Dear Shareholder:
Our fiscal year began with the financial markets in a crisis, the
result of continued disarray in global economies highlighted by the
Russian default and illiquidity in the system stemming from the
collapse of a large hedge fund. As is typical in periods of widespread
fears, government bonds rallied, credit spreads widened and the Federal
Reserve acted promptly in September 1998 to pump liquidity into the
system by lowering interest rates. Other central banks subsequently
followed by easing monetary policy in an effort to foster growth and
restore confidence. The stage was thereby set for the beginning of a
global recovery and rebound in the U.S. economy.
True to form, the stimulus provided by these actions had the desired
results. In early 1999, the U.S. economy was charging forward,
corporate earnings were strong, global economies began to improve,
and confidence was restored. Each factor supported the foundation for
higher stock prices and the continued accumulation of consumer
wealth. But rapid economic growth fosters inflation fears which in turn
bodes negatively for the bond markets. The markets understand that the
Federal Reserve, a firm believer that price stability is the key to long
term sustainable economic growth, stands ready to tighten credit when
necessary to control inflation. The prospect of low unemployment and
strong economic growth causing upwards pressure on wages and prices
was too much to hold bond prices down.
Responding to the potential for wage pressures, interest rates began a
steady rise in February. The benchmark 30-year Treasury, having
traded in the range of 5.00% - 5.10% for several months, increased
from 5.09% at January 31st to 6.10% by the end of July. The increase
in the 10-year Treasury was even more dramatic, rising during this
period by approximately 140 basis points to 6.02%. By mid-year,
when it was reported that wages had risen 6.5% on a year-on-year
basis, the Fed assumed the anticipated tightening posture and its
preemptive fight against inflation was on. Short-term interest rates were
increased 25 basis points in June and again in August. In October, the
Fed announced a continued "tightening bias" and resumed in
November with an additional 25 basis point increase in the Federal
funds rate. Longer term rates, while generally trading in the range of
6.00% - 6.25% during the last several months, have been marked by
material day-to-day volatility, as the markets analyze each economic
release and attempt to anticipate future Fed actions.
Economic statistics continue to give mixed signals. All traditional
indicators of higher interest rates and further declines in bond prices are
in place - strong economic growth, strong growth in labor, low
unemployment and rising commodity prices. However, the core rate of
inflation remains tame. The debate is now on as to whether these
traditional indicators will prevail, or if the massive productivity gains
resulting from the technological revolution have created a new
economic paradigm, one which supports strong economic growth with
low inflation. While time will reveal the answer, we believe the Federal
Reserve will hold firm to its resolve and is willing to err on the side of
controlling inflation.
McGlinn Balanced Fund
The McGlinn Balanced Fund declined (-2.32%) for the second half of
the fiscal year compared to an increase of +1.49% for the benchmark
(50% S&P 500/50% Lehman Intermediate Bond Index). Although we
are disappointed with the results, they stem primarily from avoiding
what we believe are short-term excesses in the equity market, opting
instead to position the portfolio to benefit from changes in long-term
trends.
The equity market has split into two major factions, the "Nifty-fifty",
principally large-capitalization growth stocks, and everything else. This
narrow group of growth stocks has been dominating the performance of
the popular averages, giving the illusion of an ongoing bull market. The
rest of the market has been struggling, with many stocks still
significantly below their highs reached in July. Strategically, the
McGlinn Balanced Fund has positioned the equity portion of the
portfolio in a broad spectrum of stocks with attractive valuations and
improving profitability. Although we are confident our strategy for the
long-term is sound, near-term, the portfolio has been devoid of many of
the more richly valued securities driving the market.
When viewed from a sector perspective, the principal reason for the
performance shortfall was a less-than-market exposure to technology
versus the benchmark's 25%. In fact, owning almost anything other
than technology during this time period generated a below-market
return. Despite significant portfolio exposure to the group,
approximately 16%, it was not enough to offset declines in most other
portfolio sectors. It is very unusual that such a narrow group of stocks
provide the preponderance of market performance. We have been
concerned that a bubble is developing, particularly in technology, and
will ultimately be deflated. Consequently holdings in technology, and
other sectors as well, have been limited to stocks where valuations and
expectations for future earnings are reasonable. Those at valuation
extremes have been avoided. This stance, although we believe prudent,
cost us relative and absolute performance during the second half of the
fiscal year.
The fixed income component of the portfolio modestly underperformed
its benchmark as a result of a premature lengthening in maturity versus
the benchmark. The impact on total performance was insignificant.
Portfolio Strategy
Our portfolio strategy is based on renewed global growth, which
portends a shift in equity market leadership. Global growth is back on
track after stumbling badly in 1998. The U.S. economy shows little
sign of significant slowing; stimulative monetary policy in Europe has
begun to take hold; Latin America has failed to implode as many had
predicted; Southeast Asia has turned the corner; and even Japan may be
on the path to recovery. Indeed, 1999 is shaping up to have been a
transition year, while 2000 holds the promise of being the first solid
year of synchronized growth the world has experienced in some time.
As this expansion gains momentum, the stocks of companies that benefit
from the budding recovery worldwide should produce significant
above-market returns. Most important for our investment strategy,
corporate earnings are showing distinct signs of improvement on a
broad front. The most dramatic improvements are coming from cyclically
oriented companies such as those in the basic materials, energy and
industrial cyclical sectors. Stocks of these companies have significant
representations in the portfolio. On the other hand, consumer cyclicals,
i.e. retailers, autos, etc., will be de emphasized as higher interest
rates and increasing import prices restrain consumer spending.
While renewed global growth will translate into better earnings prospects
for many of the stocks in the portfolio, it will have a dampening effect
on the bond market. Interest rates have risen since last fall and
consequently, bond prices have fallen dramatically. Our belief is most,
but not all, the damage resulting from potential inflation is already
reflected in current bond prices. However, the increase in credit demand
arising from improved global growth is not. From a strategic standpoint,
the fixed income component of the fund will be maintained at close to
neutral posture, versus the benchmark, until developing global growth is
more fully reflected in the market.
Asset allocation in 2000 will continue to favor the equity market.
Equities, driven by continued expansion in earnings, should continue to
deliver solid results. Volatility, however, could be substantial. We
believe a change in market leadership will unfold as it becomes
increasingly clear that the foundation, on which the "Nifty-fifty" stocks
built their market-domination performance, is shifting. Accelerating
global growth, rising interest rates and, most important, accelerating
earnings across a broad spectrum of market sectors, undermines their
role as the "only game in town." Participation in the market should
broaden, favoring companies that suffered during the global deflation,
as renewed growth improves their earnings prospects. Such transitions
rarely go smoothly.
We expect little from the fixed income market in 2000. The domestic
economy is unlikely to weaken enough to allow interest rates to retreat
substantially, especially in light of renewed world growth. Bond yields
are expected to remain within a broad trading range between 5.9% and 6.4%.
Short rates will continue to rise as it becomes apparent that Fed's's
work is not done. At best it should be an "earn-your-coupon" type year.
The Global Income Portfolio
For the fiscal year, the Global Income Portfolio reported a (-1.04%)
return, reflecting the magnitude of price depreciation in this period of
rising rates relative to income earned. While disappointing, this return
compared favorably with the (-2.46%) return of the Portfolio's primary
benchmark, the Solomon Smith Barney Global Index ("SBWGI").
The Portfolio outperformed the benchmark in the first half of the year
with a (-0.42%) total return compared to a (-3.35%) total return.
Performance of the Portfolio was positively impacted, on a relative
basis, by an overweighting in U.S. Treasuries during a period of
uncertainties in the global markets.
In mid fiscal year, the Fund made a strategic decision to assume a more
cautious, defensive approach in its fixed income investing. Accordingly,
actions were taken to reduce the duration of fixed income holdings and
reduce certain global exposures of marginal credit quality. Additionally,
in response to growing concern over the poor performance of the Euro
currency since its inception early this year, Euro positions were liquidated.
For obvious reasons, the reduction in duration during this period of
volatile and rising interest rates positively influenced the performance
of the Portfolio, as did the elimination of Euro exposures. On the other
hand, the decision to minimize exposures to global economies, and in
particular to Japan with its low interest rate environment, resulted in
our not participating in the broad based rally of the yen vs. the dollar,
which occurred during the second half of the year. Principally for these
reasons, the Portfolio underperformed its benchmark in the second half of
the fiscal year, with a (-0.64%) total return compared to a (0.92%) total
return realized by the SBWGI.
We enter the beginning of our fiscal year with a continued cautious and
moderately defensive posture towards the bond market. We anticipate that
the FOMC will continue to focus on the inflationary outlook and will take
further actions to tighten credit until there are signs of a decisive
slowing in the economy, particularly in light of the increase in commodity
prices and the weak dollar.
Year 2000 Preparedness
Year 2000 ("Y2K") issues relate to the ability of computer systems to
function properly when processing date-related information on and after
January 1, 2000. Preparation for Y2K throughout the U.S. has been extensive,
with major capital expenditures occurring to assure minimal disruption to
the financial markets as we enter the new millennium.
We believe The Penn Street Fund has taken reasonable steps in addressing
Y2K issues with respect to the computer systems used by the Fund, its
portfolio managers and other major service providers. The Fund is also
obtaining reasonable assurance that comparable steps are being taken by
the Funds' other major service providers.
The Fund has elected to rely on public filings and other statements
concerning Y2K readiness made by companies and issuers in whose securities
the portfolios intent to invest. Issuers in countries outside the U.S. may
not be subject to the same Y2K readiness disclosure that is required in
the U.S. The Fund could be adversely affected if a company in which the
Fund is invested experiences Y2K related problems and its share price is
negatively impacted.
Sincerely,
David E. Sparks
President
MCGLINN BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1999
Penn Street Fund, Inc.
COMMON STOCKS (56.5%)
Shares U.S. $ Value
Basic Materials (6.9%)
Boise Cascade Corp 600 21,412
DuPont (E.I.) De Memours & Co. 400 25,775
FMC Corp. 350 14,241
Hercules, Inc. 300 7,219
International Paper Co. 300 15,787
Mead Corp. 700 25,202
Monsanto Co. 350 13,476
Praxair 500 23,376
Reynolds Metals Co. 250 15,109
US Steel 1,200 30,675
192,272
Capital Goods (4.8%)
Allied Waste Industries, Inc. 500 5,251
Allied Signal Inc. 550 31,316
Emerson Electric Corp. 350 21,022
Flowserve 1,000 16,875
Ingersoll-Rand Co. 400 20,900
Minnesota Mining 300 28,519
Tenneco Inc. 600 9,675
133,558
Communication Services (4.5%)
Alltel Corp. 400 33,300
AT&T Corp 600 28,050
GTE Corp. 300 22,575
SBC Communications Inc. 800 40,700
124,625
Consumer Cyclicals (4.0%)
Black & Decker Corp. 450 19,351
Dana Corp. 400 11,825
Dayton Hudson Corp. 150 9,694
Federated Dept. Stores 500 21,344
KMart Corp. 1,050 10,565
New York Times Co. - Class A 400 16,101
Walt Disney Corp. 850 22,529
111,409
MCGLINN BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
October 31, 1999
Penn Street Fund, Inc.
Shares U.S. $ Value
Consumer Staples (5.0%)
Albertson's Inc. 550 19,801
Kellogg 350 13,934
Kimberly-Clark Corp. 500 31,501
Nabisco Hold. Corp. 850 31,769
Proctor & Gamble 400 41,950
138,955
Energy (6.8%)
Baker Hughes, Inc. 600 16,762
Chevron Corp. 150 13,697
Conoco Inc. - Class A 400 10,975
Conoco Inc. - Class B 738 20,001
Halliburton Co. 450 16,959
R&B Falcon Corp. 1,300 16,169
Texaco Inc. 400 24,550
Unocal Corp. 1,000 34,625
USX-Marathon Group 600 17,475
Valero Energy 850 15,619
186,832
Financials (10.3%)
Allstate Corp. 650 18,850
Banc One Corp. 700 27,388
Bank of America Corp. 450 28,997
Citigroup Inc. 525 28,481
Conseco Inc. 1,500 36,563
Crescent Real Estate Eqty. Co. 2,500 41,563
First Union Corp. 400 17,100
Meristar Hospitality Corp. 650 10,441
MGIC Investment Corp. 500 29,875
Unum Corp. 650 21,409
Washington Mutual Inc. 650 23,359
284,026
Healthcare (5.3%)
American Home Products Corp. 750 39,187
Columbia HCA Healthcare Corp. 825 19,903
Merck & Co., Inc. 300 23,869
Pharmacia & Upjohn Inc. 600 32,362
Tenet Healthcare Corp. 700 17,494
Watson Pharmaceuticals Inc. 450 14,288
147,103
Technology (7.5%)
3Com Corp 900 26,100
Advanced Micro Devices 1,100 21,794
Alcatel Alsthom SA ADR 500 15,344
Compaq Co. 1,475 28,209
Eastman Kodak 450 31,022
Electronic Data Systems Corp. 700 40,950
Micron Technology, Inc. 350 24,959
Raytheon Co. - Class B 300 8,775
Unisys Corp. 500 11,281
208,434
Transports (0.6%)
UAL Corp. 250 17,015
Utilities (0.8%)
Williams Cos Inc. 575 21,563
TOTAL COMMON STOCK (Cost $1,682,857) 1,565,792
MCGLINN BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS - continued
October 31, 1999
Penn Street Fund, Inc.
FIXED INCOME SECURITIES (38.4%) Principal Amt. (b)U.S. $ Value
Basic Materials (1.3%)
International Paper Co. 7.625%
due 08/01/2004 35,000 35,501
Capital Goods (1.7%)
International Game Technology 7.875%
due 05/15/2004 25,000 23,938
Waste Management Inc. 7.125%
due 06/15/2001 25,000 23,965
47,903
Energy (0.9%)
Triton Energy 8.750%
due 04/15/2002 25,000 24,793
Financials (0.9%)
Dime Bancorp Inc. 7.000%
due 07/25/2001 25,000 24,812
Healthcare (1.2%)
Tenet Healthcare Corp. 8.000%
due 01/15/2005 35,000 32,900
Real Estate (0.6%)
Club Mediterranee 4.59%
due 03/02/2003 (denominated in Euros) 34 17,184
Transports (0.9%)
Continental Airlines, Inc. 9.500%
due 12/15/2001 25,000 25,297
Utilities (0.9%)
Edison International 6.875%
due 09/15/2004 25,000 24,780
233,170
Principal U.S. $ Value
Amt.
U.S. Government and Government Agencies (30.0%)
FHLMC (Mortgage backed) 7.500%
due 11/01/2014 50,000 50,500
US Treasury Bond 5.875%
due 11/15/99 100,000 100,039
US Treasury Bond 6.375%
due 01/15/2000 75,000 75,152
US Treasury Bond 5.875%
due 02/15/2000 50,000 50,100
US Treasury Bond 6.000%
due 07/31/2002 150,000 150,539
US Treasury Bond 5.750%
due 08/15/2003 150,000 148,875
US Treasury Bond 6.500%
due 08/15/2005 35,000 35,640
US Treasury Bond 6.125%
due 08/15/2007 125,000 124,473
US Treasury Bond 5.625%
due 05/15/2008 100,000 96,445
831,763
TOTAL DEBT SECURITIES (Cost $1,066,461) 1,064,933
SHORT-TERM INVESTMENTS (11.7%)
Highmark Money Market Fund 322,622 322,622
TOTAL SHORT-TERM INVESTMENT (Cost $322,622) 322,622
TOTAL INVESTMENT IN SECURITIES (106.6%)
(Cost: $3,071,940) (Notes 2A and 3) 2,953,347
CASH AND OTHER ASSETS - NET (-6.6%) (183,828)
TOTAL NET ASSETS (100.0%) $2,769,519
(*) non-income producing security
See notes to financial statements
GLOBAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1999
Penn Street Fund, Inc.
FIXED INCOME SECURITIES (84.0%)
Principal U.S.$ Value
Amt.
United States (81.5%)
Corporates (11.8%)
AT&T Cap Corp 6.570%
due 01/21/2000 500,000 $500,650
GMAC 5.750%
due 11/10/2003 700,000 672,910
YPF Corp. 8.00%
due 02/15/2004 350,000 346,080
1,519,640
Foreign Governments (U.S. dollar denominated) (4.6%)
Argentina 9.250% due 02/23/01 200,000 198,062
Italy 6.875% due 09/27/23 200,000 194,900
Korea Development Bond 6.50%,
due 11/15/2002 200,000 191,615
584,577
U.S. Government and Government Agencies (65.1%)
Federal Home Loan Bank 4.950%,
due 02/24/2000 500,000 498,535
Federal Home Loan Bank 5.220%,
due 11/17/2000 500,000 495,573
Federal Home Loan Bank 5.785%,
due 12/07/2001 500,000 495,089
Federal Home Loan Bank 6.125%,
due 12/28/2001 500,000 497,688
Federal Home Loan Bank 6.800%,
due 05/30/2002 1,000,000 1,001,094
Federal Home Loan Bank 6.000%,
due 08/15/2002 1,000,000 992,031
US Treasury Bond 5.500%,
due 03/31/2000 500,000 500,351
US Treasury Bond 5.500%,
due 12/31/2000 600,000 598,828
US Treasury Bond 7.750%,
due 02/15/2001 400,000 409,969
US Treasury Bond 4.875%,
due 03/31/2001 700,000 691,906
US Treasury Bond 5.500%,
due 08/31/2001 500,000 497,344
US Treasury Bond 5.625%,
due 02/15/2006 500,000 487,851
US Treasury Bond 7.250%,
due 05/15/2016 500,000 538,477
US Treasury Bond 7.500%,
due 11/15/2016 600,000 661,641
8,366,377
Australia (2.5%)
First Australia Prime Income Fund 53,000 318,000
TOTAL DEBT SECURITIES (Cost: $10,923,321) 10,788,594
SHORT-TERM INVESTMENTS (14.6%)
United States (14.6%)
Federal Home Loan Bank Discount Notes,
due 11/03/99 600,000 599,580
Federal Home Loan Bank Discount Notes,
due 11/15/99 1,000,000 997,700
Highmark Money Market Fund 275,409 275,409
TOTAL SHORT-TERM INVESTMENTS (Cost: $1,872,593) 1,872,689
TOTAL INVESTMENT IN SECURITIES (98.6%)
(Cost: $12,795,914) (Notes 2A and 3) 12,661,283
CASH AND OTHER ASSETS - NET (1.4%) 182,758
TOTAL NET ASSETS (100.0%) $12,844,041
(a) in local currency
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Penn Street Fund, Inc.
McGlinn Balanced Global Income
Portfolio Portfolio
ASSETS
Investment in securities, at value
(identified cost $3,071,940 and $12,795,914
respectively) (Notes 1 and 2A) $2,953,347 $12,661,283
Cash (including foreign currencies) 585
Receivables:
Interest and dividends 20,758 201,045
Prepaid expenses 1,597 2,314
Deferred organization expenses (Note 2G) 6,093 6,179
Total assets 2,982,380 12,870,821
LIABILITIES
Payable for securities purchased 209,111
Accrued expenses 3,750 26,780
Total liabilities 212,861 26,780
NET ASSETS (Note 4) $2,769,519 $12,844,041
Shares outstanding 216,001 1,429,172
Net asset value, offering and
redemption price per share $12.82 $8.99
At October 31, 1999, the components of net assets were as follows:
Paid-in capital $3,572,256 $13,105,064
Undistributed net investment income 291
Accumulated net realized losses
on investments (684,144) (126,683)
Unrealized appreciation/depreciation of
investments and translation of foreign currency
denominated assets and liabilities (118,593) (134,631)
$2,769,519 $12,844,041
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
Penn Street Fund, Inc.
McGlinn Balanced Global Income
Portfolio Portfolio
INVESTMENT INCOME
INCOME
Interest $44,604 $1,085,428
Dividends 28,480 23,529
Total income 73,084 1,108,957
EXPENSES
Investment management fees (Note 5) 17,502 120,134
Distribution expenses (Note 6) 5
Shareholder servicing fees (Note 6) 1,521 20,256
Administration (Note 5), accounting
and transfer agent 11,148 62,827
Professional fees 3,817 23,410
Custody fees 5,370 5,233
Amortization of organization expenses 6,373 6,354
Directors' fees and expenses 112 273
Other operating expenses 1,717 15,334
Total expenses 47,565 253,821
Net investment income 25,519 855,136
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) from investments 374,869 <126,683>
Net realized gain (loss) from foreign
currency transactions 8,283 <2,241>
Net change in unrealized appreciation/depreciation
of investments 111,210 <976,361>
Net change in unrealized appreciation/depreciation of foreign
currency denominated assets and liabilities <83> <3,736>
Net gain (loss) on investments and foreign currency
denominated asset and liabilities 494,279 <1,109,021>
Net increase (decrease) in net assets
resulting from operations $519,798 $<253,885>
MCGLINN BALANCED PORTFOLIO
Statement of Changes in Net Assets
Penn Street Fund, Inc.
Year ended Year ended
October 31 1999 October 31, 1998
OPERATIONS
Net investment income $25,519 $14,308
Net realized gain (loss) on investments and foreign
currency transactions 383,152 4,972,133
Net change in unrealized appreciation of investments
and foreign currency denominated
assets and liabilities 111,127 <5,543,759>
Net increase in net assets resulting
from operations 519,798 <557,318>
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ($0.15 and $0.05
per share, respectively) <31,892> <14,308>
Distribution from realized gains ($0.04 and $0.07 per share, respectively)
<8,283> <18,583>
CAPITAL SHARE TRANSACTION
Net decrease in net assets from capital share transactions (a)
<769,750> <22,405,665>
Net decrease in net assets <290,127> <22,995,874>
Net assets at the beginning of the period 3,059,646 26,055,520
Net assets at the end of the period $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
October 31 , 1999 October 31, 1998
OPERATIONS
Net investment income $855,136 $801,640
Net realized gain (loss) on investments and foreign
currency transactions <128,924> 582,579
Net change in unrealized appreciation of investments
and foreign currency denominated
assets and liabilities <980,097> 204,117
Net increase in net assets resulting
from operations <253,885> 1,588,336
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income ($0.46 and $0.43
per share, respectively) <679,913> <801,438>
Distributions from realized gains ($0.30 per share) <582,579>
CAPITAL SHARE TRANSACTION
Net decrease in net assets from capital share
transactions (a) <6,543,167> 8,705,954
Net increase (decrease) in net assets <7,476,965> 8,910,273
Net assets at the beginning of the period 20,321,006 11,410,733
Net assets at the end of the period (including
undistributed net investment income of
$291 and $6,572 respectively) $12,844,041 $20,321,006
(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 1,199 $11,196 1,321,141 $12,696,936
Shares issued in reinvestment of distributions
to shareholders 74,700 679,913 144,949 1,384,018
75,899 691,109 1,466,090 14,080,954
Shares redeemed <774,188> <7,234,276> <550,241> <5,375,000>
Net increase (decrease <698,289> $<6,543,167> 915,849 $8,705,954
MCGLINN BALANCED PORTFOLIO
Financial Highlights
For a share outstanding throughout each period
Penn Street Fund, Inc.
Year ended Year ended Year ended Nov 8, 1995+ to
October 31, 1999(1) October 31, 1998 October 31, 1997 October 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.89 $11.37 $10.82 $10.00
Net income (loss) from investment operations
Net investment income 0.12 0.05 0.02 0.05
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.00 <0.41> 1.41 0.84
Total from investment operations 2.12 <0.36> 1.43 0.89
Less distributions
Distributions from net investment income <0.15> <0.05> <0.04> <0.07>
Distributions from realized gains <0.04> <0.07> <0.84>
Total distributions <0.19> <0.12> <0.88> <0.07>
Net asset value, end of period $12.82 $10.89 $11.37 $10.82
TOTAL RETURN 19.45% <3.18%> 13.57% 8.89%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,770 $3,060 $26,056 $26,137
Ratio to average net assets
Expenses 1.90% 1.99% 1.71% 1.82%**
Net investment income 1.02% 0.17% 0.20% 0.40%**
Portfolio turnover rate 194% 44% 25% 42%
+ Commencement of operations
* Total return has not been annualized
** Annualized
(1) 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.
Year ended Year ended Year ended Nov 8, 1995+ to
October 31, 1999 October 31, 19 98 October 31, 1997 October 31, 1996
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.55 $9.42 $10.48 $10.00
Net income from investment operations
Net investment income 0.59 0.43 0.47 0.50
Net realized and unrealized gain (loss) on investments
and foreign currency transactions <0.69> 0.43 <0.06> 0.26
Total from investment operations <0.10> 0.86 0.41 0.76
Less distributions
Distributions from net investment income <0.46> <0.43> <0.90> <0.28>
Distributions from net realized gains <0.30> <0.57>
Total distributions <0.46> <0.73> <1.47> <0.28>
Net asset value, end of period $8.99 $9.55 $9.42 $10.48
TOTAL RETURN <1.04>% 9.15% 4.19% 7.79%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $12,844 $20,321 $11,411 $12,870
Ratio to average net assets
Expenses 1.44% 1.81% 1.72% 1.84%**
Net investment income 4.84% 4.46% 5.39% 4.88%**
Portfolio turnover rate 107% 43% 22% 29%
+ Commencement of operations
* Total return has not been annualized
** 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 5, 1999 the Fund's Board of Directors held an emergency meeting to
address issues arising from the untimely death of Richard T. Coghlan, the
Portfolios' investment manager. At this meeting the Directors voted to approve
the hiring of McGlinn Capital Management, Inc. ("McGlinn") to replace Penn
Street Advisors, Inc. ("Penn Street") as investment advisor for the Global
Equity Portfolio. The terms of the new investment advisory agreement are
substantially equivalent to the terms of the previous agreement with Penn
Street except that the advisory fee rate has been reduced from 0.75% to
0.60% of the Portfolio's average daily net assets. In connection with
McGlinn's hiring, the Directors also approved a change in fundamental
investment objective from "high total return, with emphasis on capital
appreciation" to "long-term growth with moderate income" and a change
of name to the McGlinn Balanced Portfolio.
(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 yearend,
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 year ended October 31, 1999, the cost of securities purchased and the
proceeds from securities sold, excluding short-term notes, was $5,365,977 and
$6,225,687, respectively, for the McGlinn Balanced Portfolio, and $18,103,521
and $24,984,936, respectively, for the Global Income Portfolio.
At October 31, 1999 net unrealized appreciation of investment securities
consisted of gross unrealized appreciation and gross unrealized depreciation
of $66,931 and $(185,524), respectively, for the McGlinn Balanced Portfolio
and $74,421 and $(209,052) respectively, for the Global Income Portfolio.
During the year ended October 31, 1999 the McGlinn Balanced Portfolio realized
gains of $406, 357, from the "in-kind" distribution of appreciated securities
to redeeming shareholders.
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 October 31, 1999, the authorized capital of the Fund consisted of one
billion shares of $.01 par value common stock with 100 million shares
designated and classified the 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.
Shareholders and Board of Directors
Penn Street Fund, Inc.
Malvern, Pennsylvania
We have audited the accompanying statement of assets and liabilities of
Penn Street Fund, Inc. (comprising, respectively, the McGlinn Balanced
Portfolio and the Global Income Portfolio), including the portfolios of
investments, as of October 31, 1999, and the related statements of
operations for the year then ended, and changes in net assets for each of
the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for the period November 8, 1995 (commencement of
operations) to October 31, 1996 were audited by other auditors whose
report dated November 18, 1996, expressed an unqualified opinion on
the financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1999 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the McGlinn Balanced Portfolio and the Global Income Portfolio as of
October 31, 1999, the results of their operations for the year then ended,
and the changes in their net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended in conformity with generally and accepted accounting
principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
November 19, 1999
