPA.
Jackson D. Breaks, II, President. Mr. Breaks, age 58, holds a BA in
English and an MAT in English/Philosophy from Purdue University.
Before joining the team in March, 1990, he was a Senior Account
Executive at Merrill Lynch Capital Markets for seven years. He
specialized in bond arbitrage, making regular presentations and
publishing numerous articles in this area. Prior to his association with
Merrill Lynch, he was employed at First Boston Corporation for 12
years as the co-manager of the Government Securities Department.
Daniel M. Szente, CFA, Executive Vice President and Director of
Research. Mr. Szente, age 51, holds a BS in Education and his MBA in
Finance from Ohio State University. For 16 years he held various
senior investment positions with the State Teachers Retirement System
in Columbus, Ohio, including Director of Financial Assets. Prior to
joining McGlinn, he served three years as the Managing Director of
Equity Investments for the $9 billion Howard Hughs Medical Institute
in Chevy Chase, Maryland.
Timothy J. Timura, CFA, Executive Vice President and Chief
Investment Officer. Mr. Timura, age 37, earned his BA in Liberal
Arts/Economics at Dickinson College and his MBA in Finance from
the University of Wisconsin. Tim has served as Senior Manager of
Equities for the $35 billion State Teachers Retirement System of Ohio.
He has also held various portfolio management positions with
Federated Investors, Inc., Pilgrim Baxter & Associates, and Invista
Capital Management before joining McGlinn.
Historical Performance of McGlinn Capital Management
The table below shows the performance information for a composite of
client accounts managed by the McGlinn Capital Management team
that is responsible for managing McGlinn Balanced Portfolio. Please
note that the performance results shown are those of the
investment advisor and not the investment results of the Portfolio.
These accounts are managed with the same investment objective and
are subject to substantially similar investment strategies and policies as
those used by the Portfolio. The results presented are not intended to
predict or suggest the return to be experienced by the Portfolio or the
return an individual investor might achieve by investing in the
Portfolio.
The Portfolio's results may be different from the composite
performance figures shown because of, among other things, differences
in fees and expenses. The Portfolio's results may also be different
because private accounts are not subject to certain investment
limitations, diversification requirements and other restrictions that are
imposed on mutual funds.
Calendar Year Performance Results of
McGlinn Client Balanced Accounts*
1998 3.6%
1997 20.2%
1996 14.5%
1995 23.0%
1994 1.5%
1993 11.6%
1992 10.0%
1991 14.2%
1990 1.4%
1989 13.6%
1988 10.2%
1987 5.6%
1986 16.2%
1985 23.2%
1984 12.5%
1983 14.6%
1982 25.6%
1981 10.2%
1980 15.0%
1979 13.7%
1978 4.5%
1977 5.2%
1976 18.4%
1975 17.3%
1974 -(1.9%)
1973 -(4.0%)
1972 13.9%
1971 17.9%
Cumulative Return (28 Years) +2,057.6%
Annualized Return +11.6%
The McGlinn Balanced Account Composite is an equal weighted
composite consisting of eleven client portfolios representing $675
million in combined assets. The composite includes all client account
managed according to the McGlinn Capital management's balanced
approach. The composite performance figures reflect the deduction of
all advisory fees and trading costs, but do not reflect custody fees,
which are paid by clients directly.
GLOBAL INCOME PORTFOLIO
Investment Objective and Philosophy
The Global Income Portfolio's investment objective is to seek a rate of
total return that fluctuates less than a global equity fund, by putting
emphasis on income. The Portfolio's advisor, Penn Street Advisors,
Inc. ("Penn Street"), takes into account changing business cycle
conditions in different countries, and tries to anticipate, and protect
against, the business cycle risks involved. The Global Income Portfolio
is intended for long-term investors who can accept the risks entailed in
global investing. The Portfolio should not be relied upon by
shareholders as a complete investment program, or used to play short-
term swings in the global investment markets.
Principal Investment Strategies
The 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 nature of the Portfolio has the potential to reduce
risks substantially, but also introduces risks that do not exist in a single
country fund. The Global Income Portfolio may invest in securities of
governments or companies in developing countries, but only when
Penn Street believes that conditions are appropriate. In determining the
appropriate distribution of investments among various countries and
geographic regions, Penn Street 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. Investing in developing countries will not be a primary
activity, and such holdings may have some speculative characteristics.
Portfolio allocations are adjusted according to business cycle
developments in order to take advantage of changing economic
conditions and also to minimize the special risks associated with such
changes. The Portfolio provides a flexible investment approach that
tries to anticipate, and protect against, business cycle risks.
Portfolio allocation decisions are based on the long-term view of Penn
Street but are also constantly monitored for changes in economic
conditions, the political situation and investment markets to determine
whether events are consistent with Penn Street's expectations and
whether any developments are occurring that might cause those
expectations to change. The composition of each Portfolio is adjusted
to reflect Penn Street's view of changing conditions.
The Global Income Portfolio invests principally in medium and long-
term, liquid, high quality fixed-income securities issued by
governments, supranational organizations (such as the European Coal
and Steel Community, the European Economic Community and the
World Bank), and companies located in industrialized countries. To a
lesser extent, the Portfolio may also invest in equity securities such as
common and preferred stocks, if Penn Street believes they have an
attractive rate of return with market prices that are expected to remain
relatively stable in relation to the price of fixed-income securities.
In analyzing investments in the Global Income Portfolio, Penn Street
will ordinarily look for a high yield along with discounted prices. The
bonds included in the Global Income Portfolio will generally be issued
by national governments, supranational institutions or securities of
high-quality companies with liquid markets. The Portfolio may also
invest in relatively high yielding equities of good quality companies at
times when Penn Street 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
Ratings Group or a comparable rating by Moody's Investors Services,
Inc.
By investing in both international and domestic fixed-income
securities, the Global Income Portfolio can expand its investment
horizons while providing an effective means of reducing volatility
associated with concentration in a single country or region. Investing in
different countries that follow different business cycles provides an
effective means of diversification.
Market and maturity selections 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. All of these factors will be taken into
account in an effort to maximize income and capital gains potential
while minimizing risk.
Principal Investment Risks
The Global Income Portfolio is subject to risks associated with business
cycles in the countries in which it invests. The value of the Portfolio
may go down, which means that you could lose money.
Debt Securities. Debt securities are highly affected by interest rates.
When interest rates rise, bond prices generally fall. The Global Income
Portfolio is principally susceptible to the risks of debt securities such
that when interest rates rise, the value of the Global Income Portfolio's
holdings may decline. In addition, prices of fixed-income securities
generally will fall if an issuer's credit rating declines. Since the Global
Income Portfolio also is permitted to invest in equity securities such as
common and preferred stock, the risks associated with such securities
will also affect the Global Income Portfolio.
Market Characteristics. The securities markets of countries in which
the Global Income Portfolio ("Portfolio Countries") may have
substantially less volume than the New York Stock Exchange 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.
These risks could increase volatility or reduce performance of the
Portfolio.
Foreign Currency. Investments in foreign securities will normally be
denominated in foreign currencies. As a result, the Global Income
Portfolio can be significantly effected by the changes in foreign
currency exchange rates.
Economic Factors and Political Factors. The economies of Portfolio
Countries may be less developed or diverse than the U.S., and the
outlook may be more uncertain. The Global Income Portfolio may be
affected by adverse economic conditions in the Portfolio Countries.
Also, the internal politics of many Portfolio Countries may not be as
stable as in the U.S. Foreign governments may impose restrictions, or
take other actions affecting the country's currency or companies that
will affect the value of the Portfolios' investments.
Legal and Regulatory. Certain Portfolio Countries use different
financial reporting standards, and may have less governmental
supervision of securities markets. There also may be difficulty in
enforcing the Global Income Portfolio'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.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Global Income Portfolio. There are no sales
charges or shareholder transaction expenses.
Annual Portfolio Operating Expenses*
(expenses that are deducted from Portfolio assets)
Management Fees 0.50%
Distribution (12b-1) Fees** 0.00%
Other Expenses 0.71%
Total Annual Fund Operating Expenses 1.21%
Fee Wavier 0.30%
Net Annual Fund Operating Expenses 0.91%
*Management fees and other expenses were reduced effective
November 7, 1998. The expenses shown here are based on the
revised numbers.
**The Board of Directors has adopted a Rule 12b-1 Distribution
Plan for the Portfolio under which up to 0.25% of the Portfolio's
average daily net assets can be used to pay for distribution-
related expenses. See "Distribution."
Example
The following Example is intended to help you compare the cost of
investing in the Global Income Portfolio with the cost of investing in
other mutual funds. The Example assumes 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 Example also assumes 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:
1 year 3 years 5 years 10 years
$93 $290 $504 $1120
Performance of the Global Income Portfolio
The tables below show how the Global Income Portfolio's annual total
returns have varied for the last three years. The bar chart shows
changes in the Portfolio's returns over time. 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. The
information may help provide an indication of the Portfolio's risks.
Past performance is not necessarily an indication of how the Portfolio
will perform in the future.
Year by Year Total Return as of 12/31 Each Year (%).
8.39%
6.13%
5.14%
1996 1997 1998
Best Quarter 3.70% Q4 1996
Worst Quarter -2.90% Q1 1997
Average Annual Total Return as of 12/31/98
Since Inception
1 Year (11/08/95 )
Global Income Portfolio 8.39% 7.50%
Salomon Brothers World Bond Index 9.42% 9.24%
Morningstar International Income Index 8.81% 6.74%
Investment Advisor
Penn Street Advisors, Inc., 30 Valley Stream Parkway, Great Valley
Corporate Center, Malvern, PA 19355 is the investment advisor for the
Global Income Portfolio. Penn Street provides the Portfolio with a
continuous investment program, and 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.
Penn Street Advisors was founded in 1989 by Richard T. Coghlan, who
passed away on March 29, 1999. The Penn Street Portfolio
management team responsible for managing the assets if the Global
Income Portfolio are as follow:
Penny Flaherty. Ms. Flaherty holds a B.A. in mathematics from
Bucknell University. Prior to joining Penn Street Advisors, Ms.
Flaherty served as Executive Vice President and Chief Financial
Officer for Eastern Mortgage Services, Inc. from 1996 to 1999. Prior to
this she held the positions of Executive Vice President and Treasurer of
Meridian Bancorp, Inc., where she spent twenty-three years in the areas
of investment portfolio and asset/liability management.
Brian R. Cassidy. Mr. Cassidy earned his B.S. in Finance and
Accounting from West Virginia University. He has served as a
portfolio manager for the Global Income Portfolio since January, 1999
and from 1994 to 1998 served as the investment operations manager for
the Penn Street Fund. From March, 1998 through November, 1998, Mr.
Cassidy served as an assistant portfolio manager for Alliance Capital in
New York City, NY. Mr. Cassidy has also worked as a tax accountant
for the Internal Revenue Service (1992-1994), as a financial analyst for
Hamilton & Co., in Princeton, NJ (1988-1992) and as a financial
registered representative for Kidder, Peabody & Co. in Philadelphia.
PA (1986-1988).
Josephine A. Coghlan. Ms. Coghlan received her B.A. degree in
French and History from the University of Pennsylvania. She has
served as an assistant portfolio manager for Penn Street Advisors since
1997, and also serves as the treasurer of the Penn Street Fund.
For its services, the Global Income Portfolio pays Penn Street Advisors
a fee at the annual rate of 0.50% of the Portfolio's average net assets.
The advisory fee was reduced to 0.50% from 0.72% by action of the
Board of Directors at a meeting on June 14, 1999. Until January 14,
1998, the name of Penn Street Advisors was Strategic Investment
Services, Inc. Penn Street Advisors is a wholly owned subsidiary of
Millennium Bank, a full service bank, providing banking and trust
services.
Financial Highlights
Global Income Portfolio
The financial highlights table is intended to help you understand the
Global Income Portfolio's financial performance for the past three
years. Certain information reflects financial results for a single share of
the Portfolio. The total returns in the table represent the rate that an
investor would have earned on an investment in the Global Income
Portfolio (assuming reinvestment of all dividends and distribution).
This information for 1997 and 1998 has been audited by Briggs,
Bunting & Dougherty, LLP, whose report, along with the Portfolio'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
DISTRIBUTION
East Coast Consultants, Inc. (the "Distributor") serves as distributor of
the Penn Street Fund's shares pursuant to an agreement which provides
that the Distributor will use its best efforts to promote the sale and
retention of Penn Street Fund shares. Under the Penn Street Fund's
Rule 12b-1 Plan, each Portfolio is authorized to pay annual distribution
expenses up to 0.25% of average daily net assets. The Distributor
elected to waive any 12b-1 fees during the past fiscal year. Because
12b-1 fees are paid on an ongoing basis, shareholders could indirectly
pay more expenses over the long term than if they had paid other types
of sales charges.
YEAR 2000
Year 2000 ("Y2K") issues are related to the use of computer systems
that do not function properly when processing date related information
on and after January 1, 2000. The Penn Street Fund has taken steps that
it believes are reasonably designed to address Y2K issues with respect
to computer systems used by the Penn Street Fund, its portfolio
managers and other major service providers. The Penn Street Fund is
also obtaining reasonable assurances that comparable steps are being
taken by the Penn Street Fund's other major service providers.
The Penn Street Fund also will rely on the public filings and other
statements about Y2K readiness made by the companies and issuers in
whose securities the Portfolios intend to invest. Issuers in countries
outside the U.S. may not be subject to the same kind of Y2K readiness
disclosure that is required in the U.S. If a company in which the Penn
Street Fund is invested is adversely affected by Y2K problems, the
price of that company's securities also may be adversely affected. A
decrease in the value of the Portfolios' holdings would have a similar
impact on the price of each Portfolio's shares.
HOW TO PURCHASE SHARES
Purchase Price:
You pay no sales charges to invest in the Penn Street Fund. The price
for shares of either Portfolio of the Penn Street Fund is the net asset
value per share ("NAV") of the Portfolio, 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 received in proper form by the Penn Street
Fund. The Penn Street 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. If the Penn Street Fund holds securities listed
primarily on a foreign exchange that trades on days when the Penn
Street Fund is not open for business, the value of your shares may
change on days that you cannot buy or sell shares.
Minimum Purchases:
An initial purchase must be in the amount of at least $25,000, which
can be invested in either Portfolio. The Penn Street 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 Penn Street 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 received in proper form by the Penn Street
Fund. Redemption proceeds will ordinarily be sent on the next business
day, but, in any event, they will be sent no 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 Penn
Street Fund makes no charge for redemptions by wire, however, your
bank may impose a fee for wire services.
Check Redemption:
The Penn Street 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 number and name.
2. Amount of transaction (specified either in dollar 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 Penn Street Fund reserves the right to:
refuse any exchange request in excess of 1% of the Penn Street 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); or
make a "redemption in kind" - payment in portfolio securities rather
than cash if the amount you are redeeming is large enough to affect
Penn Street Fund operations, or if the redemption would otherwise
disrupt the Penn Street Fund (for example, if the amount represents
more than 1% of the Penn Street Fund's assets).
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Each Portfolio pays 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 NAV 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 U.S.
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 Penn Street Fund will notify shareholders
each year of the amount of dividends and any distributed long-term
capital gains.
TO OPEN AN ACCOUNT
Initial purchase of at least $25,000
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 include the tax year of contribution
Payment by Check:
Checks should be made out to:
McGlinn Balanced Portfolio or
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 include the tax year of contribution.
Payment 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 #1220-0049-6 for credit to Union Bank of California Global custody
Account #09599196431 then to A/C #01643 McGlinn
Balanced 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 to:
Penn Street Advisors, Inc.
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
* For an IRA 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
McGlinn Balanced Portfolio or
Global Income Portfolio
* Separate checks are required if investing in both Portfolios.
For an IRA include the tax year of contribution.
By Wire:
Must notify the Transfer Agent by calling:
610-578-9944 and must provide them with account #, investment amount and
portfolio in which you wish to invest.
* For an IRA include the tax year of contribution.
Must have bank wire transmitted to:
Union Bank of California
ABA #1220-0049-6 for credit to Union Bank of California Global Custody
Account #09599196431
then to A/C #01643 McGlinn Balanced 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.
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 Penn Street 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.
THE PENN STREET FUND, INC.
McGLINN BALANCED PORTFOLIO
GLOBAL INCOME PORTFOLIO
More information on The Penn Street Fund is available
free upon request, including the following:
Annual/Semi-Annual Report
These reports include a discussion of recent market
conditions and portfolio strategies, financial
statements, detail the Penn Street Fund's performance
information, list portfolio holdings, and include the
auditor's report (in annual report only).
Statement of Additional Information (SAI)
The SAI provides more details about the Penn Street
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 Penn Street 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, call collect:
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]
811-09078
STATEMENT OF ADDITIONAL INFORMATION
THE PENN STREET FUND, INC.
The McGlinn Balanced Portfolio
The Global Income Portfolio
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 9, 1999, as amended and
restated June 24, 1999
TABLE OF CONTENTS
Page
General Information 2
Investment Objectives and Policies 2
Fundamental Policies - Both Portfolios 2
Operating Policies - Both Portfolios 3
Additional Investment Policies - Global Income Portfolio 3
Fixed Income Securities -
Global Income Portfolio 4
Fixed Income Securities - McGlinn Balanced Portfolio 5
Options - Both Portfolios 7
Futures Contracts - Both Portfolios 10
Lending Portfolio Securities - Both Portfolios 11
Repurchase Agreements - Both Portfolios 12
Foreign Currency Transactions - Global Income Portfolio 12
Investment Performance 13
Management of the Fund 14
Investment Management Services 15
Sale of Fund Shares 18
Distribution 18
Tax Status 19
Principal Shareholders 22
GENERAL INFORMATION
The Fund is an open-end, diversified management
investment company that was 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 one billion
(1,000,000,000) shares of common stock, par value
$0.01, and may issue such shares in multiple series
and classes. The Fund currently issues shares in two
series (portfolios): the McGlinn Balanced 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
of the Portfolios' investment objectives, strategies
and risks. 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 - BOTH PORTFOLIOS
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 - BOTH PORTFOLIOS
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.
ADDITIONAL INVESTMENT POLICIES -
GLOBAL INCOME PORTFOLIO
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 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 Portfolio 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 Income Portfolio does not intend to invest
more than 10% of the value of its total assets in
securities of governments or companies in developing
countries. The investment objectives of the Global
Income Portfolio may not be changed without
shareholder approval.
The Global Income Portfolio is 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 - GLOBAL INCOME PORTFOLIO
The Global Income Portfolio 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 Portfolio
is not obligated to sell securities in the event of a
subsequent rating reduction.
The Global Income Portfolio 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
Portfolio 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. However, the Fund will not invest more than
10% of its assets below a Baa rating. The Portfolio
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 Advisor considers
the risk/return to be acceptable. Debt securities
rated Ba or BB may have some speculative
characteristics.
FIXED INCOME SECURITIES -
MCGLINN BALANCED PORTFOLIO
The McGlinn Balanced Portfolio may invest in short,
intermediate, or long-term fixed-income securities.
The Portfolio primarily invests in intermediate-term
issues with an average weighted maturity in the range
of 5 to 7 years. A fixed-income security typically has
a fixed payment schedule which obligates the issuer to
pay interest to the lender and to return the lender's
money over a certain period of time. The market
prices of debt securities usually vary, depending
upon available yields. An increase in interest rates
will generally reduce the value of portfolio
investments, and a decline in interest rates will
generally increase the value of portfolio
investments.
Yields on short, intermediate, and long-term
securities are dependent on a variety of factors,
including the general conditions of the money and
bond markets, the size of a particular offering, the
maturity of the obligation, and the credit quality
and rating of the issuer. Debt securities with longer
maturities tend to have higher yields and are
generally subject to potentially greater capital
appreciation and depreciation than obligations with
shorter maturities and lower yields. The ability of
the Portfolio to achieve its investment objective is
also dependent on the continuing ability of the
issuers of the debt securities in which the Portfolio
invests to meet their obligations for the payment of
interest and principal when due.
Fixed-income securities in which the Portfolio may
invest include, but are not limited to: U.S.
Government obligations, including bills, notes,
bonds, and other debt securities issued by the U.S.
Treasury. These are direct obligations of the U.S.
government and differ mainly in the length of their
maturities. The Portfolio may also invest in U.S.
Government agency securities issued or guaranteed by
U.S. government-sponsored enterprises and federal
agencies. These include securities issued by the
Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan
Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal
Intermediate Credit Banks, Federal Financing Bank,
Farm Credit Banks, the Small Business Association,
and the Tennessee Valley Authority.
The Portfolio generally invests in corporate bonds
that have bond ratings in the top four investment
grades. These grades are Aaa, Aa, A and Baa (in
Moody's ratings) and AAA, AA, A and BBB (in S&P's
ratings). The securities in the fixed-income portion
of the Portfolio are expected to have an average
rating of "A," which is the third highest rating by
Moody's or S&P. The Portfolio will not purchase more
than 20% of its fixed-income securities in an
investment grade below a Baa (in Moody) or a BB (in
S&P) rating. A debt security may cease to be rated,
or its rating may be reduced, but the Portfolio will
not be required to sell a security if its rating is
reduced subsequent to the Portfolio's purchase.
The Portfolio may invest a portion (not to exceed 20%
of the fixed-income portion of the Portfolio) of its
assets in bonds rated below investment grade, which
are known as high-yield securities (commonly called
"junk bonds"). The Portfolio's investments in high-
yield securities expose it to a substantial degree of
credit risk. Prices of high-yield securities can rise
or fall dramatically in response to changes in the
issuer's financial health. Prices of junk bonds have
been found to be less sensitive to fluctuations in
interest rates, and more sensitive to adverse
economic changes and individual corporate
developments than those of higher-rated debt
securities.
Since investors generally perceive that there are
greater risks associated with investment in lower-
quality securities, the yields from such securities
normally exceed those obtainable from higher-quality
securities. However, the principal value of lower-
rated securities generally will fluctuate more widely
than higher-quality securities. Lower-quality
investments entail a higher risk of default--that is,
the nonpayment of issue and principal by the issue
than higher-quality investments. The risk of loss due
to default may also be considerably greater with
lower-quality securities because they are generally
unsecured and are often subordinated to other
creditors of the issuer. In addition, many issuers of
junk bonds are substantially leveraged, which may
impair their ability to meet their obligations, and
therefore increase their risk of default.
For example, during an economic downturn or a
sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may
experience financial stress. During these periods,
such issuers may not have sufficient cash flow to
meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be
adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific
projected business forecasts, or the unavailability
of additional financing. The risk of loss due to
default by the issuer may be significantly greater
for the holders of high yielding securities because
such securities are generally unsecured and are often
subordinated to other creditors of the issuer.
The Portfolio may have difficulty disposing of
certain high yielding securities because there may be
a thin trading market for a particular security at
any given time. The market for lower rated, fixed-
income securities generally tends to be concentrated
among a smaller number of dealers than is the case
for securities which trade in a broader secondary
retail market. Generally, purchasers of these
securities are predominantly dealers and other
institutional buyers, rather than individuals. To the
extent the secondary trading market for a particular
high yielding, fixed-income security does exist, it
is generally not as liquid as the secondary market
for higher rated securities. Reduced liquidity in the
secondary market may have an adverse impact on market
price and the Portfolio's ability to dispose of
particular issues, when necessary, to meet the
Portfolio's liquidity needs or in response to a
specific economic event, such as a deterioration in
the creditworthiness of the issuer. Reduced liquidity
in the secondary market for certain securities may
also make it more difficult for the Portfolio to
obtain market quotations based on actual trades for
purposes of valuing its portfolio holdings. Current
values for these high yield issues are obtained from
pricing services and/or a limited number of dealers
and may be based upon factors other than actual
sales.
OPTIONS - BOTH PORTFOLIOS
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 - BOTH PORTFOLIOS
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 - BOTH PORTFOLIOS
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 - BOTH PORTFOLIOS
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 -
GLOBAL INCOME PORTFOLIO
The Portfolio 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 Portfolio will generally enter into forward
foreign currency exchange contracts in two
circumstances. First, when the 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
the Portfolio's portfolio securities denominated in
that foreign currency. Alternatively, where
appropriate, the 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, the 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. The 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 Global Income Portfolio for
the latest fiscal year ending October 31, 1998 was
9.15%.
The annualized total return of the Global Income Portfolio
for the period beginning November 8, 1995 and ending
October 31, 1998 was 7.78%.
Annual Total Return figures for the McGlinn Balanced
Portfolio are not presented, because McGlinn Capital
Management, Inc. commenced management of the
Portfolio under revised investment objectives and
policies effective April 5, 1999 and the Portfolio
has not established a performance record.
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.
Roger S. Hillas* Age 71. During the last five years, Mr.
Hillas has served on the Board of Toll Brothers, Inc.
Previously, Chairman of Meritor/PSFS, Chairman of PNC
Corp. and Chairman and CEO of Provident National
Bank.
Howard W. Gross Age 68. During the last five years,
Mr. Gross has served as Director of the Fund; and
Business Consultant, West Palm Beach, Florida.
Previously, Executive Vice President, Henkel Corp.
Stephen Michael Alexander Age 48. During the last
five years, Mr. Alexander has served as Director of
the Fund, and Chief Executive Officer, IHI Alchen,
Inc., Bryn Mawr, Pennsylvania.
Lee G. Fishman Age 44. During the last five years,
Mr. Fishman has served as Director of the Fund; and
President, BPM Group, Inc., Merion Station,
Pennsylvania.
Brian R. Cassidy Age 34. During the last five years,
Mr. Cassidy has served as a Portfolio Manager for the
Fund; except during 1998 when he worked for Alliance
Capital.
Josephine A. Coghlan Age 24. Portfolio Manager and
Treasurer since 1997. From 1994-1997, Ms. Coghlan
attended the University of Pennsylvania.
Jan L. Gill Age 41. Secretary of the Fund since 1995.
Prior to 1995 Ms. Gill worked at Martin Dale Andres,
Conshohocken, Pennsylvania.
* Mr. Hillas is an "interested" director of the
Fund, under the Investment Company Act of 1940, by
reason of being affiliated with the bank.
Total
Name of Aggregate Pension or Estimated Compensation
Person, Compensation Retirement Annual From Registrant
Position From Registrant Benefits Accrued Benefits and Fund
(Director's Fee) as Part of Upon Complex Paid to
Fund expenses Retirement Directors
Roger S. Hillas, -0- -0- -0- -0-
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. Hillas, 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, each
Advisor is responsible for supervising and directing
the investments of their Portfolio in accordance with
the Portfolio's investment objectives, policies and
restrictions. Each Advisor is also responsible for
placing all security transactions of their Portfolio,
and for negotiation of commissions.
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 Advisors 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 of the Fund.
Each 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 their Portfolio 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 Advisors receive 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 Advisors assess
the contribution of the brokerage and research
services provided by broker-dealers, and allocate 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 the Global Equity
Portfolio (now McGlinn Balanced Portfolio) were
$25,801 for the fiscal year ending 1998, $30,232 for
the fiscal year ending 1997, and $48,906 for the
fiscal year ending 1996, and the amount of
commissions for the Global Income Portfolio were
$1,475 for the fiscal year ending 1998, $616 for the
fiscal year ending 1997, and $3,485 for the fiscal
year ending 1996.
The Investment Management Agreement between the Fund
and Penn Street Advisors, Inc. for the Global Income
Fund became effective on November 7, 1998, pursuant
to shareholder approval. The agreement requires the
Advisor to provide the Portfolio with a continuous
review of and recommendations regarding investment of
the Portfolio's assets. The agreement continues 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
Portfolio, 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.
Under its investment management agreement, the
Portfolio paid Penn Street Advisors an advisory fee
for the fiscal year ending October 31, 1998, equal to
an annual rate of 0.90% of the value of the net
assets. However, the Board subsequently lowered the
investment management fees to an annual rate of 0.50%
of the value of the average daily net assets. The
total amounts paid to Penn Street Advisors by the
Global Income Portfolio under the investment
management agreement for the period ending October
31, 1996 (since inception) was $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.
The Investment Management Agreement between the Fund
and McGlinn Capital Management, Inc. for the McGlinn
Balanced Portfolio was approved by the Board of
Directors on April 5, 1999 and ratified by
shareholders of the Portfolio on June 14, 1999. The
agreement requires McGlinn Capital Management to
provide the Portfolio with a continuous review of and
recommendations regarding investment of its assets.
The agreement continues in full force until April 4,
2001 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 Portfolio, 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 McGlinn Capital
Management, and may be terminated by either party
without penalty on 60 days written notice.
Under its investment management agreement, the
Portfolio pays McGlinn Capital Management an advisory
fee equal to an annual rate of 0.60% of the value of
the net assets. The total amounts paid by the
Portfolio to its former investment advisor 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.
Penn Street Advisors 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 Penn Street Advisors 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 McGlinn
Balanced Portfolio (then named Global Equity
Portfolio) and $708 for the Global Income Portfolio.
East Coast Consultants, Inc. elected not to receive
compensation during the fiscal year ended October 31,
1998. Under the Plan, East Coast Consultants, Inc. is
reimbursed for all expenses incurred in the
distribution of Fund shares, and, subject to Board
approval, also may be compensated by the Fund. The
Plan does not permit unreimbursed expenses incurred
in a particular year to be carried over to or
reimbursed in later years.
The Plan remains in effect until October 31, 2000 and
may be continued with respect to either Portfolio 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 with respect to
either Portfolio 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 affected
Portfolio. 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 believes 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 June 15, 1999 the following entities held more
than 5% of the shares of the McGlinn Balanced
Portfolio: Wynrhys Coghlan 746 Mt. Moro Rd.,
Villanova, PA 19085, holding 17%, Marilyn Day 947
Rock Creek Road, Bryn Mawr, PA 19010, holding 20%,
James Hovey 1325 Morris Drive, Suite 201, Wayne, PA
19087, holding of 25%, Fred Fox 76 Milita Hill Drive,
Wayne, PA 19087, holding 7%, Millennium Bank Trust
30 Valley Stream Pkwy, Malvern, PA 19355 holding
18%, Martin Braun, 1095 Baron Drive, Bryn Mawr, PA
19010, holding 8%.
As of June 15, 1999, there were five shareholders
with holdings over 5% of the Global Income Portfolio:
the Geraldine D. Fox Foundation with 8%, the Richard
J. Fox Foundation with 20%, the Institute for Bio-
Information Research with 17%, Fox Family Partnership
with 47%, and the National Organization for Hearing
Research with 5% 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. [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.]
