Dear Shareholder:
The first six months of this fiscal year can be
defined as a period of significant transition
for The Penn Street Fund, with changes
encompassing its ownership, management
structure and investment focus. As previously
communicated to you, Penn Street Advisors,
Inc. was acquired on October 26, 1998 by
Millennium Bank, a full service financial
institution located in Malvern, PA. The
untimely passing in March of Dr. Richard T.
Coghlan, President and founder of Penn Street
Advisors, Inc. and the Fund, necessitated that
various actions be taken to ensure continuity
of service and investment management. These
actions, which are more fully explained in my
later comments, included:
A change in the investment focus of the
equity portfolio from a global emphasis to a
domestic balanced fund. This change occurred
concurrent with the appointment of McGlinn
Capital Management, Inc. as sub-advisor of the
equity fund on an interim basis, subject to
Shareholder approval.
The election of Roger S. Hillas to the
Board of Directors. Mr. Hillas has been a
business leader in Philadelphia for over forty-
five years and brings a wealth of experience to
our Board.
The announcement of senior level
management changes, with the naming of Louis J.
Sozio as Vice President of Compliance and
Administration of the Fund and the appointment
of Brian Cassidy and Josephine Coghlan as
interim portfolio managers. Brian and Jo
combined have over 12 years of investment
experience and seven years experience working
with the Fund.
It is my belief that these actions have been
executed with minimum disruption to the Fund,
as evidenced by continued strong relative
performance. The transition of the equity
portfolio occurred during April and that
portfolio is now functioning with McGlinn
serving as interim Investment Manager. We have
initiated a search for a Chief Investment
Officer of Penn Street Advisors. Furthermore,
Millennium Bank, parent company of Penn Street
Advisors, Inc. remains fully committed to the
investment management business. We are excited
about the prospects of offering additional
investment options with the Penn Street Fund
managed by McGlinn and look forward to what we
believe will be a rewarding long-term
relationship.
The Equity Portfolio
The performance of the equity portfolio was
strong throughout the first six months of this
fiscal year, as the value of the portfolio grew
from $10.89 per share at fiscal year-end
October 30, 1998 to $13.32 per share at April
30, 1999. The portfolio returned 22.3% over
this period, comparing favorably to the 18.9%
return realized by the Morgan Stanley Capital
International World Index. We believe this
index provides a valid comparison for the
equity portfolio, in that the shift in
investment focus to a domestic balanced fund
did not occur until mid-April. The equity
portfolio benefited from an emphasis on
technology and financial stocks, which
performed extremely well, as well as from the
impact of an improving outlook for global
economies.
In April, the Board of Directors approved a new
investment objective for the equity portfolio
and an investment management agreement with
McGlinn Capital Management, Inc., an investment
advisory company located in Wyomissing, PA with
over $4 billion in assets under management. Due
to the circumstances, the Board authorized
McGlinn to immediately assume management
responsibility for the equity portfolio during
an interim period leading up to Shareholder
consideration. This management change occurred
in April.
The new investment objective presented for
Shareholder approval is to provide long-term
growth with moderate income, accomplished
through the management of a domestic balanced
portfolio. The McGlinn investment philosophy is
conservative and is built around the concept of
capital preservation. Their approach is value-
oriented and their current strategy with
respect to the equity markets is to maintain a
diversified portfolio of stocks that offer
attractive valuations and improving
fundamentals.
We believe the shift in the investment
objective and investment strategies of the
equity portfolio is both timely and appropriate
for the current economic environment, as well
as in the long-term best interest of our
investors. The extraordinary performance of the
U.S. equity markets over the past several years
has been driven by growth and, in particular,
technology stocks which are now at historically
high valuations. We believe the conservative,
disciplined approach to value investing adhered
to by McGlinn will serve the portfolio well.
The Fixed Income Portfolio
The fixed income markets have not responded
well this year, as concerns developed that
continued economic growth would spark
inflation. The fixed income portfolio was down
(0.4%) during the first six months of the
fiscal year. However, this compares positively
with the (3.3%) return realized by Solomon
Brothers World Global Index. From year-end
1998, the Fixed Income Portfolio was down (
1.4%) , compared to the (3.9%) return realized
by the SBWGI. The performance of this portfolio
was positively impacted, during the period, on
a relative basis, by an overweighting in U.S.
Treasuries during a period of uncertainties in
the global markets.
The fixed income markets have been extremely
sensitive this year toward signs of an
acceleration in inflation. Reflecting this
concern, the 30-year Treasury posted losses on
a total return basis of approximately 6% from
the beginning of this year through early May.
Economic releases thus far this year that would
traditionally imply higher interest rates and
further declines in bond prices to come are now
in place-continued strength in the domestic
economy, historically low unemployment and
improving prospects for a global recovery.
Mitigating the impact of this picture is the
continuation of productivity gains and a
fundamental question as to whether the
traditional relationship between employment and
inflation has undergone a permanent change.
While we do not anticipate interest rates to
increase dramatically over the remainder of
this year, we do believe we are in a period
that dictates caution with respect to fixed
income securities. Accordingly, our current
strategy is to make moderate changes in our
portfolio structure focused on shortening the
overall duration of the portfolio and reducing
the amount of global securities which currently
offer substantially lower yields than those
available in the U.S. markets.
Year 2000 Preparedness
Year 2000 ("Y2K") issues relate to the ability
of computer systems to function properly when
processing date-related information on and
after January 1, 2000. Preparation for Y2K
throughout the U.S. has been extensive, with
major capital expenditures occurring to assure
minimal disruption to the financial markets as
we enter the new millennium.
We believe The Penn Street Fund has taken
reasonable steps in addressing Y2K issues with
respect to the computer systems used by the
Fund, its portfolio managers and other major
service providers. The Fund is also obtaining
reasonable assurance that comparable steps are
being taken by the Funds' other major service
providers.
The Fund has elected to rely on public filings
and other statements concerning Y2K readiness
made by companies and issuers in whose
securities the portfolios intent to invest.
Issuers in countries outside the U.S. may not
be subject to the same Y2K readiness disclosure
that is required in the U.S. The Fund could be
adversely affected if a company in which the
Fund is invested experiences Y2K related
problems and its share price is negatively
impacted.
In Closing
On a personal note, the management and staff of
the Fund wish to acknowledge the significant
contributions of Richard Coghlan. Richard was a
bright and talented economist and investment
strategist. He was a respected colleague, a
partner, and a friend. We will miss his
dedication to Penn Street Advisors. Our goal is
to continue with the level of service and
tradition that Richard delivered. Through our
actions taken to date and our planned
objectives, we believe that the tradition and
success of the Penn Street Fund will continue
in the future.
GLOBAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30, 1999 (Unaudited)
Penn Street Fund, Inc.
COMMON STOCKS (54.6%)
Shares U.S. $ Value
Basic Materials (5.1%)
Boise Cascade Corp. 300 $12,075
Dupont de Nemours & Co. 250 17,648
International Paper Co. 150 7,997
Mead Corp. 150 6,272
Praxair Inc. 100 5,181
US Steel 1,200 36,300
85,473
Capital Goods (2.1%)
Allied Waste Industries, Inc. 300 5,306
Flowserve Corp. 250 4,656
Tenneco Inc. 800 21,600
USX-Marathon Group 150 4,687
36,249
Communication Services (5.3%)
AT&T Corp. 900 45,619
SBC Communications, Inc. 800 44,800
90,419
Consumer Cyclicals (6.9%)
Black & Decker Corp. 200 11,325
Dana Corp. 600 28,237
Federated Department Stores 800 37,325
Kimberly-Clark Corp. 350 21,448
KMart Corp. 800 11,900
May Department Stores, Co. 150 5,971
116,206
Consumer Staples (4.0%)
Nabisco Holding Corp. 800 30,300
The Procter & Gamble Co. 400 37,513
67,813
GLOBAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
April 30, 1999 (Unaudited)
Penn Street Fund, Inc.
Shares U.S.$Value
Energy (5.3%)
Atlantic Richfield Co. 250 20,984
British Petroleum-Sponsored ADR 100 11,319
Chevron Corp. 100 9,969
Conoco Inc. Class A 400 10,825
Sunoco Inc. 300 10,716
Texaco Inc. 250 15,687
Unocal Corp. 250 10,383
89,883
Financials (12.0%)
Banc One Corp. 700 41,300
Bank of America Corp. 400 28,788
Citigroup Inc. 350 26,305
Conseco Inc. 600 18,919
First Union Corp. 400 22,125
MGIC Investment Corp. 500 4,281
Unum Corp. 400 21,837
Washington Mutual Inc. 450 18,492
202,047
Healthcare (6.4%)
Alza Corp. 500 16,750
American Home Products Corp. 600 36,544
Pharmacia & Upjohn Inc. 600 33,600
Tenet Healthcare Corp. 900 21,291
108,185
Technology (7.5%)
Alcatel Alsthom SA ADR 500 12,156
Compaq Co. 1,000 22,438
Eastman Kodak Co. 100 7,475
Electronic Data System Corp. 400 21,488
Hewlett-Packard Co. 300 23,625
Micron Technology Inc. 500 18,563
National Semiconductor Corp. 1,700 21,250
126,995
TOTAL COMMON STOCK (Cost $910,686) 923,270
EUROPE (21.1%)
FRANCE (7.0%)
Alcatel Alsthom SA (a) 1,000 21,937
Club Mediterranee SA (a) 700 54,373
STE Nationale Elf Aquitaine (a) 1,200 69,788
Vivendi 300 68,690
214,788
Germany (4.8%)
Deutsche Lufthansa AG 1,500 32,658
Metro AG 1,000 61,688
Volkswagen AG 680 51,200
145,546
United Kingdom (9.3%)
British Petroleum-
Sponsored ADR (a) 1,008 89,145
Imperial Chemical-
Sponsored ADR (a) 1,500 54,281
Reuters Group PLC 4,000 40,954
Rio Tinto PLC SHS 4,000 48,857
Williams Holdings PLC 8,000 49,929
283,166
GLOBAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
April 30, 1999 (Unaudited)Penn Street Fund, Inc.
FIXED INCOME SECURITIES (13.7%)
Principal Amt.(b) U.S. $ Value
Financial (4.2%)
Fund American Enterprises 7.750%,
due 2/1/2003 35,000 $36,404
Lehman Brothers Holding 6.625%,
due 2/5/2006 35,000 34,609
71,013
Real Estate (7.7%)
Club Mediterranee 4.59%, due 3/2/2003
(denominated in fr) 34 17,212
FHLMC (Mortgage backed) 6.000%,
due 11/1/2013 48,455 48,092
HMH Properties 7.875%,
due 8/1/2005 30,000 29,301
Park Place Enterprises 7.000%,
due 7/15/2004 35,000 35,788
130,393
Residential Construction (1.8%)
D.R. Horton, Inc. 8.375%,
due 6/15/2004 30,000 30,690
TOTAL DEBT SECURITIES (Cost $228,549) 232,096
SHORT-TERM INVESTMENTS (30.4%)
U.S. Treasury Bond 5.875%,
due 7/31/1999 500,000 501,445
Highmark Money Market Fund 12,947 12,947
TOTAL SHORT-TERM INVESTMENT (Cost $514,509) 514,392
TOTAL INVESTMENT IN SECURITIES (98.7%)
(Cost: $1,665,904) (Notes 2A and 3) 1,669,758
CASH AND OTHER ASSETS - NET (1.3%) 21,241
TOTAL NET ASSETS (100.0%) $1,690,999
(*) non-income producing security
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30, 1999 (Unaudited)
Penn Street Fund, Inc.
FIXED INCOME SECURITIES (82.3%)
Principal U.S.$ Value
Amt. (a)
NORTH AMERICA (71.2%)
United States (71.2%)
Argentina Bond 9.250%, due 2/23/2001
200,000 $204,304
FHLB Bond 5.22%, due 11/17/2000
500,000 498,767
Italy Bond 6.875%, due 9/27/2023
500,000 530,500
Korea Development Bond 6.50%, due 11/15/2002
200,000 192,797
US Treasury Bond 5.50%, due 3/31/2000
500,000 502,734
US Treasury Bond 5.50%, due 12/31/2000
600,000 604,031
US Treasury Bond 7.75%, due 2/15/2001
400,000 418,000
US Treasury Bond 4.875%, due 3/31/2001
700,000 697,375
US Treasury Bond 8.00%, due 5/15/2001
550,000 580,422
US Treasury Bond 5.625%, due 2/15/2006
1,000,000 1,014,531
US Treasury Bond 7.25%, due 5/15/2016
1,500,000 1,717,969
US Treasury Bond 7.50%, due 11/15/2016
600,000 703,781
US Treasury Bond 7.875%, due 2/15/2021
1,000,000 1,237,188
US Treasury Bond 8.000%, due 11/15/2021
1,000,000 1,256,719
US Treasury Bond 7.50%, due 11/15/2024
300,000 362,766
US Treasury Bond 6.00%, due 2/15/2026
1,500,000 1,522,969
US Treasury Bond 6.75%, due 8/15/2026
500,000 557,969
YPF Corp. 8.00% due 02/15/2004
350,000 348,705
12,951,527
EUROPE (10.1%)
European CC (4.6%)
Council of Europe Bond 6.75%, due 05/11/2004
300,000 364,991
United Kingdom Bond 9.125%, due 02/21/2001
400,000 469,798
834,789
Italy (2.8%)
International Bank Recon & Development 6.50%,
due 07/30/2007 413,166 509,309
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
April 30, 1999 (Unaudited)Penn Street Fund, Inc.
Shares/ U.S.$ Value
Principal Amt.
Germany (2.7%)
Greece Floating Rate Note 4.00%, due 2/10/2003
465,276 493,849
OTHER COUNTRIES (1.0%)
Australia (1.0%)
First Australia Prime Income Fund
28,000 187,250
TOTAL DEBT SECURITIES (Cost: $14,693,397)
14,976,724
SHORT-TERM INVESTMENTS (15.8%)
United States (15.8%)
US Treasury Bonds 6.375%, due 5/15/1999
700,000 700,273
US Treasury Bonds 8.000%, due 8/15/1999
1,800,000 1,816,875
Highmark Money Market Fund
357,755 357,755
TOTAL SHORT-TERM INVESTMENTS (Cost: $2,843,293)
2,874,903
TOTAL INVESTMENT IN SECURITIES (98.1%)
(Cost: $17,536,690) (Notes 2A and 3)
17,851,627
CASH AND OTHER ASSETS - NET (1.9%) 336,606
TOTAL NET ASSETS (100.0%) $18,188,233
(a) in local currency
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (Unaudited)
Penn Street Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
ASSETS
Investment in securities, at value (identified cost
$1,653,744 and $17,536,690 respectively)
(Notes 1 and 2A) $1,669,758 $17,851,627
Cash (including foreign currencies)
Receivables:
Interest and dividends 11,181 346,203
Investment securities sold 10,293
Tax reclaims 1,559
Prepaid expenses 2,006 7,720
Deferred organization expenses
(Note 2G) 9,356 9,424
Total assets 1,704,153 18,214,974
LIABILITIES
Payable for securities purchased
Accrued expenses 13,154 26,741
Total liabilities 13,154 26,741
NET ASSETS (Note 4) $1,690,999 $18,188,233
Shares outstanding 126,932 1,927,052
Net asset value, offering and redemption price
per share $13.32 $9.44
At April 30, 1999, the components of net assets
were as follows:
Paid-in capital $1,986,635 $17,548,885
Undistributed net investment income
6,642 336,777
Accumulated net realized losses on investments
(318,244) (12,366)
Unrealized appreciation/depreciation of
investments and translation of foreign currency
denominated assets and liabilities
15,966 314,937
$1,690,999 $18,188,233
STATEMENT OF OPERATIONS
For the Six Months ended April 30, 1999
Penn Street Fund, Inc.
Global Equity Global Income
Portfolio Portfolio
INVESTMENT INCOME
INCOME
Interest $15,039 $608,214
Dividends 16,800 6,486
Total income 31,839 614,700
EXPENSES
Investment management fees (Note 5)
10,941 73,308
Shareholder servicing fees (Note 6)
975 11,093
Administration (Note 5), accounting and transfer
agent 4,934 32,945
Professional fees 1,781 12,061
Custody fees 2,493 2,370
Amortization of organization expenses
3,109 3,109
Other operating expenses 964 6,910
Total expenses 25,197 141,796
Net investment income 6,642 472,904
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) from investments
326,168 (12,002)
Net realized gain (loss) from foreign currency
transactions 8,244 (364)
Net change in unrealized ppreciation/depreciation
of investments 245,817 (526,791)
Net change in unrealized appreciation/depreciation of
foreign currency denominated assets and liabilities
(131) (3,738)
Net gain (loss) on investments and foreign
currency denominated asset and liabilities
580,098 (542,895)
Net increase (decrease) in net assets resulting
from operations $586,740 $(69,991)
GLOBAL EQUITY PORTFOLIO
Statement of Changes in Net Assets
Penn Street Fund, Inc.
Six months ended Year ended
April 30, 1999 October 31, 1998
(unaudited)
OPERATIONS
Net investment income $6,642 $14,308
Net realized gain on investments and foreign
currency transactions 334,412 4,972,133
Net change in unrealized appreciation of investments
and foreign currency denominated assets and
liabilities 245,686 (5,543,759)
Net increase in net assets resulting from operations
586,740 (557,318)
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ($0.00 and
$0.05 per share, respectively) (14,308)
Distribution from realized gains ($0.00 and $0.07 per
share, respectively) - (18,583)
CAPITAL SHARE TRANSACTION
Net decrease in net assets from capital share transactions
(a) (1,955,387) (22,405,665)
Net decrease in net assets
(1,368,647) (22,995,874)
Net assets at the beginning of the period
3,059,646 26,055,520
Net assets at the end of the period (including
undistributed net investment income of $6,642 and
$0, respectively) 1,690,999 $3,059,646
(a) A summary of capital share transactions is as follows:
Six months ended Year ended
April 30, 1999 October 31, 1998
Shares Value Shares Value
Shares sold 24,193 $308,555 40,331 $442,792
Shares issued in reinvestment of distributions
to shareholders - - 3,021 32,891
24,193 308,555 43,352 475,683
Shares redeemed= (178,311) (2,263,942) (2,053,882) (22,881,348)
Net increase (decrease)
(154,118) ($1,955,387) (2,010,530)($22,405,665)
GLOBAL INCOME PORTFOLIO
Statement of Changes in Net Assets
Penn Street Fund, Inc.
Six months ended Year ended
April 30, 1999 October 31, 1998
(unaudited)
OPERATIONS
Net investment income $472,904 $801,640
Net realized gain on investments and foreign
currency transactions (12,366) 582,579
Net change in unrealized appreciation of investments
and foreign currency denominated assets and iabilities
(530,529) 204,117
Net increase in net assets resulting from operations
(69,991) 1,588,336
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($0.07 and $0.43 per share, respectively)
(142,699) (801,438)
Distributions from realized gains ($0.30 per share)
- (582,579)
CAPITAL SHARE TRANSACTION
Net increase (decrease) in net assets from capital
share
transactions (a) (1,920,083) 8,705,954
Net increase (decrease) in net assets
(2,132,773) 8,910,273
Net assets at the beginning of the period
20,321,006 11,410,733
Net assets at the end of the period (including
undistributed net investment income of $336,777and
$6,572 respectively) $18,188,233 $20,321,006
(a) A summary of capital share transactions is as
follows:
Six Months Ended Year ended
April 30, 1999 October 31, 1998
Shares Value Shares Value
Shares sold 340 $3,218 1,321,141 $12,696,936
Shares issued in reinvestment of distributions to
shareholders 14,924 142,699 144,949 1,384,018
15,264 145,917 1,466,090 14,080,954
Shares redeemed (215,673) (2,066,000) (550,241) (5,375,000)
Net increase (decrease)
(200,409)($1,920,083) 915,849 $8,705,954
GLOBAL EQUITY PORTFOLIO
Financial Highlights
For a share outstanding throughout each period
Penn Street Fund, Inc.
Six Mths ended
April 30, 1999 Year ended Year ended Nov 8, 1995+ to
(Unaudited) October 31, 1998 October 31, 1997 October 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period
$10.89 $11.37 $10.82 $10.00
Net income (loss) from investment operations
Net investment income
0.05 0.05 0.02 0.05
Net realized and unrealized gain (loss)
on investments and foreign currency transactions
2.38 (0.41) 1.41 0.84
Total from investment operations
2.43 (0.36) 1.43 0.89
Less distributions
Distributions from net investment income
- (0.05) (0.04) (0.07)
Distributions from realized gains
- (0.07) (0.84) -
Total distributions
- (0.12) (0.88) (0.07)
Net asset value, end of period
$13.32 $10.89 $11.37 $10.82
TOTAL RETURN 22.31%* (3.18%) 13.57% 8.89%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)
$1,691 $3,060 $26,056 $26,137
Ratio to average net assets
Expenses 1.73%** 1.99% 1.71% 1.82%**
Net investment income
0.46%** 0.17% 0.20% 0.40%**
Portfolio turnover rate
76% 44% 25% 42%
+ Commencement of operations
* Total return has not been annualized
**Annualized
GLOBAL INCOME PORTFOLIO
Financial Highlights
For a share outstanding throughout each period
Penn Street Fund, Inc.
Six Months ended
April 30, 1999 Year ended Year ended Nov 8, 1995+ to
(Unaudited) October 31, 1998 October 31, 1997 October 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period
$9.55 $9.42 $10.48 $10.00
Net income from investment operations
Net investment income
0.24 0.43 0.47 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency transactions
(0.28) 0.43 (0.06) 0.26
Total from investment operations
(0.04) 0.86 0.41 0.76
Less distributions
Distributions from net investment income
(0.07) (0.43) (0.90) (0.28)
Distributions from net realized gains
- (0.30) (0.57) -
Total distributions
(0.07) (0.73) (1.47) (0.28)
Net asset value, end of period
$9.44 $9.55 $9.42 $10.48
TOTAL RETURN
(0.43)%* 9.15% 4.19% 7.79%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)
$18,188 $20,321 $11,411 $12,870
Ratio to average net assets
Expenses 1.46%** 1.81% 1.72% 1.84%**
Net investment income
4.87%** 4.46% 5.39% 4.88%**
Portfolio turnover rate
32% 43% 22% 29%
+ Commencement of operations
* Total return has not been annualized
**Annualized
NOTES TO FINANCIAL STATEMENTS
April 30, 1999 (Unaudited)
Penn Street Fund, Inc.
(1) Organization
Penn Street Fund Inc. (the "Fund"), is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-
end management investment company and is
authorized to issue shares in separate series.
The Fund currently offers shares in two
diversified series, the Global Equity Portfolio
and the Global Income Portfolio (the
"Portfolios").
The Fund was incorporated on July 6, 1995, and
between that date and November 8, 1995 the Fund
had no operations other than those relating to
organizational matters and the registration of
its shares under applicable securities laws.
On April 5, 1999 the Fund's Board of Directors
held an emergency meeting to address issues
arising from the untimely death of Richard T.
Coghlan, the Portfolios' investment manager. At
this meeting the Directors voted to approve the
hiring of McGlinn Capital Management, Inc.
("McGlinn") to replace Penn Street Advisors,
Inc. ("Penn Street") as investment advisor for
the Global Equity Portfolio. The terms of the
new investment advisory agreement are
substantially equivalent to the terms of the
previous agreement with Penn Street except that
the advisory fee rate has been reduced from
0.75% to 0.60% of the Portfolio's average daily
net assets. In connection with McGlinn's
hiring, the Directors also approved a change in
fundamental investment objective from "high
total return, with emphasis on capital
appreciation" to "long-term growth with
moderate income" and a change of name to the
McGlinn Balanced Portfolio. To accomplish this
objective the Portfolio's assets will be
invested following a flexible asset allocation
approach which under normal conditions will be
approximately 60% in domestic equity securities
and 40% in domestic fixed income securities.
The Fund, as required by the Investment Company
Act of 1940, has solicited proxies seeking
shareholder approval of these organizational
changes and no advisory fees will be paid to
McGlinn until such approval is obtained.
(2) Significant Accounting Policies
The Global Equity Portfolio's current
investment objective is to provide long-term
growth with moderate income using a flexible
asset allocation approach that emphasizes the
selection of securities (typically 60% domestic
equity securities and 40% in domestic fixed
income securities) that provide sufficient
current income to reduce downside risk. The
Global Income Portfolio's investment objective
is to achieve a relatively stable rate of total
return with emphasis on yield, by investing
principally in fixed income securities and, to
a lesser extent, in equity securities of high
quality companies located predominately in the
developed countries with, at most, very limited
exposure to less developed countries. The price
of each Portfolio's shares will fluctuate daily
and there can be no assurance that the
Portfolios will be successful in achieving
their stated investment objectives.
The following is a summary of the significant
accounting policies followed by the Portfolios
in the preparation of their financial
statements. These policies are in accordance
with generally accepted accounting principles.
A. Security Valuation. The securities held by
the Portfolios are valued as of the close of
the New York Stock Exchange (the "NYSE").
Listed securities are valued at the last quoted
sales price on the exchange were the security
is principally traded. Securities listed on
foreign exchanges are valued at the latest
quoted market price available prior to the
close of the NYSE. Debt securities may be
valued on the basis of prices provided by a
pricing service using methods approved by the
Fund's Board of Directors. Other assets and
securities for which no quotations are readily
available are valued in good faith by, or under
the direction of, the Fund's Board of
Directors.
B. Currency Translation. The market values of
all assets and liabilities denominated in
foreign currencies are recorded in the
financial statements after translation to the
U.S. dollar based upon the bid price of such
currencies against the U.S. dollar last quoted
by a major bank or broker. The cost basis of
such assets and liabilities is determined based
upon historical exchange rates. Income and
expenses are translated at average exchange
rates in effect as accrued or incurred.
The Portfolios do not isolate that portion of
the results of operations resulting from
changes in foreign exchange rates on
investments from the fluctuations arising from
changes in market prices of securities held.
Such fluctuations are included with the net
realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or
losses arise from sales and maturities of
short-term securities, sales of foreign
currencies, currency gains or losses realized
between the trade and settlement dates on
securities transactions, the difference between
the amounts of dividends, interest, and foreign
withholding taxes recorded on the Portfolios'
books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net
unrealized foreign exchange gains and losses
arise from changes in the value of assets and
liabilities other than investments in
securities at fiscal year end, resulting from
changes in the exchange rate.
C. Forward Currency Contracts. The Portfolios
may enter into forward purchases or sales of
foreign currencies to hedge certain foreign
currency denominated assets and liabilities
against declines in market value relative to
the U.S. dollar. Forward currency contracts are
marked-to-market daily and the change in market
value is recorded by the Portfolios as an
unrealized gain or loss. When the forward
currency contract is closed, the Portfolios
record a realized gain or loss equal to the
difference between the value of the forward
currency contract at the time it was opened and
the value at the time it was closed.
Investments in forward currency contracts may
expose the Portfolios to risks resulting from
unanticipated movements in foreign currency
exchange rates or failure of the counterparty
to the agreement to perform in accordance with
the terms of the contract.
D. Federal Income Taxes. The Portfolios
intend to comply with the requirements of the
Internal Revenue Code applicable to regulated
investment companies and to distribute all of
their taxable income to their shareholders.
Therefore, no federal income tax provision is
required.
E. Security Transactions, Interest and
Dividends. As is common in the industry,
security transactions are recorded on the trade
date. Interest income is accrued as earned.
Discounts and premiums are amortized in
accordance with Federal income tax
requirements. Dividends are recorded on the ex-
dividend date.
F. Distributions to Shareholders.
Distributions to shareholders are recorded on
the ex-dividend date. The character of
distributions paid to shareholders is
determined by reference to income as determined
for income tax purposes, after giving effect to
temporary differences between the financial
reporting and tax basis of assets and
liabilities, rather than income as determined
for financial reporting purposes.
G. Deferred Organization Expenses. All of the
expenses incurred by the Fund in connection
with the organization and the registration of
the Portfolios' shares were borne equally by
each Portfolio and are being amortized to
expense on a straight-line basis over a period
of five years.
H. Use of Estimates. In preparing financial
statements in accordance with generally
accepted accounting principles, management is
required to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and the disclosure of contingent
assets and liabilities at the date of the
financial statements, and revenues and expenses
during the reporting period. Actual results
could differ from those estimates.
(3) Investments
For the six months ended April 30, 1999, the
cost of securities purchased and the proceeds
from securities sold, excluding short-term
notes, was $1,985,581 and $3,698,614,
respectively, for the Global Equity Portfolio,
and $5,946,547 and $6,692,597, respectively,
for the Global Income Portfolio.
At April 30, 1999 net unrealized appreciation
of investment securities consisted of gross
unrealized appreciation and gross unrealized
depreciation of $61,199 and $(45,185),
respectively, for the Global Equity Portfolio
and $507,729 and $(192,792) respectively, for
the Global Income Portfolio.
On October 31, 1998 the Global Equity Portfolio
had a capital loss carry forward of $652,656
which expires in 2006.
(4) Capital Stock
At April 30, 1999, the authorized capital of
the Fund consisted of one billion shares of
$.01 par value common stock with 100 million
shares designated and classified the Global
Equity Portfolio and 100 million shares
designated and classified the Global Income
Portfolio.
(5) Investment Management Fee and
Administration Fee
Investment Advisory Agreement. Penn Street
provides investment management services to the
Global Income Portfolio under an Investment
Advisory Agreement. Penn Street provides the
Portfolio with continuous investment programs,
a trading department, and selects brokers and
dealers to effect securities transactions. As
compensation for its services, Penn Street is
paid a monthly fee which is equal to the annual
rate of 0.75% of the Portfolio's average daily
net assets.
Penn Street also provided investment management
services to the Global Equity Portfolio through
April 5, 1999 under terms identical to those
provided to the Global Income Portfolio.
Effective April 5, 1999 McGlinn was retained to
provide investment management services to the
Global Equity Portfolio under an Investment
Advisory Agreement. McGlinn provides the
Portfolio with continuous investment programs,
a trading department, and selects brokers and
dealers to effect securities transactions. As
compensation for its services, McGlinn will be
paid a monthly fee which is equal to the annual
rate of 0.60% of the Portfolio's average daily
net assets.
Administration Agreement. Penn Street also
serves as the Administrator of the Fund under
an Administration Agreement. The services
include the administration of the Fund's
business affairs, supervision of services
provided by other organizations providing
services to the Fund, including the custodian,
dividend disbursing agent, legal counsel and
independent accountants, preparation of certain
Fund records and documents, record keeping and
accounting services. As compensation for these
services, Penn Street is paid a monthly fee
which is equal to the annual rate of 0.25% of
each Portfolio's average daily net assets.
(6) Distribution Plans
Distribution Plan. The Portfolios have adopted
Distribution Plans pursuant to rule 12b-1 under
the '40 Act, whereby each Portfolio may make
monthly payments at the annual rate of 0.25% of
each Portfolio's average net assets to East
Coast Consultants, Inc. ("East Coast") for
providing certain distribution services. These
services can include: promotion of the sale of
Portfolio shares, preparation of advertising
and promotional materials, payment of
compensation to persons who have been
instrumental in the sale of Portfolio shares,
and for other services and materials, including
the cost of printing Fund prospectuses, reports
and advertising material provided to investors,
and to defray overhead expenses of East Coast
incurred in connection with the promotion and
sale of Fund shares.
Shareholder Services Plan. The Portfolios have
also adopted Shareholder Services Plans (the
"Plans") which are designed to promote the
retention of shareholder accounts. Under these
Plans, the Portfolios are authorized to pay
East Coast a monthly fee which, on an annual
basis, may not exceed 0.25% of the average net
assets of each Portfolio. Payments under the
Plans would be used, among other things, to
compensate persons and/or organizations that
provide services to shareholders that are
designed to encourage them to maintain their
investments in the Portfolios.
(7) Other Transactions with Affiliates
Certain officers and directors of the Fund are
also officers and/or directors of Penn Street
and East Coast.
