STRADLEY, RONON, STEVENS & YOUNG
2600 One Commerce Square
Philadelphia, PA 19103
(215) 564-8000
Direct Dial: (215) 564-8003
March 9, 1999
FILED VIA EDGAR
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Penn Street Fund, Inc.
1933 Act File No. 33- 95102
1940 Act File No. 811-09078
Rule 497(c) Filing
Ladies and Gentlemen:
Pursuant to Rule 497(c) under the Securities
Act of 1933, as amended, submitted electronically via
the EDGAR system, please find a form of Prospectus
and form of Statement of Additional Information
("SAI") for The Penn Street Fund, Inc., each dated
March 9, 1999.
Please direct questions or comments relating to
this filing to me at the above-referenced telephone
number or, in my absence, to Stephen W. Kline,
Esquire at (610) 640-5801.
Very truly yours,
/s/ Lisa L. B. Matson
Lisa L. B. Matson
Enclosures
cc: Richard T. Coghlan, Ph.D
Josephine A. Coghlan
Stephen W. Kline, Esq.
The Penn Street Fund, Inc.
Global Equity Portfolio
Global Income Portfolio
Prospectus
March 9, 1999
Like all mutual fund, 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.
Table of Contents
Overview 5
Objectives and Strategies 6
Risks 9
Global Equity Portfolio Performance 11
Global Income Portfolio Performance 12
Fees and Expenses 13
Management 14
Distribution 14
Global Equity Portfolio - Financial Highlights 15
Global Income Portfolio - Financial Highlights 16
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 and Adding to Accounts 21
Redemption of Shares 22
The Penn Street Fund, Inc.
OVERVIEW
The Penn Street Fund is made up of two separate,
diversified portfolios: The Global Equity Portfolio
and The Global Income Portfolio. The Penn Street Fund
is designed for individual and institutional investors
seeking diversified investment portfolios, based on
active research and management, which take changing
business cycle conditions into account in different
countries.
The Portfolios are intended for long-term investors
who can accept the risks entailed in investment in
foreign securities. The Penn Street Fund provides a
flexible investment approach that tries to anticipate,
and protect against, the business cycle risks involved.
The Portfolios should not be relied upon by shareholders
as a complete investment program, or used to play
short-term swings in the investment markets.
OBJECTIVES AND STRATEGIES
Investment Objectives
Global Equity Portfolio:
The Global Equity Portfolio's investment objective is to
achieve a high rate of total return, with emphasis on
capital appreciation.
Global Income Portfolio:
The Global Income Portfolio's investment objective is to
seek a rate of total return which fluctuates less than
that of the Global Equity Portfolio by putting emphasis
on income.
Principal Investment Strategies
Investments Common to Both Portfolios:
Each Portfolio ordinarily will invest at least
65% of its total assets in securities of
companies and/or governments of at least three
different countries. The global nature of the
Portfolios has the potential to reduce risks
substantially, but also introduces risks that
do not exist in a single country fund. The
Global Equity and Global Income Portfolios may
invest in securities of governments or
companies in developing countries, but only
when conditions are appropriate. In
determining the appropriate distribution of
investments among various countries and
geographic regions, Penn Street Advisors, Inc.
( 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.
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 Portfolios provide 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 the Advisor but are also
constantly monitored for changes in economic
conditions, the political situation and
investment markets to determine whether events
are consistent with the Advisor's expectations
and whether any developments are occurring that
might cause those expectations to change. The
composition of each Portfolio is adjusted to
reflect the Advisor's view of changing
conditions.
Global Equity Portfolio:
This Portfolio invests principally in the
common and preferred stock of companies located
anywhere in the world, but predominantly in
industrialized countries. Most investments will
be made in those securities, that the Advisor
believes have the potential for capital
appreciation. Also, the Portfolio may hold
fixed-income securities when, in the Advisor's
judgment, these securities offer an attractive
rate of total return in relation to anticipated
returns on common and preferred stock, taking
into account the expected risk involved.
The Advisor adopts a balanced value approach to
selecting securities to include in the
Portfolio. A balanced portfolio is considered
to be one that will typically include broad
diversification across individual assets,
sectors, asset types, countries and time,
applied consistently according to quantitative
forecasts of changing business cycle conditions
in the U.S. and other countries. Such
diversification is an important consideration
in reducing risk while still achieving a high
level of total return.
The value approach identifies companies that
the Advisor believes offer future growth at an
attractive price, i.e. that will provide
consistent growth in the future at a current
price that reflects a less optimistic outlook.
The Advisor looks at standard measures of value
such as the price-to-earnings ratio, the
expected growth rate of earnings, the price-to-
book ratio and the return on equity. The
Advisor also evaluates the quality of companies
and their future prospects for success. This
analysis will depend on less quantifiable
things such as product penetration, new product
development and the quality of management.
Global Income Portfolio:
This 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, which have an attractive rate
of return and whose market prices the Advisor
expects will remain relatively stable in
relation to the price of fixed-income
securities.
In analyzing investments in the Global Income
Portfolio, the Advisor will ordinarily look for
a high yield along with discounted prices. 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 or a
comparable rating by Moody's Investors
Services, Inc.
By investing in both international and domestic
fixed-income securities, the Portfolio can
expand its investment horizons while providing
an effective means of reducing volatility
associated with concentration in a single
country or region. 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.
RISKS
Each Portfolio is subject to risks associated
with business cycles in the countries in which
it invests. The value of the Portfolios may go
down, which means that you could lose money.
Risks of the Global Equity Portfolio
The value of common and preferred stocks tends
to fluctuate more dramatically than other asset
classifications. Such fluctuations result from
factors that affect the individual companies or
the industries or the securities markets as a
whole. The Global Equity Portfolio is
principally susceptible to the risks of these
types of equity securities. To the extent that
the Global Equity Portfolio is permitted to
invest in debt securities, it may also be
affected by the risks of debt securities.
Since debt securities are affected by interest
rates, as interest rates rise, the value of the
debt securities, if any, contained in the
Global Equity Portfolio will go down. However,
this is not a principal risk of the Global
Equity Portfolio.
Risks of the Global Income Portfolio
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 affect the Global Income
Portfolio, albeit to a lesser extent than the
Global Equity Portfolio.
Risks Common to Both Portfolios
The following risks are common to both
Portfolios which means that each of the risk
factors listed below may affect both the Global
Income Portfolio and the Global Equity
Portfolio.
Market Characteristics
The securities markets of countries in which
the Penn Street Fund may invest ("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 both
Portfolios.
Foreign Currency
Investments in foreign securities will normally
be denominated in foreign currencies. As a
result, both of the Portfolios can be
significantly effected by the changes in
foreign currency exchange rates.
Economic Factors
The economies of Portfolio Countries may be
less developed or diverse than the U.S., and
the outlook may be more uncertain. Both
Portfolios may be affected by adverse economic
conditions in the Portfolio Countries.
Political Factors
The internal politics of many Portfolio
Countries may not be as stable as in the U.S.
Some governments continue to participate;
though ownership interest or regulation, in
their respective economies and securities
markets, and may impose restrictions or take
other actions that 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 Penn Street Fund's legal rights
outside the U.S. As a result, global investing
carries the additional risk that the securities
in the Portfolio Countries may not perform
consistent with the Advisor's expectations.
Year 2000
The Penn Street Fund could be adversely
affected if the computer systems used by the
Penn Street Fund or its service providers do
not function properly when processing date-
related information on and after January 1,
2000. This is commonly known as the "Year 2000
Issue." The Penn Street Fund is taking steps
address the Year 2000 Issue with respect to
computer systems that it uses. 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. At this time, it is impossible to
ensure that these steps will be sufficient to
avoid any adverse impact to the Penn Street
Fund.
The Penn Street Fund also will rely on the
public filings and other statements about Year
2000 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
Year 2000 readiness disclosure that is required
in the U.S. If a company in which the Penn
Street Fund is invested is adversely affected
by Year 2000 problems, the price of that
company's securities also may be adversely
affected. A decrease in the value of the
Portfolios' holdings may have a similar impact
on the price of Penn Street Fund shares.
GLOBAL EQUITY PORTFOLIO PERFORMANCE
The two tables below show how the Portfolio's
annual total returns have varied for the last
three years. The bar chart shows changes in the
Portfolio returns over time. The second table
shows how the Portfolio's average annual
returns for certain periods compare with those
of the Morgan Stanley World Index and
Morningstar World Equity Index. Both tables
reflect all expenses of the Portfolio and
assume that all dividends and capital gain
distributions have been reinvested in new
shares of the Portfolio. 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 (%).
10.25%
7.20%
6.45%
96 97 98
Best Quarter 15.37% Q4 1998
Worst Quarter -11.31% Q3 1998
Average annual total return as of 12/31/98
Inception
1 Year (11/08/95 )
Global Equity Portfolio 6.45% 9.08%
Morgan Stanley World Index 24.27% 20.53%
Morningstar World Equity Index 11.62% 12.92%
GLOBAL INCOME PORTFOLIO PERFORMANCE
The two tables below show how the Portfolio's
annual total returns have varied for the last
three years. The bar chart shows changes in the
Portfolio 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%
96 97 98
Best Quarter 3.70% Q4 1996
Worst Quarter -2.90% Q1 1997
Average annual total return as of 12/31/98
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%
FEES AND EXPENSES
This table describes the fees and expenses that
you may pay if you buy and hold shares of the
Penn Street Fund. There are no sales charges or
shareholder transaction expenses.
Annual Portfolio Operating Expenses*
Global Global
Equity Income
(expenses that are deducted from Portfolio assets)
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees 0.01% 0.00%
Other Expenses 0.87% 0.71%
Total Annual Fund Operating Expenses 1.63% 1.46%
* Management fees and other expenses were
reduced effective November 7, 1998. The expenses
shown here are based on these revised numbers.
The following Examples are intended to help you
compare the cost of investing in each Portfolio
with the cost of investing in other mutual
funds. The Examples assume that you invest
$10,000 in the Portfolio for the time periods
indicated and then redeem all of your shares at
the end of those periods. The Examples also
assume that your investment has a 5% return
each year and that the Portfolio's operating
expenses remain the same. Although your actual
costs may be higher or lower, based on these
assumptions your costs would be:
Expense Examples:
Global Equity Portfolio
1 year 3 years 5 years 10 years
$165 $514 $886 $1932
Global Income Portfolio
1 year 3 years 5 years 10 years
$148 $461 $797 $1746
MANAGEMENT
The Penn Street Fund is managed by Penn Street
Advisors, Inc., ("Advisor") 30 Valley Stream
Parkway, Great Valley Corporate Center,
Malvern, PA 19355. Advisor was founded in
1989. For its services, the Penn Street Fund
pays Advisor a fee at the annual rate of 0.75%
of the Penn Street Fund's average net assets.
Until January 14, 1998 the name of the Advisor
was Strategic Investment Services, Inc. The
Advisor is a wholly owned subsidiary of
Millennium Bank, a full service bank, providing
banking and trust services.
The Advisor provides the Portfolios with
continuous investment programs, and trading
department, and selects brokers and dealers to
effect securities transactions. Portfolio
securities transactions are placed with a view
to obtaining best price and execution and,
subject to this goal, may be placed with
brokers which have assisted in the sale of a
Portfolio's shares. Mr. Richard T. Coghlan,
founder and President of the Advisor, is
primarily responsible for the day-to-day
management of the Penn Street Fund's
investments.
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
distribution expenses up to 0.25%. The
Distributor elected to waive its 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.
FINANCIAL HIGHLIGHTS
GLOBAL EQUITY PORTFOLIO
The financial highlights table is intended to
help you understand the Global Equity
Portfolio's financial performance for the past
three years. Certain information reflects
financial results for a single Penn Street Fund
share. The total returns in the table represent
the rate that an investor would have earned or
lost on an investment in the Penn Street Fund
(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
Penn Street Fund's financial statements, are
included in the annual report, which is
available upon request.
Year ended Year ended Nov 8, 1995+
Oct 31, 1998 Oct 31,1997 to Oct 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.37 $10.82 $10.00
Net income from investment operations
Net investment income 0.05 0.02 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions (0.41) 1.41 0.84
Total from investment operations (0.36) 1.43 0.89
Less distributions
Distributions from net investment income (0.05) (0.04) (0.07)
Distributions from realized gains (0.07) (0.84) _____
Total distributions (0.12) (0.88) (0.07)
Net asset value, end of period $10.89 $11.37 $10.82
TOTAL RETURN (3.18%) 13.57% 8.89%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,060 $26,056 $26,137
Ratio to average net assets
Expenses 1.99% 1.71% 1.82%**
Net investment income 0.17% 0.20% 0.40%**
Portfolio turnover rate 44% 25% 42%
+ Commencement of operations
* Total return has not been annualized
**Annualized
FINANCIAL HIGHLIGHTS
GLOBAL INCOME PORTFOLIO
The financial highlights table is intended to
help you understand the Global Income
Portfolio's financial performance for the past
three years. Certain information reflects
financial results for a single Penn Street Fund
share. The total returns in the table represent
the rate that an investor would have earned on
an investment in the Penn Street Fund (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
Penn Street Fund's financial statements, are
included in the annual report, which is
available upon request.
Year ended Year ended Nov 8, 1995+
Oct 31, 1998 Oct 31, 1997 to Oct 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.42 $10.48 $10.00
Net income from investment operations
Net investment income 0.43 0.47 0.50
Net realized and unrealized gain on
investments and foreign currency
transactions 0.43 (0.06) 0.26
Total from investment operations 0.86 0.41 0.76
Less distributions
Distributions from net investment income (0.43) (0.90) (0.28)
Distributions from realized gains (0.30) (0.57) _____
Total distributions (0.73) (1.47) (0.28)
Net asset value, end of period $9.55 $9.42 $10.48
TOTAL RETURN 9.15% 4.19% 7.79%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $20,321 $11,411 $12,870
Ratio to average net assets
Expenses 1.81% 1.72% 1.84%**
Net investment income 4.46% 5.39% 4.88%**
Portfolio turnover rate 43% 22% 29%
+ Commencement of operations
* Total return has not been annualized
**Annualized
HOW TO PURCHASE SHARES
Purchase Price:
You pay no sales charges to invest in the Penn
Street Fund. The price for Penn Street Fund
shares is the Penn Street Fund's net asset
value per share ("NAV"), which is calculated at
the close of the New York Stock Exchange
("NYSE") each day that the exchange is open for
trading. All orders are priced at the next NAV
calculated after the order is 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 $50,000, 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 redemption's 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.
Prospective investors
should consult their
own tax advisors
concerning the tax
consequences of any
investment.
TO OPEN AN ACCOUNT
Initial purchase of at least $50,000
For initial accounts: Complete an Application and return to:
Penn Street Advisors, Inc.
30 Valley Stream Parkway
Great Valley Corporate Center
Malvern, PA 19355
* For an IRA include the tax year of contribution
By check:
Checks should be made out to:
Penn Street Global Equity Portfolio
Penn Street Global Income Portfolio
and mailed to:
Union Bank of California Global Custody
475 Sansome Street, 15th Floor
San Francisco, CA 94111
attn.: Jennifer Tse
* Separate checks are required if investing in both
Portfolios. For an IRA include the tax year of contribution.
By Wire:
Must notify Transfer Agent by calling:
610-578-9944 to obtain an account number and to provide
your federal tax identification number.
* For an IRA include the tax year of contribution.
Must have bank wire transmitted to:
Union Bank of California
ABA #1220-0049-6 for credit to Union Bank of
California Global Custody
Account # 09599196431
then to A/C #01643 Global Equity Portfolio
or A/C #01644 Global Income Portfolio
TO ADD TO AN ACCOUNT
No minimum purchase for subsequent investments
Must notify the Transfer Agent in writing, stating
account # and investment amount.
Send 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
Penn Street Global Equity Portfolio or
Penn Street 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 Global Equity Portfolio or
A/C #01644 Global Income Portfolio
REDEMPTION OF SHARES
By mail:
Write a letter of instruction that includes:
Shareholder's account number and Portfolio name.
Amount of the transaction (specified in dollars or shares).
Signatures of all owners exactly as they are registered.
How and where to send the proceeds.
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.
THE GLOBAL EQUITY PORTFOLIO
THE GLOBAL INCOME PORTFOLIO
More information on The Penn Street Fund is available
free upon request, including the following:
Annual/Semiannual 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 Global Equity 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
TABLE OF CONTENTS
Page
General Information 2
Investment Objectives and Policies 2
Fundamental Policies 2
Operating Policies 3
Fixed Income Securities 5
Writing Listed Covered Call Options 5
Purchasing Listed Call Options 7
Purchasing Listed Put Options 7
Dealer Options 8
Futures Contracts 9
Lending Portfolio Securities 10
Repurchase Agreements 11
Foreign Currency Transactions 11
Investment Performance 12
Management of the Fund 13
Investment Management Services 14
Sale of Fund Shares 16
Distribution 17
Tax Status 18
Principal Shareholders 20
GENERAL INFORMATION
The Fund is an open-end, diversified management
investment company organized as a corporation in the
State of Maryland on July 6, 1995, but did not issue
any shares until November 8, 1995 The Fund is
currently authorized to issue shares, par value , and
may issue such shares in multiple series and classes.
The Fund currently issues shares in two series
(portfolios): the Global Equity Portfolio and the
Global Income Portfolio (individually a "Portfolio"
and collectively the "Portfolios"). Each series
represents interests in a separate portfolio of
securities, and all shares of a series have identical
voting powers, preferences, restrictions and other
terms. The Fund is registered under the Investment
Company Act of 1940. Until January 14, 1998, the name
of the Fund was S.I.S. Mercator Fund, Inc.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion
under "Investment Objectives and Policies" in the
prospectus. The "Fundamental Policies" of the
Portfolios are described below and may not be changed
without the approval of the lesser of: a vote of the
holders of a majority of the outstanding shares of
the Portfolio or, 67% of the shares represented at a
meeting of shareholders of the Portfolio at which the
holders of at least 50% or of the shares are
represented.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, each Portfolio will not:
(1) borrow money, except from banks as a
temporary measure for extraordinary or
emergency purposes, including redemption of its
shares, and then only in amounts not exceeding
33 1/3% of its total assets, valued at market.
The Portfolios also may acquire futures
contracts and options thereon as set forth in
(2) below;
(2) purchase or sell commodities or commodity
contracts; except that the Portfolios may (i)
enter into financial (including currency)
futures contracts and options thereon on an
initial and variation margin basis;
(3) purchase the securities of any issuer if,
as a result, more than 25% of the value of the
Portfolio's total assets would be invested in
the securities of issuers having their
principal business activities in the same
industry;
(4) make loans, although a Portfolio may
enter into repurchase agreements and lend its
portfolio securities;
(5) as to 75% of its total assets, purchase
the securities of an issuer if as a result: (a)
more than 5% of the value of the Portfolio's
assets would be invested in the securities of
that issuer or (b) it would own more than 10%
of the voting securities of that issuer;
(6) purchase or sell real estate although it
may purchase securities secured by real estate
or representing interests therein;
(7) issue senior securities;
(8) underwrite securities issued by other
persons, except to the extent that a Portfolio
or the Fund may be deemed to be an underwriter
within the meaning of the Securities Act of
1993 in connection with the purchase and sale
of securities in the ordinary course of
pursuing its investment program.
OPERATING POLICIES
The following operating policies have been
established by the Board of Directors. A
Portfolio will not:
(1) invest in companies for the purpose of
exercising management or control;
(2) purchase a security if, as a result of
such purchase, more than 15% of the value of
the Portfolio's net assets would be invested in
illiquid securities, including repurchase
agreements which do not provide for payment
within seven days;
(3) purchase securities of any investment
company, except in compliance with the
Investment Company Act of 1940; or
(4) sell securities short.
Operating policies are established, and may be
changed, by the Board of Directors without
approval of shareholders.
In determining the appropriate distribution of
investments among various countries and
geographic regions, the Advisor ordinarily
considers the following factors: prospects for
relative economic growth between foreign
countries; expected levels of inflation;
government policies influencing business
conditions; the outlook for currency
relationships; and the range of individual
investment opportunities available to
international investors.
In analyzing companies for investment in the
Global Equity Portfolio, the Advisor ordinarily
looks for one or more of the following
characteristics: an above-average earnings
growth per share; high return on invested
capital, healthy balance sheet; sound financial
and accounting policies and overall financial
strength; strong competitive advantages;
effective research and product development and
marketing; efficient service; pricing
flexibility; strength of management; and
general operating characteristics which will
enable the companies to compete successfully in
their market place. While current dividend
income is not a prerequisite in the selection
of companies, the companies in which the
Portfolio invests normally will have a record
of paying dividends, which the Advisor expects
to increase in future years as earnings
increase.
The Global Equity Portfolio invests principally
in common stocks of liquid, relatively high-
capitalization companies in the major
industrialized countries which, the Advisor
believes, have the potential for growth of
capital or income or both. The Portfolio may
invest in American Depository Receipts and
Global Depository Receipts for which there is,
in the Advisor's judgment, a liquid market. In
order to increase total return, the Portfolio
may invest up to 25% of its assets in other
types of securities, including warrants, that
have higher current yields, including
convertible securities, preferred stocks,
bonds, notes and other debt securities.
In analyzing investments in the Global Income
Portfolio, the Advisor will ordinarily look for
a high and sustainable real and nominal income
flow. The bonds included in the Portfolio will
generally be issued by national governments,
supranational institutions or securities of
high-quality companies with liquid markets. The
Global Income Portfolio may also invest in
relatively high yielding equities of good
quality companies at times when the Advisor
believes the market price of the equity
securities is likely to be more stable than
that of debt securities. Ordinarily, most
investments will be in government debt or the
debt of supranational institutions rated at
least AA by Standard & Poor's Corporation
("S&P") or a comparable rating by Moody's
Investors Services, Inc. ("Moody's").
Ordinarily, the Portfolio will hold at least
65% of its investments in at least three
different countries, but may invest in fixed
income obligations of only one country for
temporary, defensive purposes. Normally, the
Portfolio's assets will be invested principally
in fixed income securities issued or guaranteed
by the U.S. or foreign governments, their
agencies and instrumentalities and
supranational organizations. To a lesser
extent, investments may be made in domestic and
foreign corporate obligations rated at least
investment grade (BBB), and obligations of, or
guaranteed by, foreign governments rated at
least BB, or its equivalent; see the section on
"Fixed Income Securities." There may also be
circumstances when the Portfolio will hold
equities, including preferred and convertible
stocks, and relatively high yielding, high
quality common stocks, but not in excess of 40%
of the total value of the Portfolio. Such
investments will be made, if conditions seem
appropriate, in order to protect the capital
value of the Portfolio while continuing to
emphasize income. This will depend on
circumstances at the time, and available
investment opportunities, and will become more
likely if interest rates are expected to
increase.
Allocation decisions will depend on the level
of interest rates available in different
countries, relative interest rates within the
country, i.e., the yield curve, the expected
change in interest rates and the outlook for
exchange rates. These conditions will depend
on, among other things, fiscal policy, monetary
policy, the balance of payments, inflation and
the growth rate of the economy. Country
allocations, sector and asset selections, as
well as duration and maturity decisions will be
based on the Advisor's continuing research of
economic, financial and political developments
in the major industrialized countries.
Portfolio holdings will be widely diversified.
The Portfolios may invest in securities of
companies and governments in the Far East,
Western Europe, South Africa, Australia,
Canada, as well as the U.S. and other areas.
The Global Equity and Global Income Portfolios
do not intend to invest more than 10% of the
value of their total assets in securities of
governments or companies in developing
countries. The investment objectives of the
Portfolios may not be changed without
shareholder approval.
The Global Equity and Global Income Portfolios
are managed in accordance with the concept that
broad diversification across individual assets,
sectors, asset types, countries and time,
applied consistently according to quantitative
forecasts of changing business cycle conditions
in the United States and other countries, can
reduce risk and increase returns. Asset
selection is based, in part, on the Advisor's
view of the business cycle, not only in a
single country but within all the major
economies. Considerations that the Advisor
believes are crucial to rational asset
allocation include: the expected direction of
interest rates, including movements in the
yield curve, the anticipated direction of
exchange rates, the perceived direction of
economic activity and corporate profitability,
inflation and inflationary expectations,
central bank policies, taxes, other fiscal
policies as well as money and credit growth.
FIXED INCOME SECURITIES
Both Portfolios may invest in fixed-income
securities of the types described below, having
intermediate and long maturities. Ratings are
determined at the time of purchase and the
Portfolios are not obligated to sell securities
in the event of a subsequent rating reduction.
The Portfolios may invest in debt securities
issued by the U.S. Treasury, including bills,
notes and bonds, U.S. Government Agency
Obligations issued or guaranteed by U.S.
government-sponsored instrumentalities and
federal agencies, debt securities issued by
foreign governments and supranational
organizations, such as the European Coal and
Steel Community, the European Economic
Community and the World Bank rated at least AA
by S&P or a comparable rating by Moody's. In
addition, the Portfolios may invest in U.S. and
foreign corporate debt securities, including
banks (e.g., bonds and debentures) which are
rated at least Baa by Moody's or BBB by S&P or,
if unrated, when the Advisor determines that
they are of comparable quality to similar
issues of the same issuer rated at least BBB or
Baa. However, the Fund will not invest more
than 10% of its assets below a Baa rating. The
Portfolios may also invest in debt securities
issued, or guaranteed, by governments if they
are rated at least Ba by Moody's or BB by S&P
and the Fund's manager considers the
risk/return to be acceptable. Debt securities
rated Ba or BB may have some speculative
characteristics.
WRITING LISTED COVERED CALL OPTIONS
The Portfolios may write (sell) listed (exchange
traded) covered call options and purchase listed
options to close out options previously written. In
writing covered call options, a Portfolio would
expect to generate premium income, which should serve
to enhance the Portfolio's total return and reduce
the effect of any price decline of the optioned
security or currency. Covered call options will
generally be written on securities or currencies
which, in the Advisor's opinion, are not expected to
experience any major price increases in the near
future but which, over the long term, are deemed to
be attractive investments.
A call option gives the buyer the right to purchase a
security or currency at a specified price (the
exercise price), at expiration of the option
(European options) or at any time until the
expiration date of the option (American options). As
long as the obligation of the writer of a call option
continues, the buyer may require the seller to
deliver the underlying security or currency against
payment of the exercise price. This obligation
terminates upon the expiration of the option, or such
earlier time when the writer effects a closing
transaction by purchasing an identical option. To
secure the obligation to deliver the underlying
security or currency, the option seller must deposit
in escrow the underlying security or currency or
other assets in accordance with the rules of the
clearing corporation. The Portfolio will sell covered
call options, only. This means that the Portfolio
will own the security or currency subject to the
option, or an option to purchase the same underlying
security or currency, having an exercise price equal
to or less than the exercise price of the option it
has sold, or will establish and maintain with its
custodian for the term of the option, a segregated
account consisting of cash, U.S. government
securities or other liquid, high-grade debt
obligations having a value equal to the market value
of the optioned securities or currencies, and marked
to market daily. A Portfolio will not write a covered
call option if, as a result, the aggregate market
value of all optioned portfolio securities or
currencies and put option obligations exceeds 25% of
the market value of the Portfolio's net assets.
Portfolio securities or currencies on which call
options may be written will be purchased solely on
the basis of investment considerations consistent
with the Portfolios' investment objectives. The
Advisor believes writing covered call options is a
conservative investment technique involving
relatively little risk (in contrast to writing
uncovered options), but capable of enhancing a
Portfolio's total return. When writing a covered call
option, the Portfolio, in return for the premium,
gives up the opportunity for profit from a price
increase of the optioned security or currency above
the exercise price, but conversely retains the risk
of loss should the price of the security or currency
decline. If a call option which the Fund has written
expires, the Fund will realize income in the amount
of the premium. If the call option is exercised, the
Fund will realize a gain or loss from the sale of the
underlying security or currency.
The premium received is the market value of an
option. This value is established by market factors
and ordinarily fluctuates from day to day. In
determining whether a particular call option should
be written on a particular security or currency, the
Advisor will consider the reasonableness of the
anticipated premium and the likelihood that a liquid
secondary market will exist for the option.
Closing transactions will be effected in order to
realize a profit on an outstanding call option, to
prevent an underlying security or currency from being
called, to permit the sale of the underlying security
or currency, or to permit the Portfolio to write
another call option on the underlying security or
currency with either a different exercise price or
expiration date or both. There is, of course, no
assurance that a Portfolio will be able to effect
such closing transactions at favorable prices. If the
Portfolio cannot enter into such a transaction, it
may be required to hold a security or currency that
it might otherwise have sold.
Call options written by a Portfolio will normally
have expiration dates of less than nine months from
the date written. From time to time, a Portfolio may
purchase an underlying security or currency for
delivery in accordance with an exercise notice of a
call option assigned to it, rather than delivering
such security or currency from its portfolio. In such
cases, additional costs may be incurred.
A Portfolio will realize a profit or loss from a
closing purchase transaction depending on whether the
cost of the transaction is less or more than the
premium received from writing the option. Because
increases in the market price of a call option will
generally reflect increases in the market price of
the underlying security or currency, any loss
resulting from the repurchase of a call option is
likely to be offset in whole or in part by
appreciation of the underlying security or currency
owned by the Fund.
PURCHASING LISTED CALL OPTIONS
The Portfolios may purchase listed call options. As
the holder of a call option, the Portfolio has the
right to purchase the underlying security or
currency, at the exercise price, at any time during
the option period (American option) or at the
expiration date of the option (European option). The
Portfolio may enter into closing sale transactions
with respect to such options, exercise them or permit
them to expire. Call options may be purchased for the
purpose of increasing current return, to avoid tax
consequences which might reduce its current return,
or to acquire the optioned securities or currencies.
The purchase of a call option enables the Portfolio
to acquire the optioned securities or currencies at
the exercise price of the call option plus the
premium paid. At times the net cost of acquiring
securities or currencies in this manner may be less
than the cost of acquiring the securities or
currencies directly. This technique may also enable a
Portfolio to purchase a large block of securities or
currencies that would be difficult to acquire by
direct market purchases. So long as it holds such a
call option rather than the underlying security or
currency itself, the Fund is partially protected from
any unexpected decline in the market price of the
underlying security or currency and in such event
could allow the call option to expire, incurring a
loss only to the extent of the premium paid for the
option and transaction costs.
A Portfolio may also purchase call options on
securities or currencies it owns in order to protect
unrealized gains on call options previously written
by it. A call option would be purchased for this
purpose where tax considerations make it inadvisable
to realize such gains through a closing purchase
transaction. Call options may also be purchased at
times to avoid realizing losses. Purchasing call
options entails the risk that the price of the
optioned securities will not exceed the exercise
price of the option in which case the option will
expire without value.
PURCHASING LISTED PUT OPTIONS
The Portfolios may purchase listed put options. As
the holder of a put option, the Portfolio has the
right to sell the optioned security or currency at
the exercise price at any time during the option
period. A Portfolio may enter into closing sale
transactions with respect to such options, exercise
them or permit them to expire. A Portfolio may
purchase put options for defensive purposes in order
to protect against an anticipated decline in the
value of its securities or currencies. Such an option
would permit the Portfolio to sell the optioned
security or currency at the exercise price regardless
of any decline in the value of the security or
currency. For example, a put option may be purchased
in order to protect unrealized appreciation of a
security or currency where the Advisor deems it
desirable to continue to hold the security or
currency because of tax considerations. The premium
paid for the put option and any transaction costs
would reduce any capital gain otherwise available for
distribution when the security or currency is
eventually sold.
A Portfolio may also purchase put options when it
does not own the optioned security or currency. By
purchasing put options on a security or currency it
does not own, the Fund seeks to benefit from a
decline in the market price of the underlying
security or currency. If the put option is not sold
when it has remaining value, and if the market price
of the underlying security or currency remains equal
to or greater than the exercise price during the life
of the put option, the Fund will lose its entire
investment in the put option. In order for the
purchase of a put option to be profitable, the market
price of the underlying security or currency must
decline sufficiently below the exercise price to
cover the premium and transaction costs, unless the
put option is sold in a closing sale transaction, in
which case the Portfolio's profit or loss on the
transaction will depend on whether the price it paid
for the option exceeds the price it received on its
sale (plus transaction costs).
DEALER OPTIONS
The Portfolios may also buy and sell dealer options.
Certain risks are specific to these options. While
the Portfolio looks to a clearing corporation to
exercise listed options, if a Portfolio were to
purchase a dealer option, it would rely on the dealer
from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so
would result in the loss of the premium paid by the
Portfolio, as well as loss of the expected benefit of
the transaction.
Listed options generally have a continuous liquid
market while dealer options have none. Consequently,
a Portfolio will generally be able to realize the
value of a dealer option it has purchased only by
exercising it or reselling it to the dealer who
issued it. Similarly, when a Portfolio writes a
dealer option, it generally will be able to close out
the option prior to its expiration only by entering
into a closing purchase transaction with the dealer
to which the Portfolio sold the option. While the
Portfolio will seek to enter into dealer options only
with dealers who will agree, and which the Advisor
believes, will be capable of entering into closing
transactions, there can be no assurance that a
Portfolio will be able to liquidate a dealer option
at a favorable price at any time prior to expiration.
Until the Portfolio, as a covered dealer call option
writer, is able to effect a closing purchase
transaction, it will not be able to liquidate the
option securities or currency until the option
expires or is exercised. In the event of insolvency
of the contra party, the Portfolio may be unable to
liquidate a dealer option. The inability to enter
into a closing transaction may result in material
losses to a Portfolio.
Dealer options and the assets used to secure dealer
options currently are considered illiquid securities.
Accordingly, dealer options will be subject to the
Portfolios' restriction that not more than 15% of the
value of a Portfolio's assets may be invested in
illiquid securities.
FUTURES CONTRACTS
The Portfolios may enter into financial futures
contracts, including stock index, interest rate and
currency futures. Futures contracts provide for the
future sale by one party and purchase by another
party of a specified amount of specific securities or
currencies at a specified future time and at a
specified price. Financial futures contracts which
are standardized as to maturity date and the
underlying financial instruments are traded on
national futures exchanges, and include futures
contracts on equity securities, debt securities and
foreign currencies. The Portfolios will only buy and
sell standardized contracts.
Securities index futures contracts may be used to
provide a hedge for a portion of a Portfolio's, as a
cash management tool, or as an efficient way for the
Advisor to implement either an increase or decrease
in portfolio market exposure in response to changing
market conditions. A Portfolio may purchase or sell
securities index futures with respect to any
securities index whose movements are expected by the
Advisor to have a significant correlation with
movements in the prices of all or portions of the
Portfolio's securities.
Interest rate or currency futures contracts may be
used as a hedge against changes in prevailing levels
of interest rates or currency exchange rates in order
to establish more definitely the effective return on
securities or currencies held or intended to be
acquired by the Portfolio or protect the Portfolio
from effects of currency fluctuations. In this
regard, a Portfolio might sell interest rate futures
as an offset (hedge) against the effect of expected
increases in interest rates or currency exchange
rates and purchase such futures as an offset against
the effect of expected declines in interest rates or
currency exchange rates. The Portfolios will engage
in transactions in financial futures contracts and
options thereon only for bona fide hedging, return
enhancement and risk management purposes.
Transactions in financial futures contracts, and
options thereon, will be limited so that margin on
transactions not considered hedging under the rules
of the Commodities Futures Trading Corporation will
not exceed 5% of a Portfolio's net assets. When a
Portfolio has a long position in a futures contract
or sells a put option on futures contracts or
securities, it must establish a segregated account
with its custodian bank containing cash or highly
liquid, short-term U.S. government securities in an
amount equal to the purchase price of the contract or
the strike price of the put option (less any margin
on deposit). When the Portfolio sells a call option
on a futures contract, it must establish a segregated
account with its custodian bank containing cash or
highly liquid, short-term U.S. government securities
in an amount that, when added to the amount of the
margin deposit, equals the market value of the
instruments underlying the call option (but are not
less than the strike price of the call option).
Successful use of futures contracts for hedging
purposes is subject to the Advisor's ability to
correctly predict movements in the direction of the
market. It is possible that, when a Portfolio has
sold futures to hedge its portfolio against a decline
in a market, the index or indices, securities or
currencies on which the futures are written might
advance and the value of securities or currencies
held in the Portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures
and also would experience a decline in value in its
portfolio securities or currencies. However, while
this might occur to a certain degree, the Advisor
believes that over time the value of the Portfolio's
investments will tend to move in the same direction
as the securities or currencies underlying the
futures, which are intended to correlate to the price
movements of the portfolio securities or currencies
sought to be hedged. It is also possible that if a
Portfolio were to hedge against the possibility of a
decline in the market (adversely affecting securities
or currencies held in its portfolio) and prices
instead increased, the Portfolio would lose part or
all of the benefit of increased value of those
securities or currencies that it has hedged, because
it would have offsetting losses in its futures
positions. In addition, in such situations, if the
Portfolio had insufficient cash, it might have to
sell securities or currencies to meet daily variation
margin requirements. Such sales of securities or
currencies might be, but would not necessarily be, at
market). A Portfolio might have to sell securities or
currencies at a time when it would be disadvantageous
to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all,
between price movements in the futures contracts and
the portion of the portfolio being hedged, the price
movements of futures contracts might not correlate
perfectly with price movements in the underlying
stock index, security or currency due to market
distortions. All participants in the futures market
are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin
deposit requirements, investors might close futures
contracts through offsetting transactions which could
distort the normal relationship between the
underlying instruments and futures markets. Also, the
margin requirements in the futures market are less
than margin requirements in the securities markets;
as a result the futures market might attract more
speculators than the securities markets do. Increased
participation by speculators in the futures market
might also cause temporary price distortions. Due to
the possibility of price distortion in the futures
market and also because of the imperfect correlation
between price movements in the underlying instruments
and movements in the prices of futures contracts,
even a correct forecast of general market trends by
the Advisor might not result in a successful hedging
transaction over a very short time period.
LENDING PORTFOLIO SECURITIES
For the purpose of realizing additional income, each
Portfolio may make loans of securities amounting to
not more than 33% of its total assets. Securities
loans would be made to broker-dealers and financial
institutions pursuant to agreements requiring the
loans to be secured by collateral at least equal to
the current value of the securities lent and "marked-
to-market" on a daily basis. Collateral will consist
of cash, U.S. or foreign securities, letters of
credit or cash equivalents. While the securities are
being lent, the Portfolio will continue to receive
the equivalent of the interest or dividends paid by
the issuer of the securities, as well as interest on
the investment of the collateral or a fee from the
borrower. The Portfolio has a right to call a loan at
any time. The Portfolio will not have the right to
vote securities while they are on loan, but it will
call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with
other extensions of secured credit, consist of
possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will only be made after analysis
of the pertinent facts by the Advisor when, in the
judgment of the Advisor, the income from such loans
would justify the risk.
REPURCHASE AGREEMENTS
The Portfolios may enter into repurchase agreements
with banks or broker-dealers. Under the Investment
Company Act of 1940, repurchase agreements are
considered collaterized loans by the Portfolio to the
seller, secured by the securities transferred to the
Portfolio. Repurchase agreements will be fully
collateralized by securities in which the Portfolios
are authorized to invest. Such collateral will be
marked-to-market daily. If the seller of the
underlying security under the repurchase agreement
should default on its obligation to repurchase the
underlying security, the Portfolio might experience
delay or difficulty in recovering its cash. If, in
the meantime, the value of the collateral had
decreased, the Portfolio could experience a loss. The
Fund considers repurchase agreements having a
maturity of more than 7 days to be illiquid
securities and they are subject to the Fund's policy
that a Portfolio may not invest more than 15% of its
net assets in illiquid securities.
FOREIGN CURRENCY TRANSACTIONS
The Portfolios may engage in forward foreign currency
transactions to settle foreign securities
transactions and/or manage foreign currency risk. A
forward foreign currency exchange contract involves
an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of
days from the date of the contract is agreed upon by
the parties, at a price set at the time of the
contract. These contracts are principally traded in
the interbank market conducted directly between
currency traders (usually large, commercial banks)
and their customers. A forward contract generally has
no deposit requirement, and no commissions are
charged for trades.
The Portfolios will generally enter into forward
foreign currency exchange contracts in two
circumstances. First, when a Portfolio enters into a
contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to
lock in the U.S. dollar price of the security, by
entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security
transactions. The Portfolio will be able to protect
itself against a loss resulting from an adverse
change in the relationship between the U.S. dollar
and the foreign currency during the period between
the date the security is purchased or sold and the
date on which payment is made or received.
Second, when the Advisor believes that the currency
of a particular foreign country may suffer from, or
enjoy, a substantial movement against another
currency, it may enter into a forward contract to
sell or buy the amount of one or more foreign
currencies, approximating the value of some or all of
a Portfolio's portfolio securities denominated in
that foreign currency. Alternatively, where
appropriate, a Portfolio may hedge all or part of its
foreign currency exposure through the use of a basket
of currencies or a proxy currency where such
currencies or currency, in the Advisor's judgment,
act as an effective proxy for the Portfolio's
currency exposure. The prediction of short-term
currency market movement is extremely difficult, and
the successful execution of a short term hedging
strategy is highly uncertain. The Advisor will
consider the effect a substantial commitment of
Portfolio assets to forward contracts would have on
the investment program of the Portfolio and the
flexibility of the Portfolio to purchase additional
securities. Other than as set forth above, and
immediately below, a Portfolio also will not enter
into forward contracts or maintain a net exposure to
such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of
the Portfolio's securities or other assets
denominated in that currency. A Portfolio, however,
in order to avoid excess transactions and transaction
costs, may maintain a net exposure to forward
contracts in excess of the value of the Portfolio's
securities or other assets denominated in that
currency provided the excess amount is covered by
liquid, high-grade debt securities, denominated in
any currency, at least equal at all times to the
amount of such excess. Under normal circumstances,
consideration of the prospects for currencies will be
incorporated into the longer term investment
decisions made with regard to overall diversification
strategies. However, the Advisor believes that it is
important to have the flexibility to enter into such
forward contracts when it determines that the best
interests of the Portfolio will be served.
INVESTMENT PERFORMANCE
Total Return
The annual return of the Fund for the latest fiscal
year ending October 31, 1998 was
Global Equity Portfolio -3.18%
Global Income Portfolio 9.15%
The annualized total return of the Fund for the
period beginning November 8, 1995 and ending October
31, 1998 was as follows:
Global Equity Portfolio 6.90%
Global Income Portfolio 7.78%
The Portfolios compute their average annual total
return by determining the average annual compounded
rate of return during specified periods that equates
the initial amount invested to the ending redeemable
value of such investment. This is done by dividing
the ending redeemable value of the hypothetical
$1,000 initial payment by $1,000 and taking the root
of the quotient equal to the number of years (or
fractional portion thereof) covered by the
computation and subtracting one from the result.
Average annual total return figures are determined in
accordance with standard SEC requirements. The
Portfolios compute their aggregate total return by
determining the aggregate compounded rate of return
during a specified period that likewise equates the
initial amount invested to the ending redeemable
value of such investment. The calculations of average
annual total and aggregate total return assume the
reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the
period and the deduction of all recurring charges.
The ending redeemable value is determined by assuming
complete redemption of the hypothetical investment
and the deduction of all non-recurring charges at the
end of the period covered by the computations.
Yield
The 30 day yield as of October 31, 1998, of the
Global Income Portfolio was as follows:
Global Income Portfolio 4.92%
The yield of the Portfolio may be calculated by
dividing the net investment income per share earned
by the Portfolio during a 30 day (or one month)
period by the net asset value per share on the last
day of the period and annualizing the result on a
semi-annual basis. The Portfolio's net investment
income per share earned during the period is based on
the average daily number of shares outstanding during
the period entitled to receive dividends and includes
dividends and interest earned during the period minus
expenses accrued for the period, net of
reimbursements.
MANAGEMENT OF THE FUND
The Fund is governed by a Board of Directors which is
responsible for protecting the interests of
shareholders. The Directors are experienced persons
who meet throughout the year to oversee the Fund's
activities, review contractual arrangements with
companies that provide services to the Fund, and
review performance.
The officers and directors of the Fund are listed
below. Unless otherwise noted, the address of each is
30 Valley Stream Parkway, Great Valley Corporate
Center, Malvern, Pennsylvania 19355.
Richard T. Coghlan, Ph.D.* Age 54. During the last
five years, Mr. Coghlan has served as President and
Chairman of the Board of Directors of the Fund,
President, Penn Street Advisors, Inc.; and President,
Director and controlling stockholder of East Coast
Consultants, Inc.
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 23. 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. Coghlan is an "interested" director of the
Fund, under the Investment Company Act of 1940, by
reason of being affiliated with the Advisor.
** Josephine Coghlan, Portfolio Manager and
Treasurer to the Fund, is the daughter of Richard T.
Coghlan.
Total
Pension or Estimated Compensation
Aggregate Retirement Annual From Registrant
Name of Compensation Benefits Accrued Benefits and Fund
Person, From Registrant as Part of Upon Complex Paid to
Position (Director's Fee) Fund expenses Retirement Directors
Richard T. Coghlan, -0- -0- -0- -0-
President and Director
Howard W. Gross, $2,000 -0- -0- $2,000
Director
Stephen Michael $2,000 -0- -0- $2,000
Alexander,
Director
Lee G. Fishman, $2,000 -0- -0- $2,000
Director
The Fund pays directors, except Mr. Coghlan, fees of
$2,000 per year, as shown above, plus reimbursement
of expenses of attending meetings of the Board.
INVESTMENT MANAGEMENT SERVICES
Under the Management Agreements with the Fund, the
Advisor is responsible for supervising and directing
the investments of the Portfolios in accordance with
the Portfolio's investment objectives, policies and
restrictions. Mr. Coghlan, President of the Advisor,
is also responsible for placing all security
transactions of the Portfolios, and negotiation of
commissions where possible.
In transactions on U.S. stock exchanges, commissions
are negotiated. Traditionally, commission rates have
generally not been negotiated on foreign stock
markets. In recent years, however, an increasing
number of foreign stock markets have adopted systems
of negotiated rates, although a number of markets
continue to operate with schedules of minimum
commission rates. In the case of securities traded in
the over-the-counter markets, there is generally no
stated commission, but the security price usually
includes a markup. In underwritten offerings, the
price includes a disclosed, fixed commission.
It is expected that securities will ordinarily be
purchased in the primary markets for the securities,
whether over-the-counter or listed, and that listed
securities may be purchased in the over-the-counter
market if such market is deemed, by the Advisor, the
primary market.
In purchasing and selling portfolio securities, the
Advisor seeks to obtain quality execution at the most
favorable prices through responsible broker-dealers
and, in the case of agency transactions, at
competitive commission rates. Commission rates are
checked for competitiveness by reference to rates
paid by other institutional investors similar to the
Fund. The 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.
The Advisor may cause the Fund to pay a broker-dealer
who furnishes brokerage and/or research services a
commission for executing a transaction that is in
excess of the commission another broker would have
charged for executing the transaction if the Advisor
determine in good faith that the commission is
reasonable in relation to the value of the brokerage
or research services provided. The Advisor may effect
principal transactions on behalf of the Portfolios
with dealers who furnish research services and
designate any such dealer to receive selling
concessions, discounts or other allowances in
connection with the acquisition of securities in
underwritings.
The Advisor receives a wide range of research services
from brokers and dealers covering investment
opportunities throughout the world, including
information on economies, industries, groups of
securities, individual companies, statistics,
political developments, technical market action,
pricing and appraisal services, and performance
analyses of all the countries in which the Portfolios
are likely to invest. Each year, the Advisor assess
the contribution of the brokerage and research
services provided by broker-dealers, and allocates a
portion of the brokerage business of its clients,
including the Fund, on the basis of these
assessments. In no instance is a broker or dealer
excluded from receiving business because it has not
been identified as providing research services. The
amounts of commissions for each Portfolio were
$25,801 for the fiscal year ending 1998, $30,232 for
the fiscal year ending 1997, and $48,906 for the
fiscal year ending 1996 for the Global Equity
Portfolio, and $1,475 for the fiscal year ending
1998, $616 for the fiscal year ending 1997, and
$3,485 for the fiscal year ending 1996, for the
Global Income Portfolio.
The Investment Management Agreements between the
Advisor and the Fund became effective on November 7,
1998, pursuant to shareholder approval. The
agreements require the Advisor to provide the
Portfolios with a continuous review of and
recommendations regarding investment of their assets.
The agreements continue in full force until November
6th, 2000 and may be continued thereafter from year
to year if renewed annually by a majority vote of the
Board of Directors of the Fund, or by a vote of the
holders of a majority of the outstanding voting
securities of the Portfolios, but in either case, in
order to effect any such continuance the terms of the
agreement must also be approved by a majority vote,
cast in person, of those Fund Directors who are not
parties to the agreement or interested persons of any
such party, as defined by the Investment Company Act
of 1940, at a meeting called for the purpose of
considering the approval of the agreement. The
agreement terminates automatically if it is
transferred or assigned by either party, which would
include a change of control of the Advisor, and may
be terminated by either party without penalty on 60
days written notice. The total amounts paid to the
Advisor by the Fund under the investment advisory
agreements for the period ending October 31, 1996
(since inception) was $240,174, for the fiscal year
ending October 31, 1997 was $250,734 and for the
fiscal year ending October 31, 1998 was $75,745 for
the Global Equity Portfolio and $111,282 for the
fiscal year ending 1996, $106,170 for the fiscal year
ending 1997 and $161,923 for the fiscal year ending
1998 for the Global Income Portfolio.
The advisor also serves as the Administrator and
Transfer Agent of the Fund under an Administration
Agreement and Transfer Agent Agreement. The services
include the administration of the Fund's business
affairs, supervision of services provided by other
organizations providing services to the Fund,
including the custodian, dividend disbursing agent,
legal counsel and independent accountants,
preparation of certain Fund records and documents,
record keeping and accounting services. The total
amounts paid to the advisor for these services were
$91,863 for the fiscal year ending 1996, $95,451 for
the fiscal year ending October 31, 1997 and $32,361
for the fiscal year ending 1998 for the Global Equity
Portfolio and $46,167 for the fiscal year ending
1996, $45,044 for the fiscal year ending 1997 and
$68,062 for the year ending 1998 for the Global
Income Portfolio.
Under its investment advisory agreement, the Fund
paid the Advisor 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
Advisor has currently lowered its fees to an annual
rate of 0.75% of the value of the net assets.
SALE OF FUND SHARES
The Fund makes a continuous offering of its shares,
but retains the right to reject any offer to purchase
its shares.
The net asset value per share of each Portfolio is
calculated as of the close of trading on the NYSE on
each day the NYSE is open for trading. The NYSE is
closed on the following days: New Year's Day, Martin
Luther King, Jr. Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day, and the Fund
does not accept purchase or redemption orders on
these days.
Trading in securities owned by the Portfolios may
take place in various foreign markets on days (such
as Saturday) when the Fund is not open for business
and does not calculate the net asset value of the
Portfolios. Events affecting the values of foreign
portfolio securities that occur after the markets for
these securities are closed but before the time the
Portfolios' net asset values are calculated will not
be reflected in the Portfolios' net asset values
unless the Advisor, in accordance with policies
adopted by the Board of Directors, determines that
the particular event should be taken into account in
computing the Portfolio's net asset value, in which
case the affected securities would be valued in good
faith, at fair value.
Determination of net asset value (and the offering
and redemption price of shares) of the Portfolios may
be suspended when (a) the NYSE is closed, other than
customary weekend and holiday closings, (b) trading
on the NYSE is restricted (c) an emergency exists as
a result of which disposal of securities owned by a
Portfolio is not reasonably practicable or it is not
reasonably practicable for the Portfolio fairly to
determine the value of its net assets, or (d) when
the SEC may, by order, permit for the protection of a
Portfolio's shareholders.
DISTRIBUTION
The Board of Directors of the Fund and stockholders
of each Portfolio approved a Distribution Plan in
accordance with Rule 12b-1 under the Investment
Company Act of 1940 (the "Plan") which provides for
payment by each Portfolio of expenses related to the
distribution of Fund shares and shareholder services.
Under the Plan each Portfolio is authorized to make
monthly payments of 1/48th of 1% of the net asset
value of the Portfolio (.25% on an annual basis)
based on the net asset value of the Portfolio.
Payments made to East Coast Consultants, Inc. as
compensation to the underwriter, for the period
ending October 31, 1997 were $5,210 for the Global
Equity Portfolio and $708 for the Global Income
Portfolio. 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, 1999 and
may be continued for one year terms if approved at
least annually by a majority vote, cast in person, of
both the Board of Directors and Disinterested
Directors of the Fund, at a meeting called for the
purpose of voting on the Plan. The Plan may be
terminated at any time, without penalty, by a vote of
a majority of the Fund's disinterested directors, or
by vote of a majority of the outstanding voting
securities of the Portfolios. The Plan terminates
automatically in the event of an "assignment" of the
Plan as defined in section 2(a)(4) of the Investment
Company Act of 1940. Also while the Plan remains in
effect the nomination of the Disinterested Directors
of the Fund is committed to the discretion of such
Directors.
The Board of Directors believe there is a reasonable
likelihood that the Plan will benefit the Portfolios
and their shareholders by promoting the sale of
shares and encouraging the retention of shares by
holders. The benefits that would accrue to the
Portfolios by an increase in the level of sales of
shares are an enhanced ability to expand investment
opportunities with increased cash and certain costs
of operation would be decreased in proportion to the
size of the Portfolio.
TAX STATUS
Each Portfolio intends to qualify as a "regulated
investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended ("Code").
In order to so qualify, a Portfolio must, among other
things, (i) derive at least 90% of its gross income
from dividends, interest, payments with respect to
certain securities loans, gains from the sale of
securities or foreign currencies, or other income
(including but not limited to gains from options,
futures or forward contracts) derived with respect to
its business of investing in such stock, securities
or currencies; (ii) distribute at least 90% of its
dividend, interest and certain other taxable income
each year; and (iii) at the end of each fiscal
quarter maintain at least 50% of the value of its
total assets in cash, government securities,
securities of other regulated investment companies
and other securities of issuers which represent, with
respect to each issuer, no more than 5% of the value
of a Portfolio's total assets and 10% of the
outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the
securities (other than those of the government or
other regulated investment companies) of any one
issuer or of two or more issuers which the Portfolio
controls and which are engaged in the same, similar
or related trades and businesses.
Provided each of the Portfolios qualifies for
treatment as a regulated investment company, they
will not be subject to federal income tax on income
and net capital gains paid to shareholders in the
form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on
the excess, if any, of each Portfolio's "required
distributions" over actual distributions in any
calendar year. Generally, the "required distribution"
is 98% of a Portfolio's ordinary income for the
calendar year, plus 98% of its capital gain net
income recognized during the one-year period ending
on October 31, plus undistributed amounts from prior
years. The Portfolios intend to make distributions
sufficient to avoid imposition of the excise tax.
Distributions declared by the Funds during October,
November or December to shareholders of record during
such month and paid by January 31 of the following
year will be taxable to shareholders in the calendar
year in which they are declared, rather than the
calendar year in which they are received.
Gains or losses attributable to fluctuations in
exchange rates which occur between the time a
Portfolio accrues interest or other receivables or
accrues expenses or liabilities denominated in a
foreign currency and the time the Portfolio actually
collects such receivables, or pays such liabilities,
are generally treated as ordinary income or loss.
Similarly, a portion of the gains or losses realized
on disposition of debt securities denominated in a
foreign currency may also be treated as ordinary gain
or loss. These gains, referred to under the Code as
"Section 988" gains or losses, may increase or
decrease the amount of a Portfolio's investment
company taxable income to be distributed to its
shareholders, rather than increasing or decreasing
the amount of the Portfolio's capital gains or
losses.
When a Portfolio writes a call, or purchases a put
option, an amount equal to the premium received or
paid by it is included in the Portfolio's assets and
liabilities as an asset and as an equivalent
liability.
In writing a call, the amount of the liability is
subsequently "marked-to-market" to reflect the
current market value of the option written. The
current market value of a written option is the last
sale price on the principal Exchange on which such
option is traded or, in the absence of a sale, the
mean between the last bid and asked prices. If an
option which a Portfolio has written expires on its
stipulated expiration date, the Portfolio recognizes
a short-term capital gain. If a Portfolio enters into
a closing purchase transaction with respect to an
option which the Portfolio has written, the Portfolio
realizes a short-term gain (or loss if the cost of
the closing transaction exceeds the premium received
when the option was sold) without regard to any
unrealized gain or loss on the underlying security,
and the liability related to such option is
extinguished. If a call option which a Fund has
written is exercised, the Portfolio realizes a
capital gain or loss from the sale of the underlying
security and the proceeds from such sale are
increased by the premium originally received.
The premium paid by a Portfolio for the purchase of a
put option is recorded in the Portfolio's statement
of assets and liabilities as an investment and is
subsequently adjusted daily to the current market
value of the option. For example, if the current
market value of the option exceeds the premium paid,
the excess would be unrealized appreciation and,
conversely, if the premium exceeds the current market
value, such excess would be unrealized depreciation.
The current market value of a listed option is the
last sale price on the principal Exchange on which
such option is traded or, in the absence of a sale,
the mean between the last bid and asked prices. If an
option which a Portfolio has purchased expires on the
stipulated expiration date, the Portfolio realizes a
capital loss for federal income tax purposes equal to
the cost of the option. If a Portfolio exercises a
put option, it realizes a capital gain or loss (long-
term or short-term, depending on the holding period
of the underlying security) from the sale which will
be decreased by the premium originally paid.
The amount of any realized gain or loss on closing
out an option on an index future will result in a
realized gain or loss for tax purposes. Such options
held by a Portfolio at the end of each fiscal year on
a broad-based stock index will be required to be
"marked-to-market" for federal income tax purposes.
Sixty percent of any net gain or loss recognized on
such deemed sales or on any actual sales will be
treated as long-term capital gain or loss and the
remainder will be treated as short-term capital gain
or loss. Certain options, futures contracts and
options on futures contracts utilized by the
Portfolios will be "Section 1256 contracts." Any
gains or losses on Section 1256 contracts held by a
Portfolio at the end of each taxable year (and on
October 31 of each year for purposes of the 4% excise
tax) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they
were realized and the resulting gain or loss is
treated as a 60/40 gain or loss.
Dividends eligible for designation under the
dividends received deduction and paid by a Portfolio
will qualify in part for the 70% dividends received
deduction for corporations provided, that the
Portfolio shares have been held for at least 45 days.
The Portfolios will notify shareholders each year of
the amount of dividends and distributions, including
the amount of any distribution of long-term capital
gains and the portion of its dividends which may
qualify for the 70% deduction.
It is expected that certain dividends and interest
received by the Portfolios will be subject to foreign
withholding taxes. If more than 50% in value of the
total assets of a Portfolio at the close of any
taxable year consists of stocks or securities of
foreign corporations, such fund may elect to treat
any foreign taxes paid by it as if paid by its
shareowners. The Portfolios will notify shareowners
in writing each year whether they have made the
election and the amount of foreign taxes it has
elected to have treated as paid by the shareowners.
If they make the election, its shareowners will be
required to include in gross income their
proportionate share of the amount of foreign taxes
paid by the Portfolios and will be entitled to claim
either a credit or deduction for their share of the
taxes in computing their U.S. federal income tax
subject to certain limitations. No deduction for
foreign taxes may be claimed by shareowners who do
not itemize deductions.
Generally, a credit for foreign taxes is subject to
the limitation that it may not exceed the
shareowner's U.S. tax attributable to his or her
total foreign source taxable income. For this
purpose, the source of each Portfolio's income flows
through to its shareowners. Gains from the sale of
securities will be treated as derived from U.S.
sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency
denominated debt securities, receivables and
payables, will be treated income derived from U.S.
sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income
(as defined for purposes of foreign tax credit) such
as foreign source passive income received from the
respective Portfolio. Because of changes made by the
Code, shareowners may be unable to claim a credit for
the full amount of their proportionate share of the
foreign taxes paid by the Portfolios.
Shareholders may be subject to a 31% withholding tax
on the dividends, distributions and redemption
payments ("back-up withholding") if their certified
taxpayer identification number is not on file with
the Fund or if, to the Fund's knowledge, the
shareholder has furnished an incorrect number.
The foregoing is a general and abbreviated summary of
the applicable provisions of the Code and Treasury
regulations currently in effect. For the complete
provisions, reference should be made to the pertinent
Code sections and regulations. The Code and
regulations are subject to change by legislative or
administrative action at any time and retroactively.
Shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state and
local taxes as well as the application of the foreign
tax credit.
The foregoing discussion relates solely to U.S.
federal income tax law. Non-U.S. investors should
consult their tax advisors concerning the tax
consequences of ownership of shares of the Funds,
including the possibility that distributions may be
subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
PRINCIPAL SHAREHOLDERS
As of October 15, 1998 the following entities held
more than 5% of the shares of the Global Equity
Portfolio: Richard T. Coghlan (Chairman) 746 Mt. Moro
Rd., Villanova, PA 19085, with a holding of 7%, Colin
Reiff Trust, 1429 Walnut St., 12th Floor,
Philadelphia, PA 19102, holding 7%, Justin Reiff
Trust, 1429 Walnut St., 12th Floor, Philadelphia, PA
19102, holding 7%, Jeffrey M. & Dominique Reiff 1429
Walnut St., 12th Floor, Philadelphia, PA 19102,
holding 38%, Marilyn Day 947 Rock Creek Road, Bryn
Mawr, PA 19010, holding 7%, James Hovey 1325 Morris
Drive, Suite 201, Wayne, PA 19087, holding of 11%,
and Fred Fox 76 Milita Hill Drive, Wayne, PA 19087,
holding 7%.
There were four shareholders with holdings over 5% of
the Global Income Portfolio: the Geraldine D. Fox
Foundation with 8%, the Richard J. Fox Foundation
with 23%, the Institute for Bio-Information Research
with 15% and Fox Family Partnership with 47% all at
1325 Morris Drive, Suite 203, Wayne, PA 19087.
The directors and officers of the Fund, as a group,
own less than 1% of the outstanding shares of either
Portfolio, except for Richard Coghlan who owns 7% of
the Equity Portfolio. The Fox Family Partnership and
the Richard J. Fox Foundation have enough votes to
control the policies of the Income Portfolio whose
shares they own and to elect the board of directors.
