Dear Shareholder:
McGlinn Balance Fund
The McGlinn Balanced Fund advanced + 2.41% for the first
half of the fiscal year compared to an increase of +4.1% for
the benchmark (50% S&P 500/50% Lehman Intermediate
Bond Index). The shortfall versus the index can be attributed
to equities. We have chosen to avoid what we believe are
short-term excesses, opting instead to position the portfolio to
benefit from changes in long-term trends. This strategy held
down performance most of the first half of the fiscal year but
began to bear fruit in April.
The financial markets in the first half of the fiscal year proved
to be challenging. The fixed income market generally worked
its way lower as yields rose in response to interest rate
increases by the Federal Reserve. Treasury securities, in
which the portfolio is well represented, delivered the best
performance. In the equity market, investors' love affair with
NASDAQ Index stocks dominated much of the performance.
As noted in the previous "Letter to Shareholders," the market
has been a one-horse race, it was technology (the core of
NASDAQ) or nothing. This came to an abrupt end on March
10th as technology stocks started to sell off in earnest and
rotation to more value-oriented stocks began. This change in
market focus is benefiting your portfolio.
We believe 2000 will provide a far more hospitable
investment environment for McGlinn's value-oriented
strategies than has been experienced in several years. The
conditions which set the growth stock phenomena in motion
have been reversing. In particular, the global financial crisis
of 1998 that negatively affected so many companies is largely
over. The resulting recovery in world growth is bolstering the
earnings prospects of many multinationals at a time when their
stocks are selling significantly below fair value. As we have
discussed previously, significant return opportunities abound
in a broad spectrum of industries. This view is supported by
the stepped-up activity in mergers and acquisitions as well as
the increase in the number of companies going private.
Buyers of entire companies apparently agree; the values
available in the market are too attractive to pass up
We have positioned the McGlinn Balanced Fund to benefit
from the changing environment. Significant exposure is being
maintained in technology, basic industry, capital goods and
energy. In addition, we are gradually increasing portfolio
positions in the financial areas (i.e., banks and insurance
companies), based on compelling under valuation and belief
that the hostile interest rate environment, which has impeded
their performance, is close to an end. We continue to avoid
the more speculative fringe areas of the market, principally the
biotechnology and Internet sectors, populated by companies
with no earnings and extreme valuations. In the bond portion
of the fund, we gradually lengthening maturities to take
advantage of the higher yields currently available.
We expect the financial markets to remain volatile. With so
much hot money chasing the latest concept, rapid-fire sector
rotation is becoming a common characteristic of the market.
We will exploit this where possible by adding to or trimming
positions. The unprecedented volatility in the market
following the close of the first half of the fiscal year is
presenting such an opportunity, particularly in the technology
area. The wide price swings these stocks are experiencing
should enable us to add some additional quality technology
companies to portfolios at attractive valuation levels.
Regardless, given the significant number of investment
opportunities available, we will maintain our near fully invested
posture. We are optimistic that the improved performance the portfolio in
April will be sustained.
Global Income Fund
For the first six months of the current fiscal year the Global Income
Portfolio
reported a 2.9% return, which out performed it benchmark, the Soloman
Smith Barney Global Index ("SBWGI") (-4.31%). The cautious and
defensive approach that we established this time last year by investing in
reduced duration and more U.S. Treasuries rewarded our investors.
There are two main factors which made the U.S. Treasury short-term yields
grow. First, the long-term yields decreased in reaction to the U.S. Treasury
department's announcement that they were repurchasing $25 to $30 billion
in debt during the year of which $11 billion was repurchased since the
buybacks began in mid-March. Before this year, the Treasury has not
repurchased debt in 70 years. Second, the Federal Reserve increased the
short interest rates 3 times during this six-month period due to the risks of
inflation. These factors combined together caused the short-term treasury
yields to rise and the long-term yields to fall in effect creating a unique
"reserved" yield curve.
We are going to stay with this cautious and defensive approach until we see
signs of a slowing economy. At that time we will evaluate our position and
determine what course would best suit the objectives of the fund and our
shareholders.
MCGLINN BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30th, 2000 Penn Street Fund, Inc.
COMMON STOCKS (54.9%)
Shares U.S. $ Value
Basic Materials (6.2%)
Boise Cascade Corp. 600 19,519
DuPont (E.I.) De Memours & Co. 400 18,975
FMC Corp. 400 23,288
Hercules, Inc. 350 5,447
International Paper Co. 300 11,025
Mead Corp. 700 24,369
Parker-Hannifin Corp. 300 13,950
Praxair, Inc. 500 22,219
USX - U.S. Steel Group 700 17,544
156,336
Capital Goods (4.6%)
Emerson Electric Co. 350 19,217
Honeywell International, Inc. 550 30,800
Ingersoll-Rand Co. 400 18,775
Minnesota Mining & Manufacturing Co. 350
30,297
Reynolds Metals Co. 250 16,664
115,753
Communication Services (5.5%)
ALLTEL Corp. 500 33,313
AT&T Corp 500 23,313
GTE Corp. 425 28,847
SBC Communications, Inc. 500 21,938
Sprint Corp. 400 24,588
US West, Inc. 100 7,119
139,118
Consumer Cyclicals (2.5%)
Coco-Cola Co. 225 10,589
Delphi Automotive Systems Corp. 800 15,300
Federated Dept. Stores, Inc. 500 17,000
Lowe's Co. 100 4,950
Staples, Inc. 800 15,250
63,089
MCGLINN BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
April 30th, 2000 Penn Street Fund, Inc.
Shares U.S. $ Value
Consumer Staples (3.6%)
Avon Products, Inc. 700 29,050
Kimberly-Clark Corp. 500 29,031
Procter & Gamble Co. 200 11,950
Walt Disney Co. 500 21,656
91,687
Energy (6.0%)
Baker Hughes, Inc. 250 7,953
BP Amoco Plc 328 17,407
Conoco, Inc. - Class B 701 17,381
Halliburton Co. 700 30,931
R&B Falcon Corp. 1,300 26,975
Uncoal Corp. 1,000 32,313
USX-Marathon Group 600 13,988
Valero Energy Corp. 150 4,355
151,303
Financials (6.3%)
AXA Financial, Inc. 500 16,313
Banc One Corp. 400 12,200
Bank of America Corp. 650 31,850
Chase Manhattan Corp. 400 28,850
Citigroup, Inc. 525 31,205
Conseco, Inc. 1,000 5,531
Freddie Mac 125 5,742
MeriStar Hospitality Corp. 500 9,859
Washington Mutual, Inc. 650 16,616
158,166
Healthcare (5.5%)
American General Corp. 100 5,600
American Home Products Corp. 600 33,713
Columbia/HCA Healthcare Corp. 700 19,906
Johnson & Johnson 100 8,250
Merck & Co. 350 24,325
Pharmacia Corp. 457 22,821
Tenet Healthcare Corp. 900 22,950
137,565
Technology (13.4%)
Advanced Micro Devices, Inc. 350 30,625
Alcatel - SA 575 25,947
Compaq Computer Corp. 1,600 46,700
Dell Computer Corp. 350 17,544
Electronic Data Systems Corp. 575 39,531
International Business Machines Corp. 250
27,875
JD Edwards & Co. 800 14,600
Micron Technology, Inc. 175 24,380
Microsolf Corp. 250 17,445
Mortorda, Inc. 25 2,975
Novell, Inc. 1,100 21,588
SAP AG - SA 475 23,305
Tandy Corp. 250 14,250
Unisys Corp. 1,300 30,103
336,868
Transports (0.6%)
UAL Corp. 250 14,484
Utilities (0.8%)
Williams Companies, Inc. 500 18,656
TOTAL COMMON STOCK (Cost $1,406,635) 1,383,025
MCGLINN BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
April 30th, 2000 Penn Street Fund, Inc.
FIXED INCOME SECURITIES
(40.7%)
Principal Amt. (b) U.S. $ Value
Financials (1.0%)
Dime Bancorp, Inc. 7.000% due 07/25/2001 25,000
24,688
Real Estate (2.0%)
Club Mediterranee 4.59% due 03/02/2003 34,300 2,401
D.R. Horton, Inc. 10.500% due 04/01/2005 25,000
22,781
US Home Corp. 7.95 due 03/01/2001 25,000 24,938
50,120
U. S. Government and Government Agencies (37.7%)
FHLMC (Mortgage backed) 7.000% due 01/15/2015 98,373
96,592 US Treasury Bond 5.500% due 05/31/2000
125,000 124,883
US Treasury Bond 6.125% due 07/31/2000 125,000
125,000
US Treasury Bond 6.250% due 08/31/2000 25,000
25,000
US Treasury Bond 5.750% due 08/15/2003 140,000
136,533
US Treasury Bond 5.875% due 02/15/2004 175,000
170,953
US Treasury Bond 6.500% due 08/15/2005 100,000
99,805
US Treasury Bond 6.625% due 05/15/2007 75,000
75,516
US Treasury Bond 5.625% due 05/15/2008 50,000
47,563
US Treasury Bond 6.000% due 08/15/2009 50,000
48,797
950,642
TOTAL DEBT SECURITIES (Cost $1,045,469) 1,025,450
SHORT-TERM INVESTMENTS 3.8%
Highmark Money Market Fund 96,065 96,065
TOTAL SHORT-TERM INVESTMENT (Cost $96,065) 96,065
TOTAL INVESTMENT IN SECURITIES 99.4%
(Cost: $2,452,103) 2,504,540
ASSETS IN EXCESS OF OTHER LIBILITIES (0.6%) 14,016
TOTAL NET ASSETS (100.0%) $2,518,556
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30th, 2000 Penn Street Fund, Inc.
COMMON STOCKS (4.5%)
Equities (4.5%) Shares U.S. $ Value
American Online, Inc. 2,000 $ 119,625
General Electric Co. 900 141,525
International Business Machines Corp. 2,500
278,750
539,900
TOTAL COMMON STOCK ( Cost $500,944) 539,900
FIXED INCOME SECURITIES
(85.3%)
Principal U.S.$ Value
Amt.
United States (83.2%)
Corporates (15.7%)
Countrywide Funding 6.050% due 03/09/01 500,000 $
498,125
General Electric Capital Corp. 5.350% due 11/18/02
400,000 381,615
GMAC 5.750% due 11/10/03 700,000 660,485
YPF Corp. 8.000% due 02/15/2004 350,000
341,250
1,881,475
Foreign Governments (U.S. dollar denominated) (4.9%)
Argentina 9.250% due 02/23/01 200,000 200,956
Italy 6.875% due 09/27/23 200,000 192,890
Korea Development Bond 6.500%, due 11/15/02 200,000
192,014
585,860
U.S. Government and Government Agencies (62.6%)
Federal Farm Credit Bank 5.850%, due 04/07/03 200,000
192,438
Federal Home Loan Bank 6.000%, due 08/15/02 1,000,000
976,563
Federal Home Loan Bank 7.045%, due 02/04/04 200,000
192,624
Federal Home Loan Bank 8.000%, due 08/25/05 500,000
497,500
Federal Home Loan Bank 7.255%, due 11/28/06 500,000
482,266
Federal Home Loan Bank 8.000%, due 11/23/09 500,000
484,297
Freddie Mac 7.580% due 06/12/06 500,000
492,185
US Treasury Bond 5.546%, due 12/31/00 600,000
596,156
US Treasury Bond 7.750%, due 02/15/01 400,000
403,938
US Treasury Bond 4.875%, due 03/31/01 700,000
689,609
US Treasury Bond 5.500%, due 08/31/01 500,000
492,773
US Treasury Bond 6.000%, due 08/15/09 300,000
292,782
US Treasury Bond 5.625%, due 02/15/06 500,000
479,219
US Treasury Bond 7.250%, due 05/15/16 500,000
546,797
US Treasury Bond 7.250%, due 11/15/16 600,000
672,469
7,491,616
Australia (2.1%)
First Australia Prime Income Fund 58,000
246,500
TOTAL DEBT SECURITIES (Cost: $10,523,839) 10,205,451
SHORT-TERM INVESTMENTS
(7.0%)
Highmark Money Market Fund 843,646 843,646
TOTAL SHORT-TERM INVESTMENTS (Cost: $843,646) 843,646
TOTAL INVESTMENT IN SECURITIES (96.8%)
(Cost: $11,868,429) 11,588,997
ASSETS IN EXCESS OF OTHER LIABILITIES (3.2%) 387,299
TOTAL NET ASSETS (100.0%) $11,976,296
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000
(Unaudited) Penn Street Fund, Inc.
McGlinn Balanced Global Income
Portfolio Portfolio
ASSETS
Investment in securities, at value (identified cost
$2,548,169
and $11,868,429 respectively) $2,504,540 $11,588,997
Cash - 225,896 Receivables:
Interest and dividends 13,462 178,646
Prepaid expenses 1,207 - Deferred
organization expenses 2,984 3,121
Total assets 2,522,193 11,996,660
LIABILITIES
Accrued expenses 3,637 20,364
Total liabilities 3,637 20,364
NET ASSETS $2,518,556 $11,976,296
Shares outstanding 193,728 1,310,969
Net asset value per unit $13.00 $9.14
At April 30, 2000, the components of net assets were as
follows:
Paid-in capital $3,287,633 $12,035,787
Undistributed net investment income <728> 182,539
Accumulated net realizedgain/< loss> on investments <724,510>
37,402
Unrealized appreciation/depreciation of investments and
translation
of foreign currency denominated assets and liabilities
<43,839> <279,432>
$2,518,556 $11,976,296
STATEMENT OF OPERATIONS
For the Year Ended April 30, 2000
(Unaudited) Penn Street Fund, Inc.
McGlinn Balanced Global Income
Portfolio Portfolio
INVESTMENT INCOME
Interest $38,859 $347,700
Dividends 14,368 18,583
Total income 53,227 366,283
EXPENSES
Investment management fees 7,830 30,312
Shareholder servicing fees 662 6,668 Administration
accounting and transfer agent 7,830 23,689
Professional fees 3,916 12,225
Custody fees 3,490 3,433
Amortization of organization expenses 3,499 8,151
Directors' fees and expenses 479 1,870 Other operating
expenses 249 2,475
Total expenses 27,955 88,823
Net investment income/<loss> 25,272 277,460
NET REALIZED GAIN/<LOSS> FROM:
Investment securities <40,366> 164,085
NET CHANGE IN UNREALIZED APPRECIATION/
[DEPRECIATION] FROM:
Investment securities 74,754 <144,801>
NET REALIZED AND UNREALIZED GAIN/<LOSS>
FROM INVESTMENTS AND FOREIGN CURRENCY 34,388 19,284
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING
FROM OPERATIONS $59,660 $296,744
MCGLINN BALANCED PORTFOLIO
Statement of Changes in Net Assets
Penn Street Fund, Inc.
Six months ended Year ended
April 30, 2000 October 31, 1999
(unaudited)
INCREASE/<DECREASE> IN NET ASSETS FROM
OPERATIONS:
Net investment income $25,272 $ 25,519
Net realized gain /(loss) on investments and foreign
currency transactions <40,366> 383,152
Net increase/<decrease> in unrealized appreciation/
[DEPRECIATION] on investments 74,754 111,127
Net increase/<decrease> in net assets resulting from
operations 59,660 519,798
LESS DIVIDEND AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income <26,000> <31,892>
Realized gains - <8,283>
Decrease in net assets derived from capital share transactions
<284,623> <769,750>
Total decrease in net assets <250,963> <290,127>
NET ASSETS:
Beginning of period 2,769,519 3,059,646
End of period 2,518,556 2,769,519
Partners' capital, beginning of period
(a) A summary of capital share transactions is as
follows:
Year ended
Year ended
April
30, 2000 April 30,
1999
Shares
Value Shares Value
Shares sold 14,080 $ 181,360 155,036 $2,069,012
Shares issued in reinvestment of distributions
to shareholders 992 12,499 2,757 35,346
15,072 193,859 157,793
2,104,358 Shares redeemed <37,344> <478,482>
<222,843> <2,874,108> Net increase (decrease)
<22,272> $<284,623> <65,050> $<769,750>
Net assets at the beginning of the period 3,059,646 26,055,520
Net assets at the end of the period $2,769,519 $3,059,646
(a) A summary of capital share transactions is as
follows:
Year ended
Year ended
October 31, 1999 October
31, 1998
Shares
Value Shares Value
Shares sold 155,036 $2,069,012 40,331 $442,792
Shares issued in reinvestment of distributions
to shareholders 2,757 35,346 3,021 32,891
157,793 2,104,358 43,352 475,683
Shares redeemed <222,843> <2,874,108> <2,053,882> <22,881,348>
Net increase (decrease) <65,050> $<769,750> <2,010,530>
<$22,405,665>
GLOBAL INCOME PORTFOLIO
Statement of Changes in Net Assets
Penn Street Fund, Inc.
Year ended Year
ended
April 30, 2000
April 30,1999
(unaudited)
OPERATIONS
Net investment income $277,460 $855,136
Net realized gain (loss) on investments and foreign
currency transactions 164,085 <128,924>
Net increase/<decrease> in unrealized appreciaiton/
<depreciaiton> on investments <144,801> <980,097>
Net increase in net assets resulting from operations 296,744
<253,885>
LESS DIVIDEND AND DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income <95,212> <679,913>
Distributions from realized gains - -
Decrease in share assets derived from
capital share transactions <1,069,277> <6,543,167>
Total decrease in net assets <867,745> <7,476,965>
NET ASSETS:
Beginning of period 12,844,041 20,321,006
End or period 11,976,296 12,844,041
(a) A summary of capital share transactions is as
follows:
Year ended
Year ended
April
30, 2000 April 30, 1999
Shares
Value Shares Value
Shares sold 511 $ 4,630 1,199 $11,196
Shares issued in reinvestment of distributions
to shareholders 10,628 95,213 74,700
679,913 11,139 99,843
75,899 691,109 Shares redeemed <129,342>
<1,169,120> <774,188> <7,234,276>Net increase (decrease)
<118,203>
$<1,069,277> <698,289>
$<6,543,167>
MCGLINN BALANCED PORTFOLIO
Financial Highlights
For a share outstanding throughout each period Penn Street Fund, Inc.
Six months
Year ended Year ended Year ended
11/08/1995* to
ended
04/30/00 10/31/1999(3) 10/31/1998 10/
30/1997 10/ 31/1996
PER SHARE OPERATING PERFORMANCE
(unaudited)
Net asset value, beginning of period $12.82 $10.89
$11.37 $10.82 $10.00 Net income (loss) from
investment operations
Net investment income 0.13 0.12 0.05 0.02 0.05
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.18 2.00 <0.41> 1.41 0.84
Total from investment operations 0.31 2.12 <0.36>
1.43 0.89
Less distributions
Distributions from net investment income <0.13>
<0.15> <0.05> <0.04> <0.07>
Distributions from realized gains <0.04>
<0.07> <0.84>
Total distributions <0.13> <0.19> <0.12>
<0.88> <0.07>
Net asset value, end of period $13.00 $12.82
$10.89 $11.37 $10.82
TOTAL RETURN 2.41% 19.45% <3.18%> 13.57% 8.89%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,519 $2,770
$3,060 $26,056 $26,137
Ratio to average net assets
Expenses 2.17% 1.90% 1.99% 1.71% 1.82%
Net investment income 1.96% 1.02% 0.17% 0.20% 0.40%
Portfolio turnover rate 125% 194% 44% 25% 42%
*Commencement of operations
(1) Annualized
(2) Not Authorized
(3) On April 5, 1999 the Fund's investment objectives
were changed from "high total return, with emphasis
on capital appreciation" to "Long-term growth with
moderate income" and McGlinn Capital
Management, Inc. was retained as the Fund's new
investment advisor.
GLOBAL INCOME PORTFOLIO
Financial Highlights
For a share outstanding throughout each period Penn Street Fund, Inc.
Six
months Year
ended Year
ended Year
ended
11/8/1995
ended 04/30/2000 10/31/1999 10/31/1998
10/ 31/1997 to 10/31/1996
(Unaudited)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.99 $9.55 $9.42
$10.48 $10.00
Net income from investment operations
Net investment income 0.21 0.59 0.43 0.47 0.50
Net realized and unrealized gain (loss)
on investments 0.01 <0.69> 0.43 <0.06> 0.26
Total from investment operations 0.22
<0.10> 0.86 0.41 0.76
Less distributions
Distributions from net investment income
<0.07> <0.46> <0.43> <0.90> <0.28>
Distributions from net realized gains -
0.00 <0.30> <0.57>
Total distributions <0.07> <0.46>
<0.73> <1.47> <0.28>
Net asset value, end of period $9.14 $8.99 $9.55 $9.42
$10.48
TOTAL RETURN 2.49% <1.04%> 9.15% 4.19% 7.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $11,976 $12,844
$20,321 $11,411 $12,870
Ratio to average net assets
Expenses 1.47% 1.44% 1.81% 1.72% 1.84%
Net investment income 4.58% 4.84% 4.46% 5.39% 4.88%
Portfolio turnover rate 68% 107% 43% 22% 29%
* Commencement of operations
(1) Annualized
(2) Not annualized
(1) Organization
Penn Street Fund Inc. (the "Fund"), is registered under the
Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company and
is authorized to issue shares in separate series. The Fund
currently offers shares in two diversified series, the McGlinn
Balanced Portfolio (formerly the Global Equity Portfolio) and
the Global Income Portfolio (the "Portfolios").
The Fund was incorporated on July 6, 1995, and between that
date and November 8, 1995 the Fund had no operations other
than those relating to organizational matters and the
registration of its shares under applicable securities laws.
On April 15, 2000 the Fund's Board of Directors appointed G.
Michael Mara as Managing Director of Penn Street Advisors,
Inc. ("Penn Street").
(2) Significant Accounting Policies
The McGlinn Balanced Portfolio's current investment
objective is to provide long-term growth with moderate
income using a flexible asset allocation approach that
emphasizes the selection of securities (typically 60% domestic
equity securities and 40% in domestic fixed income securities)
that provide sufficient current income to reduce downside risk.
The Global Income Portfolio's investment objective is to
achieve a relatively stable rate of total return with emphasis on
yield, by investing principally in fixed income securities and,
to a lesser extent, in equity securities of high quality
companies located predominately in the developed countries
with, at most, very limited exposure to less developed
countries. The price of each Portfolio's shares will fluctuate
daily and there can be no assurance that the Portfolios will be
successful in achieving their stated investment objectives.
The following is a summary of the significant accounting
policies followed by the Portfolios in the preparation of their
financial statements. These policies are in accordance with
generally accepted accounting principles.
A. Security Valuation. The securities held by the Portfolios
are valued as of the close of the New York Stock Exchange
(the "NYSE"). Listed securities are valued at the last quoted
sales price on the exchange where the security is principally
traded. Securities listed on foreign exchanges are valued at the
latest quoted market price available prior to the close of the
NYSE. Debt securities may be valued on the basis of prices
provided by a pricing service using methods approved by the
Fund's Board of Directors. Other assets and securities for
which no quotations are readily available are valued in good
faith by, or under the direction of, the Fund's Board of
Directors.
B. Currency Translation. The market values of all assets and
liabilities denominated in foreign currencies are recorded in
the financial statements after translation to the U.S. dollar
based upon the bid price of such currencies against the U.S.
dollar last quoted by a major bank or broker. The cost basis of
such assets and liabilities is determined based upon historical
exchange rates. Income and expenses are translated at average exchange
rates in effect as accrued or incurred.
The Portfolios do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Portfolios' books, and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end,
resulting
from changes in the exchange rate.
C. Forward Currency Contracts. The Portfolios may enter into forward
purchases or sales of foreign currencies to hedge certain foreign currency
denominated assets and liabilities against declines in market value relative
to
the U.S. dollar. Forward currency contracts are marked-to-market daily and
the change in market value is recorded by the Portfolios as an unrealized
gain
or loss. When the forward currency contract is closed, the Portfolios record
a
realized gain or loss equal to the difference between the value of the
forward
currency contract at the time it was opened and the value at the time it
was closed.
Investments in forward currency contracts may expose the
Portfolios to risks resulting from unanticipated movements in
foreign currency exchange rates or failure of the counterparty
to the agreement to perform in accordance with the terms of
the contract.
D. Federal Income Taxes. The Portfolios intend to comply
with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of their
taxable income to their shareholders. Therefore, no federal
income tax provision is required.
E. Security Transactions, Interest and Dividends. As is
common in the industry, security transactions are recorded on the trade date.
Interest income is accrued as earned. Discounts and premiums are amortized
in accordance with Federal income tax requirements. Dividends are
recorded on the ex-dividend date.
F. Distributions to Shareholders. Distributions to
shareholders are recorded on the ex-dividend date. The
character of distributions paid to shareholders is determined
by reference to income as determined for income tax purposes,
after giving effect to temporary differences between the
financial reporting and tax basis of assets and liabilities, rather
than income as determined for financial reporting purposes.
G. Deferred Organization Expenses. All of the expenses
incurred by the Fund in connection with the organization and
the registration of the Portfolios' shares were borne equally by
each Portfolio and are being amortized to expense on a
straight-line basis over a period of five years.
H. Use of Estimates. In preparing financial statements in
accordance with generally accepted accounting principles,
management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of
the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(3) Investments
For the six months ended April 30, 2000, the cost of securities
purchased and the proceeds from securities sold, excluding
short-term notes, was $3,102,064 and $3,400,064,
respectively, for the McGlinn Balanced Portfolio, and
$7,834,427 and $9,494,235, respectively, for the Global
Income Portfolio.
At April 30, 2000 net unrealized appreciation of investment
securities consisted of gross unrealized appreciation and gross
unrealized depreciation of $128,581 and $(172,419),
respectively, for the McGlinn Balanced Portfolio and $99,575
and $(379,007) respectively, for the Global Income Portfolio.
On October 31, 1999 the McGlinn Balanced Portfolio had a
capital loss carry forward of $684,144, which expires
$652,656 in 2006 and $31,488 in 2007, and the Global Income
Portfolio had a capital loss carry forward of $126,683 which
expires in 2007.
(4) Capital Stock
At April 30, 2000, the authorized capital of the Fund consisted
of one billion shares of $.01 par value common stock with 100
million shares designated and classified the McGlinn Balanced
Portfolio and 100 million shares designated and classified the
Global Income Portfolio.
(5) Investment Management Fee and Administration Fee
Investment Advisory Agreements. Penn Street provides
investment management services to the Global Income
Portfolio under an Investment Advisory Agreement. Penn
Street provides the Portfolio with continuous investment
programs, a trading department, and selects brokers and
dealers to effect securities transactions. As compensation for
its services, Penn Street is paid a monthly fee which is equal to
the annual rate of 0.75% of the Portfolio's average daily net
assets.
Penn Street also provided investment management services to
the McGlinn Balanced Portfolio through April 5, 1999 under
terms identical to those provided to the Global Income
Portfolio. Effective April 5, 1999 McGlinn was retained to
provide investment management services to the McGlinn
Balanced Portfolio under an Investment Advisory Agreement.
McGlinn provides the Portfolio with continuous investment
programs, a trading department, and selects brokers and
dealers to effect securities transactions. As compensation for
its services, McGlinn is paid a monthly fee which is equal to
the annual rate of 0.60% of the Portfolio's average daily net
assets.
Administration Agreement. Penn Street also serves as the
Administrator of the Fund under an Administration
Agreement. The services include the administration of the
Fund's business affairs, supervision of services provided by
other organizations providing services to the Fund, including
the custodian, dividend disbursing agent, legal counsel and
independent accountants, preparation of certain Fund records
and documents, record keeping and accounting services. As
compensation for these services, Penn Street is paid a monthly
fee which is equal to the annual rate of 0.25% of the Global
Income Portfolio's average daily net assets and 0.50% of
McGlinn Balanced Portfolio's average daily net assets.
(6) Distribution Plans
Distribution Plan. The Portfolios have adopted Distribution Plans pursuant
to rule 12b-1 under the '40 Act, whereby each Portfolio may make monthly
payments at the annual rate of 0.25% of each Portfolio's average net assets
to
East Coast Consultants, Inc. ("East Coast") for providing certain
distribution
services. These services can include: promotion of the sale of Portfolio
shares, preparation of advertising and promotional materials, payment of
compensation to persons who have been instrumental in the sale of Portfolio
shares, and for other services and materials, including the cost of printing
Fund prospectuses, reports and advertising material provided to investors,
and to defray overhead expenses of East Coast incurred in connection with
the promotion and sale of Fund shares.
Shareholder Services Plan. The Portfolios have also adopted Shareholder
Services Plans (the "Plans") which are designed to promote the retention of
shareholder accounts. Under these Plans, the Portfolios are authorized to pay
East Coast a monthly fee which, on an annual basis, may not exceed 0.25%
of the average net assets of each Portfolio. Payments under the Plans would
be used, among other things, to compensate persons and/or organizations
that provide services to shareholders that are designed to encourage them to
maintain their investments in the Portfolios.
(7) Other Transactions with Affiliates
Certain officers and directors of the Fund are also officers
and/or directors of Penn Street and East Coast.
