485APOS 1 perritt_485a.htm POST EFFECTIVE AMENDMENT perritt_485a.htm
 
As filed with the Securities and Exchange Commission on December 13, 2013

1933 Act File No. 333-114371
1940 Act File No. 811-21556

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
    
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Post-Effective Amendment No.
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No.
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(Check appropriate box or boxes.)

PERRITT FUNDS, INC.
(Exact name of Registrant as Specified in Charter)

300 South Wacker Drive
Suite 2880
Chicago, Illinois 60606
 (Address of Principal Executive Office) (Zip Code)

Registrant’s Telephone Number, including Area Code: (312) 669-1650

Michael J. Corbett
300 South Wacker Drive
Suite 2880
Chicago, Illinois 60606
(Name and Address of Agent for Service)

Copy to:
Peter Fetzer
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202

It is proposed that this filing will become effective (check appropriate box)
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immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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X
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:
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This post-effective amendment designates a new effective date for a previously filed post- effective amendment.
 
 
 
 
 
 
Subject to Completion-Dated December 13, 2013
 
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
[Logo]
 
Perritt Low Priced Stock Fund
(Ticker Symbol:  _______)
 
PROSPECTUS
 
The Perritt Low Priced Stock Fund
is a no load mutual fund that seeks long-term capital appreciation by investing mainly in common stocks of companies with market capitalizations that are below $3 billion at the time of initial purchase.  The Fund will invest in low priced stocks which we define as those companies trading at or below $15 per share at the time of initial purchase.  In view of this, the Perritt Low Priced Stock Fund may be subject to above-average risk.
 
Please read this Prospectus, paying particular attention to the risks involved, and keep it for further reference.  It contains important information about the Fund, its investments and the services it offers to shareholders.
 
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
Perritt Low Priced Stock Fund
300 South Wacker Drive
Suite 2880
Chicago, Illinois 60606
 
To request the Fund’s current Prospectus, call:  (800) 332-3133
To request the Fund’s current Statement of Additional Information, call:  (800) 332-3133
Website: www.perrittcap.com
 
Prospectus
_______ ___, 2014
 
 
 
 

     
 
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Summary Section
 
 
 
Investment Objective:
The Perritt Low Priced Stock Fund (the “Fund”) seeks long-term capital appreciation.
 
Fees and Expenses of the Fund:
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
 
SHAREHOLDER FEES
(fees paid directly from your investment)
  
   
Maximum Sales Charge (Load) Imposed on Purchases
None
Maximum Deferred Sales Charge (Load)
None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Distributions
None
Redemption Fee (as a percentage of amount redeemed on shares held for 90 days or less)
2.00%
Exchange Fee (as a percentage of amount exchanged on shares held for 90 days or less)
2.00%
   
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
  
Management Fees
1.00%
Distribution and/or Service (12b-1) Fees
None
Other Expenses (1)
1.50%
Total Annual Fund Operating Expenses
2.50%
Fees Waived and/or Expenses Reimbursed (2)
1.00%
Total Annual Fund Operating Expenses After Waiver and/or Reimbursement
1.50%
 
 
(1)
“Other Expenses” are estimated for the current fiscal year.  Actual expenses may differ from estimates.
 
 
(2)
The investment adviser has agreed to waive fees and/or reimburse operating expenses (other than interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses) so that total annual operating expenses are not expected to exceed 1.50%.  This arrangement cannot be terminated prior to February 28, 2015 without the Board of Directors’ (the “Board”) consent.  The investment adviser is permitted to recapture amounts waived and/or reimbursed within three years after the fiscal year in which the adviser earned the fee or incurred the expense if the total annual operating expenses have fallen to a level below the limit described above.
 
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.  The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods.  The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be
 
1 Year
  
3 Years
$150
  
$466
 
Portfolio Turnover
The Fund pays transaction costs, such as commissions when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account.  These costs, which are not reflected in Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.  The Fund is newly offered; therefore, it does not have a turnover rate to report for the most recent fiscal year.
 
 
Principal Investment Strategies: The Fund normally invests at least 80% of its net assets (plus any borrowings for investment purchases) in low priced common stocks with market capitalizations that are below $3 billion at the time of initial purchase.  (The Fund may continue to hold the securities of a company after it exceeds $3 billion in market capitalization.)  Low priced stocks are those that are trading at or below $15 per share at the time of initial purchase.  (Subsequent to the initial purchase, the Fund may purchase such securities at a price above $15 per share.)  The Fund’s strategy is based on the premise that low priced stocks offer growth potential because these stocks have limited broker research coverage, the companies’ prospects are misunderstood by most investors, and some investors mistakenly believe stocks trading below $15 per share are more “speculative” than those trading at higher levels and therefore avoid low priced stocks.  The stocks in which the Fund may invest are both domestic and foreign companies whose securities are listed on a U.S. national securities exchange.
 
The Fund will invest in “growth” stocks, “value” stocks, or a combination of both.  Given the market capitalization restrictions, the Fund will normally invest in securities issued by small-cap companies, including some micro-cap companies.  However, micro-cap companies will only make up a small portion of the Fund’s portfolio.  Micro-cap companies represent the smallest sector of public companies based on market capitalization.
 
The Fund’s investment adviser uses a “bottom-up” approach of fundamental analysis to look for individual companies that the adviser believes offer significant potential for stock price appreciation.  In addition, the adviser seeks to invest in companies with the following attributes:
 
 
●
Have a high percentage of their shares owned by company management;
 
●
Possess relatively low levels of long-term debt;
 
●
Have a potential for above-average growth in revenues and/or earnings; and
 
●
Possess reasonable valuations based on the ratios of price-to-sales, price-to-earnings, and price-to-book values.
 
At times, the Fund’s portfolio may contain the shares of unseasoned companies, companies that are undergoing corporate restructuring, initial public offerings, and companies believed to possess undervalued assets.
 
Although the Fund seeks long-term capital appreciation, stocks may be sold in the short-term for several reasons.  These include: (1) a company’s financial condition deteriorates to the point that, in the opinion of the Fund’s investment adviser, the company’s future growth prospects are impaired; (2) a company’s valuation multiples such as price-to-sales ratio, price-to-earnings ratio, or price-to-book value ratio expand to the point that the Fund’s investment adviser believes the company’s stock is significantly overvalued; or (3) the Fund’s investment adviser believes that another stock has better investment potential.
 
The Low Priced Stock Fund is intended for investors who are willing to withstand the risk of short-term price fluctuations in exchange for potential long-term capital appreciation.
 
 
Principal Risks: There is a risk that you could lose all or a portion of your money on your investment in the Fund.  This risk may increase during times of significant market volatility.  The risks below could affect the value of your investment, and because of these risks the Fund is a suitable investment only for those investors who have long-term investment goals:
 
●  
Common Stocks: Common stocks occupy the most junior position in a company’s capital structure.  Although common stocks have a history of long-term growth in value, their prices fluctuate based on changes in a company’s financial condition and on overall market and economic conditions.  Therefore, the price of common stocks may decline for a number of reasons.  The price declines may be steep, sudden and/or prolonged.
 
●  
Micro-Cap & Small Capitalization Companies:  Micro-cap and small capitalization companies typically have relatively lower revenues, limited product lines, lack of management depth, higher risk of insolvency and a smaller share of the market for their products or services than larger capitalization companies.  Generally, the share prices of stocks of micro-cap and small capitalization companies are more volatile than those of larger capitalization companies.  Thus, the Fund’s share price may increase and decrease by a greater percentage than the share prices of funds that invest in the stocks of large capitalization companies.  Also, the returns of micro-cap and small capitalization company stocks may vary, sometimes significantly, from the returns of the overall market.  In addition, micro-cap and small capitalization company stocks tend to perform poorly during times of economic stress.  Relative to large capitalization company stocks, the stocks of micro-cap and small capitalization companies are thinly traded, and purchases and sales may result in higher transactions costs.  For these reasons, the Fund is a suitable investment for only that part of an investor’s capital that can be exposed to above-average risk.
 
●  
Low Priced Stocks:  The price swings of small and micro-cap low priced stocks are generally more volatile than higher priced large-cap companies.  Low priced stocks are generally more illiquid than higher priced securities.
 
●  
Early Stage Companies:  Early stage companies are subject to the same risks as micro-cap companies.  In addition, they may not be profitable initially and there is no guarantee that they will become profitable or be able to obtain necessary financing.  They may rely on untested business plans.  Early stage companies may not be successful in developing markets for their products and services.  They may remain an insignificant part of their industry.  They may be illiquid or may not be publicly traded.  Investments in early stage companies tend to be more volatile and somewhat more speculative than investments in more established companies.
 
●
Market Risk:  The Fund may be exposed to “market risk.”  Market risk is the risk that stocks may decline significantly in price over short or extended periods of time.  Price changes may occur in the market as a whole, or they may occur in only a particular company, industry or sector of the market.
 
●
New Fund Risk:  The Fund is new with no operating history and there can be no assurance that the Fund will grow to or maintain an economically viable size.
 
●
Foreign Securities Risk: The Fund invests in foreign securities traded on U.S. exchanges.  There are specific risks associated with investing in the securities of foreign companies not typically associated with investing in domestic companies.  Risks include fluctuations in the exchange rates of foreign currencies that may affect the U.S. Dollar value of a security, and the possibility of substantial price volatility as a result of political and economic instability in the foreign country.
 
●
Manager Risk:  The Fund may lose money if the Fund’s investment strategy does not achieve the Fund’s objective or the Fund’s investment adviser does not implement the strategy properly.
 
Performance: The following bar chart and table provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year, as represented by the performance of the Fund’s predecessor, and how the Fund’s average annual returns over time, as represented by the performance of the Fund’s predecessor, compare with those of the Russell 2000® Index.  Updated performance information is available on the Fund’s website at www.perrittcap.com or by calling the Fund toll-free at 1-800-332-3133. The past performance of the Fund and its predecessor (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.
 
 
Sales charges are not reflected in the accompanying bar chart, and if those charges were included, returns would be less than those shown.
 
The Fund is the successor to a separately managed account (the “Predecessor”).  The performance in the accompanying bar chart and table is that of the Predecessor.  Immediately prior to the Fund commencing operations, the Predecessor transferred its assets to the Fund in exchange for the Fund’s shares.  The investment policies, objectives, guidelines and restrictions of the Fund are in all material respects equivalent to those of the Predecessor.  In addition, the Predecessor’s portfolio managers are the current portfolio managers of the Fund.  As a mutual fund registered under the Investment Company Act of 1940, the Fund is subject to certain restrictions under the 1940 Act and the Internal Revenue Code to which the Predecessor was not subject.  Had the Predecessor been registered under the 1940 Act and been subject to the provisions of the 1940 Act and the Code, its investment performance may have been adversely affected.  The performance was achieved by the Predecessor when Fund assets were relatively small; the same strategies may not be available, and similar performance may not be achieved, when the Fund’s assets are larger.  The performance shown includes an annual management fee of 1.00% and does not include any expenses paid by the Predecessor’s investment adviser.
 
The Predecessor did not have distribution policies.  The Predecessor was an unregistered separately managed account, did not qualify as a regulated investment company for federal income tax purposes and did not pay dividends or distributions.
 
Perritt Low Priced Stock Fund
 
Year-by-Year Total Returns as of December 31
 
[To Be Completed When Available]
 
During the period shown on the bar chart, the Fund’s best and worst quarters are shown below:
 
Highest Quarterly Return
Lowest Quarterly Return
___% (________)
___% (________)
 
 
One Year
Since
Inception
[State inception
date]
Perritt Low Priced Stock Fund
    
Return Before Taxes
___%
___%
Return After Taxes on Distributions
___%
___%
Return After Taxes on Distributions and Sale of Fund Shares
___%
___%
Russell 2000® Index (reflects no deduction for fees, expenses, or taxes)
___%
___%
 
 
After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes.  Actual after-tax returns depend on your situation and may differ from those shown.  Furthermore, the after-tax returns shown are not relevant to those who hold their shares through tax-deferred arrangements such as 401(k) plans or Individual Retirement Accounts.
 
Management:
 
Investment Adviser: Perritt Capital Management, Inc. is the investment adviser (Adviser) for the Fund.
 
Portfolio Manager: Michael Corbett and Brian Gillespie are responsible for the day-to-day management of the Fund’s portfolio.  Mr. Corbett is President of the Adviser and has served as Portfolio Manager of the Predecessor since its inception.  Mr. Gillespie is a portfolio manager and research analyst of the Adviser and has served as Co-Portfolio Manager of the Predecessor since its inception.
 
Purchase, Sale and Exchange of Fund Shares: You may purchase, redeem and exchange Fund shares on any business day by written request via mail (Perritt Low Priced Stock Fund, c/o U.S. Bancorp Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201-0701), by wire transfer, by telephone at 1-800-332-3133, or through a financial intermediary.  You may also purchase and redeem additional Fund shares through the Internet at www.perrittcap.com.  Transactions will only occur on days the New York Stock Exchange is open.  Investors who wish to purchase or redeem Fund shares through a financial intermediary should contact the financial intermediary directly for information relative to the purchase or sale of Fund shares.  The following are the minimum investment requirements for investing in the Fund (the Fund may waive the minimum investment requirements from time to time):
 
Initial Purchase:
$1,000
Additional Purchase:
$    50
Automatic Investment Plan:
$    50
Individual Retirement Account:
$  250
Tax Deferred Retirement Account:
$  250
Uniform Gift to Minors Act:
$  250
Dividend Reinvestment:
None
 
Tax Information: The Fund’s distributions are taxable, and will be taxed as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account.  Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
 
Payments to Broker-Dealers and Other Financial Intermediaries: If you purchase Fund shares through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services.  These payments may create conflicts of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s website for more information.
 

 
Investment Objective and Strategies
 
The Fund’s investment objective of long-term capital appreciation is a non-fundamental policy and may be changed without obtaining shareholder approval.  Please remember that an investment objective is not a guarantee.  An investment in the Fund might not appreciate and investors may lose money.
 
The Fund normally invests at least 80% of its net assets (plus any borrowings for investment purchases) in low priced common stocks with market capitalizations that are below $3 billion at the time of initial purchase.  (The Fund may continue to hold the securities of a company after it exceeds $3 billion in market capitalization.)  Low priced stocks are those that are trading at or below $15 per share at the time of initial purchase.  (Subsequent to the initial purchase, the Fund may purchase such securities at a price above $15 per share.)  If the Fund decides to change this policy, it will provide at least a sixty (60) day written notice of its decision to shareholders.
 
Principal Investment Strategies
 
The Fund’s strategy is based on the premise that low priced stocks offer growth potential because these stocks have limited broker research coverage, the companies’ prospects are misunderstood by most investors, and some investors mistakenly believe stocks trading below $15 per share are more “speculative” than those trading at higher levels and therefore avoid low priced stocks.  The stocks in which the Fund may invest are both domestic and foreign companies whose securities are listed on a U.S. national securities exchange.
 
The Fund will invest in “growth” stocks, “value” stocks, or a combination of both.  Given the market capitalization restrictions, the Fund will normally invest in securities issued by small-cap companies, including some micro-cap companies.  However, micro-cap companies will only make up a small portion of the Fund’s portfolio.  Micro-cap companies represent the smallest sector of public companies based on market capitalization
 
The Adviser uses fundamental analysis to look for stocks of small-cap and micro-cap companies that appear to have the potential for more rapid price appreciation than other small-cap and micro-cap stocks and the overall stock market in general.  The Adviser uses a “bottom-up” approach of fundamental analysis when selecting investments for the Fund.  This means the Adviser bases investment decisions on company specific factors, not general economic conditions.
 
In addition, the adviser seeks to invest in companies with the following attributes:
 
 
●
Have a high percentage of their shares owned by company management;
 
●
Possess relatively low levels of long-term debt;
 
●
Have a potential for above-average growth in revenues and/or earnings; and
 
●
Possess reasonable valuations based on the ratios of price-to-sales, price-to-earnings, and price-to-book values.
 
At times, the Fund’s portfolio may contain the shares of unseasoned companies, companies that are undergoing corporate restructuring or initial public offerings, and companies believed to possess undervalued assets.
 
 
Buying Stocks.  The research process includes prescreening potential investments, using databases and industry contacts, analyzing annual reports and financial statements, making onsite visits and meeting with top management.  Stocks meeting the Fund’s general selection criteria are subjected to a proprietary nine-step scoring system based on analysis of both the company’s balance sheet and income statement.  Stocks selected for purchase will generally possess above-average scores generated by this system.  Investors should expect the Fund’s portfolio to be diversified among a large number of stocks drawn from several industries.
 
Although it seeks to invest for the long term, the Fund retains the right to sell securities irrespective of how long they have been held.  It is expected, though not assured, that the annual portfolio turnover rate of the Fund will not typically exceed 100%.  A turnover rate of 100% would occur, for example, if all of the Fund’s securities were replaced within one year.  A turnover rate of 100% or more would result in the Fund incurring more transaction costs such as mark-ups or mark-downs.  Payment of these transaction costs could reduce the Fund’s total return.  High portfolio turnover could also result in the payment by Fund shareholders of increased taxes on realized gains.
 
Selling Stocks.  Although the Fund seeks long-term capital appreciation, stocks may be sold in the short-term for several reasons.  These include: (1) a company’s financial condition deteriorates to the point that, in the opinion of the Fund’s investment adviser, the company’s future growth prospects are impaired; (2) a company’s valuation multiples such as price-to-sales ratio, price-to-earnings ratio, or price-to-book value ratio expand to the point that the Fund’s investment adviser believes the company’s stock is significantly overvalued; or (3) the Fund’s investment adviser believes that another stock has better investment potential.
 
Non-Principal Investment Strategies
 
Ordinarily, the Adviser intends to keep the portfolio fully invested in stocks.  However, the Fund may, in response to adverse market, economic, political or other conditions, take temporary defensive positions.  In such circumstances the Fund may invest in money market instruments (like U.S. Treasury Bills, commercial paper or repurchase agreements).  The Fund will not be able to achieve its investment objective of long-term capital appreciation to the extent that it invests in money market instruments since these securities do not appreciate in value.  When the Fund is not taking a temporary defensive position, it may hold some cash and money market instruments so that it can pay its expenses, satisfy redemption requests or take advantage of investment opportunities.  The Fund may not invest more than 20% of its assets in cash and money market instruments when it is not taking a temporary defensive position.
 
The Fund may purchase shares of exchange-traded funds (“ETFs”).  All ETFs are registered investment companies that are bought and sold on a securities exchange.  Most ETFs represent a fixed portfolio of securities designed to track a particular market index.  Typically, the Fund would purchase ETF shares to increase its equity exposure to all or a portion of the stock market while maintaining flexibility to meet the liquidity needs of the Fund.  The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities in which they invest, although lack of liquidity in a particular ETF could result in it being more volatile than the underlying portfolio of securities and trading at a discount to its net asset value.  ETFs also have management fees that are part of their costs, and the Fund will indirectly bear its proportionate share of these costs.  Generally, the Fund will purchase shares of ETFs having the characteristics of the types of common stocks in which the Fund typically invests.  If greater liquidity is desired, then the Fund may purchase shares of ETFs designed to track the price performance and dividend yield of the Standard & Poor’s 500® Index (S&P 500®) and the Standard & Poor’s® 400 MidCap Index.  Subject to certain exceptions, the Fund currently may not own in the aggregate (a) more than 3% of the total voting stock of any one ETF; (b) securities issued by an ETF having an aggregate value in excess of 5% of the Fund’s total assets; or (c) securities issued by an ETF and any other investment company (whether or not registered) having an aggregate value in excess of 10% of the Fund’s total assets.
 
 
Redemption/Exchange Fee
 
The Fund is designed for investors with a long-term investment perspective and is not suitable for investors who attempt to profit from short-term market swings.  In fact, the Fund assesses a 2% redemption/exchange fee for shares held ninety (90) days or less in an attempt to deter “market timing” investors from investing in the Fund.  See the disclosure under the heading “Redeeming and Exchanging Shares - Frequent Purchases and Redemptions of Fund Shares” for a more detailed discussion of the redemption fee.  The Fund is also not a suitable investment for investors who cannot accept the relatively high portfolio volatility and other risks associated with investing in stocks of micro-cap and small capitalization companies.  Furthermore, there is no assurance that the objectives of the Fund will be realized or that any income will be earned.  Since the Fund’s share price may fall below the initial purchase price, investors in the Fund may lose a portion of their investment capital.
 
Disclosure of Portfolio Holdings of the Fund
 
The Fund’s Statement of Additional Information (“SAI”), which is incorporated by reference into this Prospectus, contains a description of the Fund’s policies and procedures regarding disclosure of the Fund’s portfolio holdings.
 
 
Perritt Capital Management, Inc. serves as the Fund’s investment adviser.  The Adviser is located at 300 South Wacker Drive, Suite 2880, Chicago, Illinois 60606.  The Adviser was incorporated as an Illinois corporation on July 8, 1987 and has been the Fund’s only investment adviser. The Adviser is a wholly owned subsidiary of Investment Information Services, Inc. (“IIS”).  IIS was organized in 1983.  Michael J. Corbett, President of the Adviser, owns a majority of the outstanding common stock of IIS and controls both IIS and the Adviser.  As of December 31, 2013, the Adviser had approximately $___ million in assets under management.
 
As the investment adviser to the Fund, the Adviser manages the investment portfolio for the Fund.  It makes the decisions as to which securities to buy and which to sell.  Under an Investment Advisory Agreement for the Fund pays the Adviser a monthly investment advisory fee at the annual rate of 1.00% of its average daily net assets.
 
A discussion regarding the basis for the Board of Directors approval of the Investment Advisory Agreement for the Fund is available in the Fund’s Semi-Annual Report to shareholders for the most recent period ended April 30.
 
Michael Corbett and Brian Gillespie are responsible for the day-to-day management of the Fund’s portfolio.  Mr. Corbett joined the Adviser in 1990 as a research analyst and is currently President of the Adviser.  Mr. Corbett obtained a B.S. degree from DePaul University.  Mr. Corbett has been a Portfolio Manager for the Predecessor  since its inception in _______.  Mr. Gillespie joined the Adviser in 2005 and has more than 10 years of experience in the investment industry.  Mr. Gillespie is currently a portfolio manager and research analyst of the Adviser.  Mr. Gillespie obtained a B.A. in Finance from Illinois State University in 1995 and his M.B.A. from Loyola University Chicago in 2002.  Mr. Gillespie has been a Co-Portfolio Manager for the Predecessor  since its inception in _______.
 
 
The Fund’s SAI provides additional information about the compensation of the Fund’s portfolio manager, other accounts managed by the portfolio manager, and the portfolio manager’s ownership of shares of the Fund.
 
 
The price at which investors purchase shares of the Fund and at which shareholders redeem or exchange shares of the Fund is called the net asset value (“NAV”).  The Fund normally calculates its NAV as of the close of regular trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. Eastern time) on each day the NYSE is open for trading.  The NYSE is closed on national holidays, Good Friday and weekends.  The NYSE also may be closed on national days of mourning or due to natural disaster or other extraordinary events or emergency.  The Fund calculates its NAVs based on the market prices of the securities (other than money market instruments) it holds unless market quotations are not readily available, or are deemed unreliable, or other circumstances require fair valuing the securities (as discussed below).
 
Securities and other assets for which market quotations are not readily available or are deemed unreliable are valued by appraisal at their fair value as determined in good faith by the Adviser under procedures established by and under the general supervision and responsibility of the Fund’s Board of Directors.  The Fund values money market instruments that it holds with remaining maturities of less than sixty (60) days at their amortized cost.  As the Fund invests primarily in micro-cap and small capitalization companies, other types of securities that the Fund may hold for which fair value pricing might be required include, but are not limited to: (a) illiquid securities, including “restricted” securities and private placements for which there is no public market; (b) securities of an issuer that has entered into a restructuring; and (c) securities whose trading has been halted or suspended.  Valuing securities at fair value involves greater reliance on judgment than securities that have readily available market quotations.  There can be no assurance that either Fund could obtain the fair value assigned to a security if it were to sell such security at approximately the same time at which either Fund determines its NAV per share.
 
The Fund will process purchase orders, redemption orders and exchange orders that it receives in good order prior to the close of regular trading on a day that the NYSE is open at the NAV determined later that day.  The Fund will process purchase orders, redemption orders and exchange orders that they receive in good order after the close of regular trading at the NAV calculated on the next day the NYSE is open.  A purchase, redemption or exchange order is in “good order” when the Fund or your servicing agent receives properly completed and signed documents.
 
 
How to Open an Account and Make Purchases by Mail and Wire

 
1.
Read this Prospectus very carefully before you invest.

 
2.
Share purchase applications can be obtained by calling 1-800-332-3133, or by visiting the Fund’s website at www.perrittcap.com.
 
 
 
3.
Determine how much you want to invest keeping in mind the following minimums (the Fund may waive the minimum investment requirements from time to time):
 
Minimum Investment Requirements
  
   
Initial Purchase:
$1,000
Additional Purchase:
$    50
Automatic Investment Plan:
$    50
Individual Retirement Account:
$  250
Tax Deferred Retirement Account:
$  250
Uniform Gift to Minors Act:
$  250
Dividend Reinvestment:
None
 
The Fund may change minimum investment requirements at any time.

 
4.
The Fund will not accept payment in cash or money orders.  The Fund does not accept payment by cashier’s check in amounts less than $10,000.  Also, to prevent check fraud, the Fund will not accept third party checks, U. S. Treasury checks, credit card checks, traveler’s checks or starter checks for the purchase of shares.  As applicable, make your check payable to “Perritt Low Priced Stock Fund” or “U.S. Bancorp Fund Services, LLC” as the Fund’s agent.  All checks must be drawn on a bank located within the United States and must be payable in U.S. dollars.  The Fund is unable to accept post dated checks, post dated on-line bill pay checks, or any conditional order or payment.  U.S. Bancorp Fund Services, LLC, the Fund’s transfer agent, will charge a $25 service fee when a check is returned.  The shareholder will also be responsible for any losses suffered by the Fund as a result.  The Fund may redeem shares you own as reimbursement for any such losses.  The Fund reserves the right to reject any purchase order for Fund shares.

 
5.
Mail the application and check to:
 
By First Class Mail
 
Perritt Low Priced Stock Fund
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53202-0701
 
By Overnight or Express Mail
 
Perritt Low Priced Stock Fund
c/o U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202-5207
 
Please do not mail letters by overnight delivery service to the Post Office Box address.
 
The Fund does not consider the U.S. Postal Service or other independent delivery services to be its agents.  Therefore, deposit in the mail or with such services, or receipt at the U.S. Bancorp Fund Services, LLC post office box of purchase orders or redemption requests does not constitute receipt by the transfer agent of the Fund.
 
 
By Wire

 
6.
If you are making your first investment in the Fund by wire, please call 1-800-332-3133 before you wire funds in order to make arrangements with a telephone service representative to submit your completed application via mail, overnight delivery or facsimile.  You can mail or overnight deliver your completed application to the transfer agent.  Upon receipt of your completed application, an account will be established for you.  The account number assigned will be required as part of the instruction that should be given to your bank to send the wire.  Your bank must include the name of the Fund, and your name and account number so that monies can be correctly applied.  Your bank should transmit funds by wire to:
 
U.S. Bank, N.A.
777 East Wisconsin Avenue
Milwaukee, WI  53202
ABA #075000022
Credit:  U.S. Bancorp Fund Services, LLC
Account #112-952-137
 
Further Credit:
Perritt Low Priced Stock Fund
(shareholder name and account number)
 
Subsequent Investments by Wire

 
7.
Please call 1-800-332-3133 before you wire funds in order to advise the transfer agent of your intent to wire funds.  This will ensure prompt and accurate credit upon receipt of your wire.
 
Please remember that U.S. Bank N.A. must receive your wired funds prior to the close of regular trading on the NYSE for you to receive same day pricing.  The Fund and U.S. Bank N.A. are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire system, or from incomplete wiring instructions.
 
Purchases Through Financial Service Agents
 
Some broker-dealers may sell shares of the Fund.  These broker-dealers may charge investors a fee either at the time of purchase or redemption.  The fee, if charged, is retained by the broker-dealer and not remitted to the Fund or the Adviser.
 
The Fund and/or the Adviser may enter into agreements with broker-dealers, financial institutions or other service providers (collectively, “Servicing Agents” and each a “Servicing Agent”), such as Charles Schwab & Co., Inc. and TD Ameritrade, that may include the Fund as investment alternatives in the programs they offer or administer.  Servicing Agents may:

        
●  
Become shareholders of record of the Fund.  This means all requests to purchase additional shares and all redemption requests must be sent through the Servicing Agent.  This also means that purchases made through Servicing Agents are not subject to the Fund’s minimum investment requirements.
 
        
●  
Use procedures and impose restrictions that may be in addition to, or different from, those applicable to investors purchasing shares directly from the Fund.
 
 
 
●
Charge their customers fees for the services they provide.  Also, the Fund and/or the Adviser may pay fees to Servicing Agents to compensate the Servicing Agent for the services provided to their customers.  Such payments may provide incentives for Servicing Agents to make shares of the Fund available to their customers, and may allow the Fund greater access to such Servicing Agents and their customers than would be the case if no payments were made.

 
●
Be allowed to purchase shares by telephone with payment to follow the next day.  If the telephone purchase is made prior to the close of regular trading on the NYSE, it will receive the same day pricing.

 
●
Be authorized to accept purchase orders on behalf of the Fund (and designate other Servicing Agents to accept purchase orders on the Fund’s behalf).  If the Fund has entered into an agreement with a Servicing Agent pursuant to which the Servicing Agent (or its designee) has been authorized to accept purchase orders on the Fund’s behalf, then all purchase orders received in good order by the Servicing Agent (or its designee) before 4:00 p.m. Eastern time will receive that day’s NAV, and all purchase orders received in good order by the Servicing Agent (or its designee) after 4:00 p.m. Eastern time will receive the next day’s NAV.
 
If you decide to purchase shares through a Servicing Agent, please carefully review the program materials provided to you by the Servicing Agent because particular Servicing Agents may adopt policies or procedures that are separate from those described in this Prospectus.  Investors purchasing or redeeming through a Servicing Agent need to check with the Servicing Agent to determine whether the Servicing Agent has entered into an agreement with the Fund.  When you purchase shares of the Fund through a Servicing Agent, it is the responsibility of the Servicing Agent to place your order with that Fund on a timely basis.  If the Servicing Agent does not place your order on a timely basis, or if it does not pay the purchase price to the Fund within the period specified in its agreement with the Fund, the Servicing Agent may be held liable for any resulting fees or losses.
 
How to make Subsequent Investments in the Fund
 
Mail or Wire
 
To make a subsequent investment in the Fund, see the instructions above under “How to Open an Account and Make Purchases by Mail and Wire.”
 
Automatic Investment Plan
 
Once your account has been opened with the initial minimum investment you may make additional purchases at regular intervals through the Automatic Investment Plan (“AIP”).  The AIP provides a convenient method to have monies deducted from your bank account, for investment into the Fund, on a monthly or quarterly basis.  In order to participate in the AIP, each purchase must be in the amount of $50 or more, and your financial institution must be a member of the Automated Clearing House (“ACH”) network.  If your bank rejects your payment, the Fund’s transfer agent will charge a $25 fee to your account.  To begin participating in the AIP, please complete the Automatic Investment Plan section on your application or call the Fund’s transfer agent at 1-800-332-3133 for additional information.  Any request to change or terminate your AIP should be submitted to the transfer agent five (5) days prior to the effective date.
 
 
Telephone Purchases
 
The telephone purchase option may not be used for initial purchases of the Fund’s shares, but may be used for subsequent purchases.  The telephone purchase option allows you to make subsequent investments directly from a bank checking or savings account.  To establish the telephone purchase option for your account, complete the appropriate section in the Purchase Application.  Only bank accounts held at domestic financial institutions that are Automated Clearing House (“ACH”) members may be used for telephone transactions.  This option will become effective approximately 15 business days after the application form is received by the Fund’s transfer agent, U.S. Bancorp Fund Services, LLC.  To have Fund shares purchased at the net asset value determined at the close of regular trading on a given date, U.S. Bancorp Fund Services, LLC must receive your purchase order prior to the close of regular trading on such date.  Most transfers are completed within one business day.  Telephone purchases may be made by calling 1-800-332-3133.  Once a telephone transaction has been placed, it cannot be canceled or modified.
 
If you have already opened an account, you may request this option by sending U.S. Bancorp Fund Services, LLC the “Telephone Option” form available on the Fund’s website (www.perrittcap.com).  If an account has more than one owner or authorized person, the Fund will accept telephone instructions from any one owner or authorized person.
 
Internet Purchases
 
After your account is established, you may set up a password by logging onto the Fund’s website (www.perrittcap.com).  This will enable you to purchase shares by having the purchase amount deducted from your bank account by electronic funds transfer via the ACH network.  Please make sure that your Fund account is set up with bank account instructions and that your bank is an ACH member.  You must have indicated on your application that telephone transactions are authorized and also have provided a voided check with which to establish your bank account instructions in order to complete Internet transactions.
 
For transactions conducted over the Internet, we recommend the use of a secure Internet browser.  In addition, you should verify the accuracy of your confirmation statements immediately after you receive them.  If an account has more than one owner or authorized person, the Fund will accept Internet instructions from any one owner or authorized person.
 
Telephone and Electronic Transactions
 
During periods of high market activity, shareholders may encounter higher than usual call waits.  Further, it may be difficult to reach the Fund by telephone or via the Internet during periods of unusual market activity.  Please allow sufficient time to place your telephone transaction.  If you are unable to reach a representative by telephone, you may have to send written instructions.
 
Neither the Fund nor U.S. Bancorp Fund Services, LLC will be liable for following instructions for telephone or Internet transactions that they reasonably believe to be genuine, provided reasonable procedures are used to confirm the genuineness of the instructions, but may be liable for unauthorized transactions if they fail to follow such procedures.  These procedures include requiring some form of personal identification or personalized security codes or other information prior to acting upon the telephone or Internet instructions and recording all telephone calls.
 
 
Once a telephone or Internet transaction has been placed, it cannot be canceled or modified.  If an account has more than one owner or authorized person, the Fund will accept telephone and Internet instructions from any one owner or authorized person.
 
Other Information about Purchasing Shares of the Fund
 
The Fund may reject any share purchase application for any reason.  The Fund will not accept purchase orders made by telephone, unless they are from a Servicing Agent that has an agreement with the Fund.
 
Neither Fund will issue certificates evidencing shares purchased.  The Fund will send investors a written confirmation for all purchases of shares.
 
The Fund offers the following retirement plans:
 
Traditional IRA
Roth IRA
Coverdell Education Savings Account
SEP-IRA
SIMPLE IRA
 
Fees for these accounts consist of an annual maintenance fee of $15 and $25 per withdrawal.  Please refer to the IRA disclosure booklet for fees unique to IRAs and Qualified Plan accounts.
 
Investors can obtain further information about the retirement plans by calling the Fund at 1-800-332-3133.  The Fund recommends that investors consult with a competent financial and tax advisor regarding the retirement plans before investing through these plans.
 
Shares of the Fund have not been registered for sale outside of the United States.  The Fund generally does not sell shares to investors residing outside the United States, even if they are United States citizens or lawful permanent residents, except to investors with United States military APO or FPO addresses.
 
 
Shareholders may redeem (sell) their shares at any time.  The redemption price you receive will be equal to the NAV next determined after the Fund’s transfer agent receives a request for redemption in good order.  The value of your shares on redemption may be more or less than their original cost.  A redemption fee of 2% of the amount of the redemption is generally applicable for shares held ninety (90) days or less.  Requests for redemption by telegram will not be honored.  Questions regarding the proper form of redemption requests should be directed to the transfer agent at 1-800-332-3133.
 
How to Redeem Fund Shares
 
Redeeming Shares In Writing:

 
1.
Prepare a letter of instruction containing:

 
●
The name of the Fund;
 
●
Account number(s);
 
●
The amount of money or number of shares being redeemed;
 
●
The names on the account;
 
 
 
●
Daytime telephone number; and
 
●
Additional information the Fund may require for redemptions by corporations, executors, administrators, trustees, guardians, or others who hold shares in a fiduciary or representative capacity.  Please contact the Fund’s Transfer Agent in advance at 1-800-332-3133, if you have any questions.

 
2.
Sign the letter of instruction exactly as the shares are registered.  Joint ownership accounts must be signed by all owners.

 
3.
A signature guarantee is required to redeem shares in the following situations:

 
●
The redemption request exceeds $50,000;
 
●
The redemption proceeds are payable or sent to any person, address or bank account not on record;
 
●
The redemption request is received within fifteen (15) business days of an address change; or
 
●
You are changing ownership on an account.

In addition to the situations described above, the Fund and/or the Fund’s Transfer Agent may require a signature guarantee in other instances based on the facts and circumstances relative to a particular situation.

Signature guarantees will generally be accepted from domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations, as well as from participants in the New York Stock Exchange Medallion Program and the Securities Transfer Agent Medallion Program (STAMP).  A notarized signature is not an acceptable signature guarantor.

Non-financial transactions including establishing or modifying certain services on an account may require a signature guarantee, a signature verification from a Signature Validation Program (“SVP”) member, or other acceptable form of authentication from a financial institution source. You can get a signature guarantee or SVP stamp from most banks, credit unions, federal savings and loan associations, or securities dealers, but not from a notary public.

 
4.
Redemption requests from shareholders in an IRA or defined contribution retirement plan must include instructions regarding federal income tax withholding.  Redemption requests will be subject to withholding unless the shareholder makes an election not to have federal income tax withheld.

 
5.
Send the letter containing redemption instructions to:

By First Class Mail

Perritt Low Priced Stock Fund
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
 
 
By Overnight or Express Mail

Perritt Low Priced Stock Fund
c/o U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202-5207

Please do not mail letters by overnight delivery service to the Post Office Box address.

How to Redeem Fund Shares Through Telephone/Online Privileges

Unless you declined the telephone redemption option or have not set up the Internet redemption option on your account, you may redeem up to $50,000 per day by calling 1-800-332-3133 or visiting the Fund’s website at www.perrittcap.com.  Shares held by retirement plans may not be redeemed by telephone or online. You may elect to have telephone redemption proceeds sent by check to your address of record, by wire to your bank account of record, or funds may be sent via electronic funds transfer through the ACH network to your pre-determined bank account. Proceeds may be wired and are subject to a $15 fee paid by the investor. You do not incur any charge for proceeds sent via the ACH system and credit is usually available within 2-3 days.

How to Redeem Fund Shares Through Servicing Agents

If your shares are held by a Servicing Agent (such as Charles Schwab & Co. Inc. or TD Ameritrade), you must redeem your shares through the Servicing Agent.  Contact the Servicing Agent for instructions on how to do so.

Redemption Price

 
●
The redemption price per share you receive for redemption requests is the next determined NAV after U.S. Bancorp Fund Services, LLC (“USBFS”) receives your written request in good order with all required information; or

 
●
If the Fund has entered into an agreement with a Servicing Agent pursuant to which the Servicing Agent (or its designee) has been authorized to accept redemption requests on behalf of the Fund, then all redemption requests received in good order by the Servicing Agent (or its designee) before 4:00 p.m. Eastern time will receive that day’s NAV, and all redemption requests received in good order by the Servicing Agent (or its designee) after 4:00 p.m. Eastern time will receive the next day’s NAV.

Payment of Redemption Proceeds

 
●
If you redeem shares by mail, USBFS will normally mail a check in the amount of the redemption proceeds no later than the seventh day after it receives the written request in good order with all required information, or transfer the redemption proceeds to your designated bank account if you have elected to receive redemption proceeds by either Electronic Funds Transfer or wire.  An Electronic Funds Transfer generally takes two (2) to three (3) business days to reach the shareholder’s account whereas USBFS generally wires redemption proceeds on the business day following the calculation of the redemption price.  If any portion of the shares to be redeemed represents an investment made by check, the Fund may delay the payment of the redemption proceeds until the transfer agent is reasonably satisfied that the check has been collected.  This may take up to twelve (12) calendar days from the purchase date.
 
 
 
●
If you redeem shares through a Servicing Agent, you will receive the redemption proceeds in accordance with the procedures established by the Servicing Agent.

Other Redemption Considerations

The Fund offers a Systematic Withdrawal Plan (“SWP”) whereby shareholders may request that a check drawn in a particular amount be sent to them each month, calendar quarter, or annually.  Payment can be made by sending a check to your address of record, or funds may be sent directly to your pre-determined bank account via the ACH network.  To establish a SWP, your account must have a value of at least $10,000, and the minimum withdrawal amount is $250.  For more information on a SWP please see the Fund’s SAI or contact the Fund’s transfer agent.

When redeeming shares of the Fund, shareholders should consider the following:

 
●
The redemption may result in a taxable gain.

 
●
As permitted by the Investment Company Act of 1940, the Fund may delay the payment of redemption proceeds for up to seven (7) days in all cases.  In addition, the Fund can suspend redemptions and/or postpone payments of redemption proceeds beyond seven days at times when the NYSE is closed or during emergency circumstances, as determined by the Securities and Exchange Commission.

 
●
If any portion of the shares to be redeemed represents an investment made by check, the Fund may delay the payment of the redemption proceeds until the transfer agent is reasonably satisfied that the check has been collected.  This may take up to twelve (12) calendar days from the purchase date.

 
●
The transfer agent currently charges $15 for each wire redemption but does not charge a fee for Electronic Funds Transfers.

 
●
The Fund may pay redemption requests “in kind.”  This means that the Fund may pay redemption requests entirely or partially with liquid securities rather than cash.  Shareholders who receive a redemption “in kind” may incur costs upon the subsequent disposition of such securities.

How to Exchange Shares

You may exchange shares of identically registered accounts between the Fund and the Perritt MicroCap Opportunities Fund (“Perritt MicroCap Fund”) or the Perritt Ultra MicroCap Fund (the “Ultra MicroCap Fund”), provided that you meet the applicable Fund’s minimum initial investment requirement. Before exchanging your shares, you should first carefully read the appropriate sections of this Prospectus for the new Fund and consider the tax consequences if yours is a taxable account. When you exchange shares, you are redeeming your shares in one Fund and buying shares of the other Fund. Shares redeemed in an exchange transaction will be treated as a sale of the Fund’s shares and any gain (or loss) on the transaction may be reportable as a gain (or loss) on your federal income tax return. This concern does not apply to IRA or other tax exempt accounts.

After the exchange, the account from which the exchange is made must have a remaining balance of at least $500 for the MicroCap Fund or $1,000 for the Fund and the Ultra MicroCap Fund in order to remain open. The Fund reserves the right to terminate or materially modify the exchange privilege upon 60 days’ advance notice to shareholders.
 

You may exchange Fund shares by calling Shareholder Services at 800-332-3133 prior to the close of trading on the NYSE, generally 3:00 p.m. Central Time on any day the NYSE is open for regular trading. The Fund’s transfer agent will charge a $5 fee for each telephone exchange. To exchange shares via mail, you may submit a signed letter of instruction. There is no $5 charge to exchange shares if your request is in writing. All registered account holders must sign the request.

If you exchange Fund shares 90 days or less from the date of purchase, you will be charged a redemption fee of 2% of the amount exchanged.

Small Accounts

The Fund’s account owners share the high cost of maintaining accounts with low balances.  To reduce this cost, the Fund reserves the right to close your account when a redemption leaves your account with a balance below $1,000 for the Fund.  The Fund will notify you in writing before your account is closed and you will have thirty (30) calendar days for the Fund or sixty (60) calendar days for the Fund to bring the balance up to the required level.

Frequent Purchases and Redemptions of Fund Shares

Frequent purchases and redemptions/exchanges of shares of the Fund may harm other shareholders by interfering with the efficient management of the Fund’s portfolio, increasing brokerage and administrative costs, and potentially diluting the value of its shares.  The Fund has adopted policies and procedures with respect to frequent purchases and redemptions of Fund shares by shareholders of the Fund (collectively, the “market timing policy”).  The market timing policy does not apply to the Fund’s SWP.

In order to deter market timers and excessive trading, the Fund imposes a 2% redemption/exchange fee on the value of shares redeemed ninety (90) days or less after the date of purchase (any proceeds of the fee are paid to the Fund).  The redemption/exchange fee does not apply to shares acquired through the reinvestment of dividends and capital gains.  The Fund reserves the right to waive the redemption/exchange fee, subject to its sole discretion, in instances deemed by the Adviser not to be disadvantageous to the Fund or its shareholders and which do not indicate market timing strategies.  In addition to the redemption fee, the Fund may temporarily or permanently bar future purchases into that Fund by such investor or, alternatively, may limit the amount, number or frequency of any future purchases and/or the method by which such investor may request future purchases and redemptions.

In calculating whether redemption of the Fund’s shares is subject to the redemption/exchange fee, a shareholder’s holdings will be viewed on a “first in/first out” basis.  This means that, in determining whether any fee is due, the shareholder will be deemed to have redeemed the shares he or she acquired earliest.  The fee will be calculated based on the current price of the shares as of the redemption date.

Investors are subject to these policies whether they are a direct shareholder of the Fund or they invest in the Fund indirectly through a financial intermediary such as a broker-dealer, a bank, an investment adviser or an administrator or trustee of a tax-deferred retirement plan that maintains an “Omnibus Account” with the Fund for trading on behalf of its customers.

The ability of the Fund to apply its market timing policy to investors investing through financial intermediaries is dependent on the receipt of information necessary to identify transactions by the underlying investors and the financial intermediary’s cooperation in implementing the policy.  Investors seeking to engage in excessive short-term trading practices may deploy a variety of strategies to avoid detection, and despite the efforts of the Fund to prevent excessive short-term trading, there is no assurance that the Fund or its agents will be able to identify those shareholders or curtail their trading practices.
 

If suspicious trading patterns are detected in an Omnibus Account, the relevant Fund will request information from the financial intermediary concerning trades placed in the Omnibus Account.  The Fund will use this information to monitor trading in the Fund and to attempt to identify shareholders in the Omnibus Account engaged in trading that is inconsistent with the market timing policy or otherwise not in the best interests of the Fund.  In considering an investor’s trading activity, the relevant Fund may consider, among other factors, the investor’s trading history, both directly and, if known, through intermediaries, in the Fund.  If the Fund detects such activity, then the Fund may request that the financial intermediary take action to prevent the particular investor or investors from engaging in frequent or short-term trading.  If inappropriate trading recurs, the Fund may refuse all future purchases from the Omnibus Account, including those of plan participants not involved in the inappropriate activity.

Household Delivery of Shareholder Documents

Only one Prospectus, Annual Report and Semi-Annual Report will be sent to shareholders who have the same address on record for their Fund accounts, unless you request multiple copies.  If you would like to receive separate copies, please call the Fund at 1-800-332-3133.  The Fund will begin sending your additional copies free of charge within thirty (30) days.  If your shares are held through a financial institution, please contact them directly.


The Fund distributes substantially all of its net investment income and capital gains annually.  Distributions are generally made in December.  As long as the Fund meets the requirements of a regulated investment company, which is its intent, it pays no federal income tax on the earnings it distributes to shareholders.  The Fund will automatically reinvest on your behalf all dividends and distributions in additional shares of the Fund unless you have elected to receive dividends and distributions in cash.  You may make this election on the share purchase application or by writing to USBFS.  If you wish to change your distribution option, notify the transfer agent in writing or by telephone in advance of the payment date for the distribution.

The Fund’s distributions, whether received in cash or additional shares of the Fund, may be subject to federal, state, and local income tax.  These distributions may be taxed as ordinary income, dividend income, or capital gains (which may be taxed at different rates depending on the length of time the Fund holds the assets generating the capital gains).  Distributions of net long-term capital gain are subject to tax as long-term capital gain regardless of the length of time you have held Fund shares.  If you purchase shares at a time when the Fund has recognized income or capital gains which have not yet been distributed, the subsequent distribution may result in taxable income to you even though such distribution may be, for you, the economic equivalent of a return of capital.

The Fund will notify you of the tax status of ordinary income distributions and capital gain distributions after the end of each calendar year.

You will generally recognize taxable gain or loss on a redemption of shares in an amount equal to the difference between the amount received and your tax basis in such shares. This gain or loss will generally be capital and will be long-term capital gain or loss if the shares were held for more than one year. Any loss recognized by a shareholder upon a taxable disposition of shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received with respect to such shares. A loss realized on the disposition of shares of the Fund will be disallowed to the extent identical (or substantially identical) shares are acquired in a 61-day period beginning 30 days before and ending 30 days after the date of such disposition. In that event, the basis of the replacement shares of the Fund will be adjusted to reflect the disallowed loss.
 

If an investor elects to receive distributions and dividends by check and the post office cannot deliver such check, or if such check remains uncashed for six months, the Fund reserves the right to reinvest the distribution check in the shareholder’s account at the applicable Fund’s then current NAV per share and to reinvest all subsequent distributions in shares of the Fund until an updated address is received.

Federal law requires a mutual fund company to report its shareholders’ cost basis, gain/loss, and holding period with respect to “covered shares” of the mutual fund to the Internal Revenue Service on the shareholders’ Consolidated Form 1099s when “covered” shares are sold. Covered shares are any Fund and/or dividend reinvestment plan shares acquired on or after January 1, 2012.

The Fund has chosen average cost as its standing (default) tax lot identification method for all shareholders, which means this is the method the Fund will use to determine which specific shares are deemed to be sold when there are multiple purchases on different dates at differing net asset values, and the entire position is not sold at one time.  The Fund’s standing tax lot identification method is the method it will use to report the sale of covered shares on your Consolidated Form 1099 if you do not select a specific tax lot identification method.  You may choose a method other than the Fund’s standing method at the time of your purchase or upon the sale of covered shares.

The cost basis method a shareholder elects may not be changed with respect to a redemption of shares after the settlement date of the redemption. Fund shareholders should consult with their tax advisors to determine the best IRS-accepted cost basis method for their tax situation and to obtain more information about how the cost basis reporting rules apply to them.

For those securities defined as “covered” under current IRS cost basis tax reporting regulations, the Fund is responsible for maintaining accurate cost basis and tax lot information for tax reporting purposes. The Fund is not responsible for the reliability or accuracy of the information for those securities that are not “covered.”

If you hold shares in the Fund through a broker (or another nominee), please contact that broker (or nominee) with respect to the reporting of cost basis and available elections for your account.

The preceding discussion is meant to be only a general summary of the potential federal income tax consequences of an investment in the Fund by U.S. shareholders. The SAI contains a more detailed summary of federal tax rules that apply to the Fund and its shareholders. This summary is not intended to be and should not be construed to be legal or tax advice to any current holder of the shares of the Fund. Legislation, judicial, or administrative action may change the tax rules that apply to the Fund or its shareholders and any such change may be retroactive. You should consult your tax advisers to determine the federal, state, local and non U.S. tax consequences of owning Fund shares.
 
 

USBFS, on behalf of the Fund, has established an Anti-Money Laundering Program as required by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.  In order to ensure compliance with this law, the Fund is required to obtain the following information for all registered owners and all authorized individuals:

 
●
Full Name;

 
●
Date of Birth;

 
●
Social Security Number;

 
●
Permanent Street Address (P.O. Box only is not acceptable); and

 
●
Additional documentation for corporate accounts.

If the transfer agent does not have a reasonable belief of the identity of an investor, the account application will be rejected or the investor will not be allowed to perform a transaction on the account until such information is received. The Fund also reserves the right to close the account within five business days if clarifying information/documentation is requested and not received.

The Fund might request additional information about you (which may include certain documents, such as articles of incorporation for companies) to help the transfer agent verify your identity.  Please note that your application will be returned if any information is missing.  If you require additional assistance when completing your application, please contact the transfer agent at 1-800-332-3133.


The Russell 2000® Index is a popular measure of the stock performance of small companies.  It is comprised of the stocks of the 2,000 smallest companies in the Russell 3000® Index.  The Russell 3000® Index is comprised of the 3,000 largest U.S. companies based on market capitalization.  The index reflects no deductions for expenses or taxes.  A direct investment in an index is not possible.
 
 
The Fund has not yet commenced operations, so it has no financial highlights.
 
 

The Fund collects the following nonpublic personal information about you:

 
●
Information the Fund receives from you on or in applications or other forms, including but not limited to, your name, address, phone number, and social security number; and

 
●
Information about your transactions with the Fund, its affiliates or others, including but not limited to, your account number and balance, parties to transactions, cost basis information and other financial information.

The Fund does not disclose any nonpublic personal information about their current or former shareholders to nonaffiliated third parties, except as permitted by law.   For example, the Fund is permitted by law to disclose all the information the Fund collects to its transfer agent to process your transactions.  Furthermore, the Fund restricts access to your nonpublic personal information to those persons who require such information to provide products or services to you.  The Fund maintains physical, electronic, and procedural safeguards through its transfer agent, U. S. Bancorp Fund Services, LLC, that comply with federal standards to guard your nonpublic personal information.

In the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank or trust company, the privacy policy of your financial intermediary would govern how your nonpublic personal information would be shared with nonaffiliated third parties.
 

You can learn more about the Fund in the following documents:

Statement of Additional Information
The Fund’s SAI contains more detailed information about the Fund, and the SAI is filed with the Securities and Exchange Commission (“SEC”).  The SAI is incorporated by reference into this Prospectus.  This means that you should consider the contents of the SAI to be part of the Prospectus.

Annual and Semi-Annual Reports to Shareholders
Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders.

The annual report includes a discussion of the market conditions and investment strategies that significantly affected the performance of the Fund during the last fiscal year.

To request a free copy of the current SAI or annual and semi-annual reports, call the Fund, toll-free, at 1-800-332-3133 or 1-312-669-1650, or write to the Fund at 300 South Wacker Drive, Suite 2880, Chicago, Illinois 60606.  You may also obtain a copy of these documents free of charge from the Fund’s website at www.perrittcap.com.

Prospective investors and shareholders with questions about the Fund also may call the above number or write to the above address.

You can review and copy information about the Fund (including the SAI) at the SEC’s Public Reference Room in Washington, D. C. (Please call 1-202-551-8090 for information on the operation of the Public Reference Room).  Reports and other information about the Fund is also available on the EDGAR Database on the SEC’s Internet website at http://www.sec.gov, and copies of this information may be obtained (duplicating fee required) by electronic request at publicinfo@sec.gov or by writing to:

Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-1520

Fund Symbols and CUSIPS

The shares of the Perritt Funds have the following fund symbols and CUSIPs:

Fund
Symbol
CUSIP
Perritt MicroCap Opportunities Fund
PRCGX
714402203
Perritt Ultra MicroCap Fund
PREOX
714402104
Perritt Low Priced Stock Fund
______
______

Investment Company Act File No. 811-21556
 
Subject to Completion-Dated December 13, 2013

The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

STATEMENT OF ADDITIONAL INFORMATION
Dated __________, 2014

PERRITT FUNDS, INC.

PERRITT LOW PRICED STOCK FUND
(Ticker Symbol: ____)

Investment Adviser:
Perritt Capital Management, Inc.
300 South Wacker Drive
Suite 2880
Chicago, Illinois  60606
Toll Free: (800) 332-3133 
Account Information and Shareholder Services:
Perritt Funds
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201
Toll Free: (800) 540-6807

This Statement of Additional Information (the “SAI”) provides additional information about the Perritt Low Priced Stock Fund.  Information about the Perritt MicroCap Opportunities Fund and the Perritt Ultra MicroCap Fund is contained in a separate SAI.  Each of the Perritt Low Priced Stock Fund, the Perritt MicroCap Opportunities Fund and the Perritt Ultra MicroCap Fund is referred to as a “Fund” and, collectively, as the “Funds.”  This SAI should be read in conjunction with the Perritt Low Priced Stock Fund’s Prospectus dated __________, 2014, as may be amended or supplemented from time to time.  This SAI is not a prospectus.  You may obtain a copy of the Prospectus without charge by contacting U.S. Bancorp Fund Services, LLC at the address or telephone number listed above or by visiting the Funds’ website at www.perrittcap.com.
 
 
 
 

PERRITT FUNDS, INC.

     
   
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No person has been authorized to give any information or to make any representations other than those contained in this SAI and the Prospectus dated _________, 2014 and, if given or made, such information or representations may not be relied upon as having been authorized by Perritt Funds, Inc.

This SAI does not constitute an offer to sell securities.
 


Perritt Funds, Inc. (the “Company”) is an open-end, management investment company registered under the Investment Company Act of 1940 (the “1940 Act”).  The Company was organized as a Maryland corporation on March 22, 2004.  The Board of Directors of the Company (the “Board”) may, from time to time, issue additional series, the assets and liabilities of which will be separate and distinct from any other series.  The Company currently offers the following three diversified separate investment series, or mutual funds: Perritt Low Priced Stock Fund, Perritt MicroCap Opportunities Fund and Perritt Ultra MicroCap Fund.

The Perritt MicroCap Opportunities Fund (the “MicroCap Fund”) became effective on February 28, 2013 and is the successor in interest to another fund having the same name and investment objective that was included as a series of another investment company, Perritt MicroCap Opportunities Fund, Inc. (the “Predecessor MicroCap Fund”) that was also advised by the Funds’ investment adviser, Perritt Capital Management, Inc.  Effective as of the close of business on February 28, 2013, the assets and liabilities of the Predecessor MicroCap Fund were transferred to the Company and the Predecessor MicroCap Fund was reorganized into a newly created series of the Company – the MicroCap Fund.

Prior to April 30, 2012, the Perritt Ultra MicroCap Fund (the “Ultra MicroCap Fund”) was named the Perritt Emerging Opportunities Fund.

This SAI relates to the Perrit Low Priced Stock Fund (sometimes referred to as the “Low Priced Stock Fund” or, as noted above, the “Fund”).  Information regarding the MicroCap Fund and the Ultra MicroCap Fund is contained in a different SAI.


The Low Priced Stock Fund normally invests at least 80% of its net assets (plus any borrowings for investment purchases) in low priced common stocks with market capitalizations that are below $3 billion at the time of initial purchase.  (The Low Priced Stock Fund may continue to hold the securities of a company after it exceeds $3 billion in market capitalization.)  Low priced stocks are those that are trading at or below $15 per share at the time of initial purchase.  (Subsequent to the initial purchase, the Low Priced Stock Fund may purchase such securities at a price above $15 per share.)  The Low Priced Stock Fund’s strategy is based on the premise that low priced stocks offer growth potential because these stocks have limited broker research coverage, the companies’ prospects are misunderstood by most investors, and some investors mistakenly believe stocks trading below $15 per share are more “speculative” than those trading at higher levels and therefore avoid low priced stocks.  The stocks in which the Low Priced Stock Fund may invest are both domestic and foreign companies whose securities are listed on a U.S. national securities exchange.
 
From time to time, the Low Priced Stock Fund, to the extent consistent with its investment objective, investment restrictions and investment strategies, may invest in other equity-type securities such as convertible bonds, preferred stocks and warrants to purchase common stock.  The Low Priced Stock Fund may invest in securities not listed on national or regional securities exchanges, but such securities typically will have an established over-the-counter market.  The Low Priced Stock Fund does not currently intend to invest in any security that, at the time of purchase, is not readily marketable.  The Low Priced Stock Fund may, for temporary defensive purposes, invest more than 20% of its assets in money market securities, including U.S. government obligations, certificates of deposit, bankers’ acceptances, commercial paper or cash and cash equivalents.  Except for temporary defensive purposes, the Low Priced Stock Fund will retain cash and cash equivalents only in amounts deemed adequate for current needs and to permit the Low Priced Stock Fund to take advantage of investment opportunities.
 


Recent Regulatory Events

The U.S. government, the Federal Reserve, the Treasury, the Securities and Exchange Commission (“SEC”), the Commodity Futures Trading Commission (“CFTC”), the Federal Deposit Insurance Corporation and other U.S. governmental and regulatory bodies have recently taken, or are considering taking, actions in response to the economic events of the past few years.  These actions include, but are not limited to, the enactment by the United States Congress of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, which imposes a new regulatory framework over the U.S. financial services industry and the consumer credit markets in general, as well as requiring new regulations by the SEC, the CFTC and other regulators.  The potential impact that such regulations could have on securities held by the Low Priced Stock Fund currently is unknown.  There can be no assurance that these measures will not have an adverse effect on the value or marketability of securities held by the Low Priced Stock Fund.

Considerations Respecting the Fund’s Principal Investment Strategies

Because the Low Priced Stock Fund intends to invest to a substantial degree in common stocks of smaller companies which are, in the opinion of Perritt Capital Management, Inc., the Funds’ investment adviser (the “Adviser”), rapidly growing, an investment in the Low Priced Stock Fund is subject to greater risks than those of funds that invest in larger companies.

Investments in relatively small companies tend to be speculative and volatile.  Relatively small companies may lack depth in management on which to rely should loss of key personnel occur.  Relatively small companies also may be involved in the development or marketing of new products or services, the market for which may not have been established. Such companies could sustain significant losses when projected markets do not materialize.  Further, such companies may have, or may develop, only a regional market for products or services and may be adversely affected by purely local events. Moreover, such companies may be insignificant factors in their industries and may become subject to intense competition from larger companies.

Equity securities of relatively small companies frequently will be traded only in the over-the-counter market or on regional stock exchanges and often will be closely held with only a small proportion of the outstanding securities held by the general public.  In view of such factors, the Low Priced Stock Fund may assume positions in securities with limited trading markets that are subject to wide price fluctuations.  Therefore, the current net asset value (“NAV”) of the Low Priced Stock Fund may fluctuate significantly.  Accordingly, the Low Priced Stock Fund should not be considered suitable for investors who are unable or unwilling to assume the risks of loss inherent in such a program, nor should an investment in a Low Priced Stock Fund, by itself, be considered a balanced or complete investment program.
 

Considerations Respecting the Fund’s Non-Principal Investment Strategies

Illiquid Securities

The Low Priced Stock Fund may invest up to 15% of its net assets in securities for which there is no readily available market (“illiquid securities”).  The 15% limitation includes certain securities whose disposition would be subject to legal restrictions (“restricted securities”).  However, restricted securities that may be resold pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), may be considered liquid.  Rule 144A permits certain qualified institutional buyers to trade in privately placed securities not registered under the Securities Act.  Institutional markets for restricted securities have developed as a result of Rule 144A, providing both readily ascertainable market values for Rule 144A securities and the ability to liquidate these securities to satisfy redemption requests.  However, an insufficient number of qualified institutional buyers interested in purchasing Rule 144A securities held by the Low Priced Stock Fund could adversely affect their marketability, causing the Low Priced Stock Fund to sell securities at unfavorable prices.  The Board has delegated to the Adviser the day-to-day determination of the liquidity of a security although it has retained oversight and ultimate responsibility for such determinations.  In determining the liquidity of a security, the Board has directed the Adviser to consider such factors as (i) the nature of the market for the security (including the institutional private resale markets); (ii) the terms of the security or other instrument allowing for the disposition to a third party or the issuer thereof (e.g., certain repurchase obligations and demand instruments); (iii) the availability of market quotations; and (iv) other permissible factors.

Restricted securities may be sold in privately negotiated or other exempt transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act.  When registration is required, the Low Priced Stock Fund may be obligated to pay all or part of the registration expenses and a considerable time may elapse between the decision to sell and the sale date.  If, during such period, adverse market conditions were to develop, the Low Priced Stock Fund might obtain a less favorable price than the price which prevailed when it decided to sell.  Restricted securities for which there is no market will be priced at fair value as determined in good faith by the Board or by the Adviser pursuant to procedures set forth by the Board and reviewed by the Board.

Convertible Securities

The Low Priced Stock Fund, to the extent consistent with its investment objective, investment restrictions and investment strategies, may invest in convertible securities. Convertible securities include fixed income securities that may be exchanged or converted into a predetermined number of shares of the issuer’s underlying common stock at the option of the holder during a specified period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of “usable” bonds and warrants or a combination of the features of several of these securities. Convertible securities are senior to common stocks in an issuer’s capital structure, but are usually subordinated to similar non-convertible securities. While providing a fixed-income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar nonconvertible security), a convertible security also gives an investor the opportunity, through its conversion feature, to participate in the capital appreciation of the issuing company depending upon a market price advance in the convertible security’s underlying common stock.
 
 
Preferred Stocks

The Low Priced Stock Fund, to the extent consistent with its investment objective, investment restrictions and investment strategies, may invest in preferred stocks. Preferred stock includes convertible and non-convertible preferred and preference stocks that are senior to common stock. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Short Sales

The Low Priced Stock Fund may seek to realize additional gains through short sale transactions in securities listed on one or more national securities exchanges, or in unlisted securities.  Short selling involves the sale of borrowed securities.  At the time a short sale is effected, the Low Priced Stock Fund incurs an obligation to replace the security borrowed at whatever its price may be at the time the Low Priced Stock Fund purchases it for delivery to the lender.  The price at such time may be more or less than the price at which the security was sold by the Low Priced Stock Fund.  Until the security is replaced, the Low Priced Stock Fund is required to pay the lender amounts equal to any dividends or interest which accrue during the period of the loan.  To borrow the security, the Low Priced Stock Fund also may be required to pay a premium, which would increase the cost of the security sold.  The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed.

Until the Low Priced Stock Fund closes its short position or replaces the borrowed security, the Fund will:  (a) maintain cash or liquid securities at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short; or (b) otherwise cover the Fund’s short position.
 
 
Borrowing

The Low Priced Stock Fund is authorized to borrow money from banks as a temporary measure for extraordinary or emergency purposes.  For example, the Low Priced Stock Fund may borrow money to facilitate management of the Fund’s portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio investments would be inconvenient or disadvantageous.  As required by the 1940 Act, the Low Priced Stock Fund may only borrow from a bank and must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed.  If, at any time, the value of the Low Priced Stock Fund’s assets should fail to meet this 300% coverage test, the Fund will reduce the amount of the Fund’s borrowings to the extent necessary to meet this 300% coverage within three (3) days (not including Saturdays, Sundays and holidays).  Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so.

Lending Portfolio Securities

In order to generate additional income, the Fund may lend portfolio securities constituting up to 30% of its total assets to unaffiliated broker-dealers, banks or other recognized institutional borrowers of securities, provided that the borrower at all times maintains cash, U.S. Government securities or equivalent collateral or provides an irrevocable letter of credit in favor of the Fund equal in value to at least 100% of the value of the securities loaned.  During the time portfolio securities are on loan, the borrower pays the Fund an amount equivalent to any dividends or interest paid on such securities, and the Fund may receive an agreed-upon amount of interest income from the borrower who delivered equivalent collateral or provided a letter of credit.  Loans are subject to termination at the option of the Fund or the borrower.  The Fund may pay reasonable administrative and custodial fees in connection with a loan of portfolio securities and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker.  The Fund does not have the right to vote securities on loan, but could terminate the loan and regain the right to vote if that were considered important with respect to the investment.

The primary risk in securities lending is a default by the borrower during a sharp rise in price of the borrowed security resulting in a deficiency in the collateral posted by the borrower.  The Fund will seek to minimize this risk by requiring that the value of the securities loaned will be computed each day and additional collateral be furnished each day if required.

Rights and Warrants

The Low Priced Stock Fund may purchase rights and warrants to purchase equity securities.  Warrants acquired in units or attached to securities are not subject to these limitations.
 

Investments in rights and warrants are pure speculation in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them.  Rights and warrants basically are options to purchase equity securities at a specific price valid for a specific period of time.  They do not represent ownership of the securities, but only the right to buy them.  Rights and warrants differ from call options in that rights and warrants are issued by the issuer of the security which may be purchased on their exercise, whereas call options may be written or issued by anyone.  The prices of rights (if traded independently) and warrants do not necessarily move parallel to the prices of the underlying securities.  Rights and warrants involve the risk that the Fund could lose the purchase value of the right or warrant if the right or warrant is not exercised prior to its expiration.  They also involve the risk that the effective price paid for the right or warrant added to the subscription price of the related security may be greater than the value of the subscribed security’s market price.

Money Market Instruments

The Low Priced Stock Fund may invest in cash and money market securities.  The Low Priced Stock Fund may do so to “cover” investment techniques (for example, when the Low Priced Stock Fund purchases or sells a stock index futures contract, the Low Priced Stock Fund may invest in cash and money market securities that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the stock index futures contract), when taking a temporary defensive position or to have assets available to pay expenses, satisfy redemption requests or take advantage of investment opportunities.  The money market securities in which the Fund invests include U.S. Treasury Bills, commercial paper, commercial paper master notes and repurchase agreements.

The Low Priced Stock Fund may invest in commercial paper or commercial paper master notes rated, at the time of purchase, A-1 or A-2 by Standard & Poor’s® Corporation or Prime-1 or Prime-2 by Moody’s Investors Services©, Inc.  Commercial paper master notes are demand instruments without a fixed maturity bearing interest at rates that are fixed to known lending rates and automatically adjusted when such lending rates change.

Repurchase Agreements

Under a repurchase agreement, the Low Priced Stock Fund may purchase a debt security and simultaneously agrees to sell the security back to the seller at a mutually agreed-upon future price and date, normally one (1) day or a few days later.  The resale price is greater than the purchase price, reflecting an agreed-upon market interest rate during the purchaser’s holding period.  While the maturities of the underlying securities in repurchase transactions may be more than one year, the term of each repurchase agreement will always be less than one year.  The Low Priced Stock Fund will enter into repurchase agreements only with member banks of the Federal Reserve system or primary dealers of U.S. government securities.  The Adviser will monitor the creditworthiness of each of the firms which is a party to a repurchase agreement with the Low Priced Stock Fund.  In the event of a default or bankruptcy by the seller, the Low Priced Stock Fund will liquidate those securities (whose market value, including accrued interest, must be at least equal to 100% of the dollar amount invested by the Fund in each repurchase agreement) held under the applicable repurchase agreement, which securities constitute collateral for the seller’s obligation to pay.  However, liquidation could involve costs or delays and, to the extent proceeds from the sale of these securities were less than the agreed-upon repurchase price, the Low Priced Stock Fund would suffer a loss.  The Low Priced Stock Fund also may experience difficulties and incur certain costs in exercising its rights to the collateral and may lose the interest the Fund expected to receive under the repurchase agreement.  Repurchase agreements usually are for short periods, such as one week or less, but may be longer.  It is the current policy of the Low Priced Stock Fund to treat repurchase agreements that do not mature within seven (7) days as illiquid for the purposes of its investment policies.
 

Registered Investment Companies

Any investment in a registered investment company involves investment risk. Additionally an investor could invest directly in the registered investment companies in which the Low Priced Stock Fund invests. By investing indirectly through the Low Priced Stock Fund, an investor bears not only his or her proportionate share of the expenses of the Fund (including operating costs and investment advisory fees) but also indirect similar expenses of the registered investment companies in which the Fund invests. An investor may also indirectly bear expenses paid by registered investment companies in which the Low Priced Stock Fund invests related to the distribution of such registered investment company’s shares.

Under certain circumstances, an open-end investment company in which the Low Priced Stock Fund invests may determine to make payment of a redemption by the Fund (wholly or in part) by a distribution in kind of securities from its portfolio, instead of in cash. As a result, the Low Priced Stock Fund may hold such securities until the Adviser determines it appropriate to dispose of them. Such disposition will impose additional costs on the Fund.

Investment decisions by the investment advisers to the registered investment companies in which the Low Priced Stock Fund invests are made independently of the Funds and the Adviser. At any particular time, one registered investment company in which the Fund invests may be purchasing shares of an issuer whose shares are being sold by another registered investment company in which the Fund invests. As a result, the Fund indirectly would incur certain transactional costs without accomplishing any investment purpose.

Stock Index Futures Contracts and Options Thereon

The Low Priced Stock Fund may purchase and write (sell) stock index futures contracts as a substitute for a comparable market position in the underlying securities.  A futures contract obligates the seller to deliver (and the purchaser to take delivery of) the specified commodity on the expiration date of the contract.  A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made.  No physical delivery of the underlying stocks in the index is made.  It is the practice of holders of futures contracts to close out their positions on or before the expiration date by use of offsetting contract positions and physical delivery is thereby avoided.
 

The Low Priced Stock Fund may purchase put and call options on stock index futures contracts and write call options on stock index futures contracts.  When the Low Priced Stock Fund purchases a put or call option on a stock index futures contract, the Fund pays a premium for the right to sell or purchase the underlying stock index futures contract for a specified price upon exercise at any time during the options period.  By writing a call option on a stock index futures contract, the Low Priced Stock Fund receives a premium in return for granting to the purchaser of the option the right to buy from the Fund the underlying stock index futures contract for a specified price upon exercise at any time during the option period.  The Low Priced Stock Fund may not invest more than 20% of its assets in stock index futures contracts.

Some futures and options strategies tend to hedge the Low Priced Stock Fund’s equity positions against price fluctuations, while other strategies tend to increase market exposure.  Whether the Low Priced Stock Fund realizes a gain or loss from futures activities depends generally upon movements in the underlying stock index.  The extent of the Low Priced Stock Fund’s loss from an unhedged short position in stock index futures contracts or call options on stock index futures contracts is potentially unlimited.  The Low Priced Stock Fund may engage in related closing transactions with respect to options on stock index futures contracts.  The Low Priced Stock Fund will purchase or write options only on stock index futures contracts that are traded on a United States exchange or board of trade.

The Company has claimed an exclusion from the definition of the term “commodity pool operator” under Section 4.5 of the regulations under the Commodity Exchange Act promulgated by the Commodity Futures Trading Commission.  Thus, the Company is not subject to registration or regulation as a pool operator under the Commodity Exchange Act.

When the Low Priced Stock Fund purchases or sells a stock index futures contract, the Fund “covers” its position.  To cover its position, the Low Priced Stock Fund may maintain with its custodian bank (and mark-to-market on a daily basis) cash or liquid securities that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the stock index futures contract or otherwise cover its position.  If the Low Priced Stock Fund continues to engage in the described securities trading practices and so maintain cash or liquid securities, the maintained cash or liquid securities will function as a practical limit on the amount of leverage which the Fund may undertake and on the potential increase in the speculative character of the Fund’s outstanding portfolio securities.  Additionally, such maintained cash or liquid securities will assure the availability of adequate funds to meet the obligations of the Low Priced Stock Fund arising from such investment activities.

The Low Priced Stock Fund may cover its long position in a stock index futures contract by purchasing a put option on the same stock index futures contract with a strike price (i.e., an exercise price) as high or higher than the price of the stock index futures contract, or, if the strike price of the put is less than the price of the stock index futures contract, the Low Priced Stock Fund will maintain cash or liquid securities equal in value to the difference between the strike price of the put and the price of the stock index futures contract.  The Low Priced Stock Fund may also cover its long position in a stock index futures contract by taking a short position in the instruments underlying the stock index futures contract, or by taking positions in instruments the prices of which are expected to move relatively consistently with the stock index futures contract.  The Low Priced Stock Fund may cover its short position in a stock index futures contract by taking a long position in the instruments underlying the stock index futures contract, or by taking positions in instruments the prices of which are expected to move relatively consistently with the stock index futures contract.
 

The Low Priced Stock Fund may cover its sale of a call option on a stock index futures contract by taking a long position in the underlying stock index futures contract at a price less than or equal to the strike price of the call option, or, if the long position in the underlying stock index futures contract is established at a price greater than the strike price of the written call, the Low Priced Stock Fund will maintain cash or liquid securities equal in value to the difference between the strike price of the call and the price of the stock index futures contract.  The Low Priced Stock Fund may also cover its sale of a call option by taking positions in instruments the prices of which are expected to move relatively consistently with the call option.

Although the Low Priced Stock Fund intends to purchase or sell stock index futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time.  Many futures exchanges and boards of trade limit the amount of fluctuation permitted in stock index futures contract prices during a single trading day.  Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the day.  Stock index futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the Low Priced Stock Fund to substantial losses.  If trading is not possible, or the Low Priced Stock Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin.  The risk that the Low Priced Stock Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market.


In seeking to achieve its investment objectives, the Low Priced Stock Fund has adopted the following restrictions which are matters of fundamental policy and cannot be changed without approval by the holders of the lesser of:

 
(i)
67% of the Fund’s shares present or represented at a meeting of shareholders at which the holders of more than 50% of such shares are present or represented; or

 
(ii)
More than 50% of the outstanding shares of the Fund.

If a percentage restriction is adhered to at the time of investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of that restriction other than with respect to the Fund’s borrowing of money.

The Fund may not:

1.      Purchase the securities of any issuer if such purchase would cause more than 5% of the value of the Fund’s total assets to be invested in securities of any one issuer (except securities of the United States government or any agency or instrumentality thereof), or more than 10% of the outstanding voting securities of any one issuer (except that up to 25% of the value of the Fund’s total assets may be invested without regard to these limitations).
 

2.      The Fund may not borrow money to an extent or in a manner not permitted under the 1940 Act.  (As of the date of this SAI, the 1940 Act generally permits borrowing, whether unsecured or secured by up to all of the Fund’s assets, so long as the Fund maintains continuous asset coverage 300% and also permits borrowing of up to 5% of the Fund’s total assets for temporary administrative purposes.)

3.      Invest in real estate (although the Fund may purchase securities secured by real estate or interests therein, or securities issued by companies that invest in real estate or interests therein), commodities, commodities contracts or interests in oil, gas and/or mineral exploration or development programs, except that the Fund may invest in financial futures contracts, options thereon, and other similar instruments.

4.      The Fund may not act as an underwriter of securities or participate on a joint or joint and several basis in any trading account in any securities.  The Fund may not act as an underwriter or distributor of securities other than shares of the Fund, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act in the disposition of restricted securities.

5.      Invest in companies for the primary purpose of acquiring control or management thereof.

6.      The Fund may not purchase securities on margin.  However, the Fund may obtain such short-term credits as may be necessary for the clearance of transactions and may make margin payments in connection with transactions in futures and options, and the Fund may borrow money to the extent and in the manner permitted by the 1940 Act, as provided in Investment Restriction No. 2.

7.      The Fund may not sell securities short and sell (write) or purchase put and call options to an extent not permitted by the 1940 Act.

8.      The Fund may not pledge, mortgage, hypothecate or otherwise encumber any of its assets, except to secure its borrowings.

9.      Concentrate 25% or more of the value of its total assets (taken at market value at the time of each investment) in securities of non-governmental issuers whose principal business activities are in the same industry.

10.      Make loans, except that this restriction shall not prohibit the purchase and holding of a portion of an issue of publicly distributed debt securities and securities of a type normally acquired by institutional investors, and except that the Fund may lend its portfolio securities.
 

11.      The Fund may not issue senior securities to an extent not permitted under the 1940 Act.  (As of the date of this SAI, as noted above, the 1940 Act permits the Fund to borrow money from banks provided that it maintains continuous asset coverage of at least 300% of all amounts borrowed and also permits borrowing of up to 5% of the Fund’s total assets for temporary administrative purposes.  For purposes of this investment restriction, entry into the following transactions shall not constitute senior securities to the extent the Fund covers the transaction or maintains sufficient liquid assets in accordance with applicable requirements: when-issued securities transactions, forward roll transactions, short sales, forward commitments, futures contracts and reverse repurchase agreements.  In addition, hedging transactions in which the Fund may engage and similar investment strategies are not treated as senior securities for purposes of this investment restriction.)

The Fund has adopted certain other investment restrictions which are not fundamental policies and which may be changed by the Board without shareholder approval.  If a percentage restriction is adhered to at the time of investment, a later increase or decrease in percentage resulting from a change in values of assets will not constitute a violation of that restriction.  However, should a change in NAV or other external events cause the Fund’s investments in illiquid securities to exceed the limitation set forth below, the Fund will act to cause the aggregate amount of illiquid securities to come within such limit as soon as reasonably practicable.  Any changes in these non-fundamental investment restrictions made by the Board will be communicated to shareholders prior to their implementation.  The non-fundamental investment restrictions are as follows:

1.      The Fund will not invest more than 15% of the value of its net assets in illiquid securities.

2.      The Fund will not purchase the securities of other investment companies except:  (a) as part of a plan of merger, consolidation or reorganization approved by the shareholders of the Fund; (b) securities of registered open-end investment companies; or (c) securities of registered closed-end investment companies on the open market where no commission results, other than the usual and customary broker’s commission.  Subject to certain exemptions that may be available under the 1940 Act, no purchases described in (b) and (c) (except for purchases of money market funds) will be made if as a result of such purchases (i) the Fund and its affiliated persons would hold more than 3% of any class of securities, including voting securities, of any registered investment company; (ii) more than 5% of the Fund’s net assets would be invested in shares of any one registered investment company; and (iii) more than 10% of the Fund’s net assets would be invested in shares of registered investment companies.

3.      The Fund will normally invest at least 80% of its net assets (plus any borrowings for investment purchases) in low priced common stocks with market capitalizations that are below $3 billion at the time of initial purchase.  (The Fund may continue to hold the securities of a company after it exceeds $3 billion in market capitalization.)  Low priced stocks are those that are trading at or below $15 per share at the time of initial purchase.  (Subsequent to the initial purchase, the Fund may purchase such securities at a price above $15 per share.)  If the Board approves a change to this non-fundamental policy for the Fund, then the Fund will provide a sixty (60) day written notice to the shareholders before implementing the change of policy.  Any such notice will be provided in plain English in a separate written disclosure document containing the following prominent statement in bold-type:  “Important Notice Regarding Change in Investment Policy.”  If the notice is included with other communications to shareholders, the aforementioned statement will also be included on the envelope in which the notice is delivered.
 

The Fund’s investment objective (i.e., long-term capital appreciation) is a non-fundamental policy and may be changed by the Board without shareholder approval.  If the Board approves a change to the investment objective for the Fund, the Fund will provide a sixty (60) day written notice to the shareholders before implementing the change of investment objective.


The portfolio turnover rate of the Low Priced Stock Fund may vary significantly from year to year, but as indicated in the Prospectus it is expected, though not assured, that that the annual portfolio turnover rate of the Fund will not typically exceed 100%.  A turnover rate of 100% or more would result in correspondingly greater brokerage commission expenses or other transaction expenses, which must be borne, directly or indirectly, by the Fund and ultimately by the Fund’s shareholders.  Payment of these transaction costs could reduce the Fund’s total return.  High portfolio turnover could also result in the payment by the Fund’s shareholders of increased taxes on realized gains.

The Fund is newly offered; therefore, it does not have a turnover rate to report for the most recent fiscal year.
 

Shares of the Fund may be purchased in connection with many types of tax-deferred retirement plans.  Initial purchase payments in connection with tax-deferred retirement plans must be $250.  It is advisable for an individual considering the establishment of a retirement plan to consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan.  Additional details about these plans, application forms and plan documents may be obtained by contacting the Fund.


Automatic Investment Plan

The Fund offers an Automatic Investment Plan (“AIP”), which may be established at any time.  By participating in the AIP, shareholders may automatically make purchases of shares of the Fund on a regular, convenient basis.  A shareholder may elect to make automatic deposits on any day of the month.  There is a $50 minimum for each automatic transaction.

Under the AIP, shareholders’ banks or other financial institutions debit pre-authorized amounts drawn on their accounts each month and apply such amounts to the purchase of shares of the Fund.  The AIP can be implemented with any financial institution that is a member of the Automated Clearing House. No service fee is charged to shareholders for participating in the AIP.  An application to establish the AIP may be obtained from the Fund. The Fund reserves the right to suspend, modify or terminate the AIP without notice.
 

Dividend Reinvestment Plan

Unless a shareholder elects otherwise by written notice to the Fund, all income dividends and all capital gains distributions payable on shares of the Fund will be reinvested in additional shares of the Fund at the NAV in effect on the dividend or distribution payment date.  The Fund acts as the shareholder’s agent to reinvest dividends and distributions in additional shares and hold for his/her account the additional full and fractional shares so acquired.  A shareholder may at any time change his/her election as to whether to receive his/her dividends and distributions in cash or have them reinvested by giving written notice of such change of election to the Fund.  Such change of election applies to dividends and distributions, the record dates of which fall on or after the date that the Fund receives the written notice.

Systematic Withdrawal Plan

A shareholder who owns shares in the Fund worth at least $10,000 at the current NAV may, by completing an Application which may be obtained from the Funds’ transfer agent, U.S. Bancorp Fund Services, LLC, create a Systematic Withdrawal Plan (“SWP”) from which a fixed sum will be paid to the shareholder at regular intervals.  To establish the SWP, the shareholder appoints the Fund as the shareholder’s agent to effect redemptions of Fund shares held in the shareholder’s account for the purpose of making monthly or quarterly withdrawal payments of a fixed amount from the account.

The minimum amount of a withdrawal payment is $250. These payments will be made out of the proceeds of periodic redemption of shares in the account at NAV. Redemptions will be made on the business day of each month selected by a shareholder or, if that day is a holiday, on the next business day.  Because a SWP may reduce, and eventually deplete, a shareholder’s account over time, it may be advisable to reinvest all income dividends and capital gains distributions payable by the Fund (please note that income dividends an capital gains distributions are reinvested unless a shareholder elects otherwise by written notice to the Fund).  The shareholder may purchase additional Fund shares in the shareholder’s account at any time.

Withdrawal payments cannot be considered to be yield or income on the shareholder’s investment, since portions of each payment will normally consist of a return of capital.  Depending on the size or the frequency of the disbursements requested and the fluctuation in the value of the Fund’s portfolio, redemptions for the purpose of making such disbursements may reduce or even exhaust the shareholder’s account.


The Funds have established an Anti-Money Laundering Compliance Program (the “Program”) as required by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”).  In order to ensure compliance with this law, the Funds’ Program provides for the development of internal practices, procedures and controls, designation of anti-money laundering officers, an ongoing training program and an independent audit function to determine the effectiveness of the Program.
 

Procedures to implement the Program include, but are not limited to, determining that the Funds’ transfer agent has established proper anti-money laundering procedures, reporting suspicious and/or fraudulent activity, checking shareholder names against designated government lists, including checking to ensure that a customer does not appear on the Treasury’s Office of Foreign Asset Control “Specifically Designated Nationals and Blocked Persons” list, and a complete and thorough review of all new applications to open an account.  The Funds will not transact business with any person or entity whose identity cannot be adequately verified under the provisions of the USA PATRIOT Act.


The Funds maintain written policies and procedures regarding the disclosure of their portfolio holdings to ensure that disclosure of information about portfolio securities are in the best interests of each Fund’s shareholders.

Portfolio Holdings Disclosure Policies

The Funds are required by the SEC to file their complete portfolio holdings schedule with the SEC on a quarterly basis.  This schedule is filed with the Funds’ annual and semi-annual reports on Form N-CSR for the second and fourth fiscal quarters and on Form N-Q for the first and third quarters.  The portfolio holdings information provided in these reports is as of the end of the quarter in question.  Form N-CSR must be filed with the SEC no later than ten (10) calendar days after the Funds transmit their annual or semi-annual report to its shareholders.  Form N-Q must be filed with the SEC no later than sixty (60) calendar days after the end of the applicable quarter.  Additionally, the Funds will post their portfolio holdings on its website no later than thirty (30) calendar days after each calendar quarter end.

The service providers of the Funds which have contracted to provide services to the Funds including, for example, the Funds’ custodian, the Funds’ accountant and the Funds’ administrator, and which require portfolio holdings information in order to perform those services may receive the Funds’ holdings information prior to and more frequently than the public disclosure of such information (“non-standard disclosure”).  Non-standard disclosure of portfolio holdings information may also be provided to legal counsel, regulators such as the SEC or the Financial Industry Regulatory Authority (as requested), entities that provide a service to the Funds’ investment adviser (provided that the service is related to the investment advisory services that such investment adviser provides to the Funds), and to other third-parties when the Funds have a legitimate business purpose for doing so.  Specifically, the Funds’ disclosure of their portfolio holdings may include disclosure:

 
·
to the Funds’ auditors for use in providing audit opinions;

 
·
to financial printers for the purpose of preparing the Funds’ regulatory filings;
 
 
 
·
for the purpose of due diligence regarding a merger or acquisition;

 
·
to a new adviser or sub-adviser prior to the commencement of its management of the Fund;

 
·
to rating agencies for use in developing a rating for a Fund;

 
·
to service providers, such as proxy voting services providers and portfolio-management database providers in connection with their providing services benefiting the Funds; and

 
·
for purposes of effecting in-kind redemptions of securities to facilitate orderly redemption of portfolio assets and minimal impact on remaining Fund shareholders.

As permitted by the Funds’ written policies and procedures, the Funds’ Vice President and Treasurer, has determined that the Funds may provide their portfolio holdings to the rating and ranking organizations listed below on a quarterly basis:

Morningstar®, Inc.
Lipper, Inc.
Standard & Poor’s® Ratings Group
Bloomberg™, L.P.

In all instances of such non-standard disclosure, unless such party is a regulatory or other governmental entity, the receiving party will either be subject to a confidentiality agreement that restricts the use of such information to purposes specified in such agreement, or, by reason of the federal securities laws, will be (1) prohibited as an “insider” from trading on the information and (2) have a duty of trust and confidence to the Funds because the receiving party has a history and practice of sharing confidences such that the receiving party knows or reasonably should know that the Funds expect that the receiving party will maintain its confidentiality.

Other than the non-standard disclosure discussed above, if a third-party requests specific, current information regarding a Fund’s portfolio holdings, the Fund will refer the third-party to the latest regulatory filing or the website.

It is the Funds’ policy that neither the Funds, their investment adviser, nor any other party shall accept any compensation or other consideration in connection with the disclosure of information about portfolio securities.

Portfolio Holdings Disclosure Procedures

There may be instances where the interests of a Fund’s shareholders respecting the disclosure of information about portfolio securities may conflict or appear to conflict with the interests of the Fund’s investment adviser, any principal underwriter for the Fund or an affiliated person of the Fund (including such affiliated person’s investment adviser or principal underwriter).  In such situations, the conflict must be disclosed to the Board of Directors of the Funds, and the Board must be afforded the opportunity to determine whether or not to allow such disclosure.
 

The Board will regularly review a list of recipients of non-standard disclosure of portfolio holdings information.

Only the Board may waive these portfolio holdings disclosure policies and procedures.  Although the Funds cannot presently visualize that any proposed waivers would be given, the Funds do recognize that waivers may be granted in the event of unusual or unforeseen circumstances so long as the Board makes a specific determination that the waiver is in the best interests of the Funds and their shareholders.  Only the Board may amend the Funds’ portfolio holdings disclosure policies and procedures.

Review of Portfolio Holdings Disclosure Policies and Procedures

The Board of the Funds will periodically review the Funds’ portfolio holdings disclosure policies and procedures and recommend such changes as the Board determines to be appropriate.


The Board is responsible for the overall management of the Funds.  This includes establishing the Funds’ policies, approval of all significant agreements between the Funds and persons or companies providing services to the Funds, and the general supervision and review of the Funds’ investment activities. As a Maryland corporation, the day-to-day operations of the Funds are delegated to the officers of the Funds, subject to the investment objectives and policies of the Funds and to general supervision by the Board.

Management Information

The name, age (as of the date of this SAI), address, principal occupations during the past five years, and other information with respect to each of the directors are set forth below, along with information for the officers of the Funds.  The information is provided as of the date of this SAI.
 

Name, Address, and Age
  
Position(s) Held with
Funds and Number of
Portfolios in Fund
Complex Overseen
by Director
  
Term of Office
and Length of
Time Served
  
Principal
Occupation(s)
during Past 5 Years
  
Other
Directorships
Held by
Director during
the Past 5 Years
                 
“Disinterested” Directors of the Funds
            
                 
Dianne C. Click
Age: 51
300 South Wacker
Drive, Suite 2880
Chicago, IL 60606
  
Director
 
Portfolios in Fund Complex Overseen: 2
  
Indefinite, until successor elected
 
Director since 2004
  
Ms. Click is a licensed Real Estate Broker in the State of Montana. She has been a partner and a principal owner of a real estate sales company, Bozeman Broker Group, since April 2004. She has been licensed in the
state of Montana since 1995.
  
Perritt MicroCap Opportunities Fund, Inc. (1994 - 2013)
                 
David S. Maglich
Age: 56
300 South Wacker
Drive, Suite 2880
Chicago, IL 60606
  
Director
 
Portfolios in Fund Complex Overseen: 2
  
Indefinite, until successor elected
 
Director since 2004
  
Mr. Maglich is a Shareholder with the law firm of Fergeson, Skipper et. al. in Sarasota, Florida and has been employed with such firm since April 1989.
  
Perritt MicroCap Opportunities Fund, Inc. (1987 - 2013)
 
 
Name, Address, and Age
  
Position(s) Held with
Fund and Number of
Portfolios in Fund
Complex Overseen
by Director
  
Term of Office
and Length of
Time Served
  
Principal
Occupation(s) during
Past 5 Years
  
Other
Directorships
Held by
Director during
the Past 5 Years
                 
“Interested” Director of the Funds
            
                 
Michael J. Corbett (1)
Age: 48
300 South Wacker
Drive, Suite 2880
Chicago, IL 60606
  
President
 
Portfolios in Fund Complex Overseen: 2
  
One-year term as President
 
As director, indefinite, until successor elected
 
Director since 2010
 
President since 2004
  
Mr. Corbett was President of the Perritt MicroCap Opportunities Fund, Inc. (1999 – 2013) and President of the Perritt Funds, Inc. since August 2004.  He has served as President of the Adviser since October 5, 2010, and previously served as Vice President of the Adviser from February 1997 until October 5, 2010.  Mr. Corbett began his tenure with Perritt Capital management in 1990 as a research analyst.  He assumed portfolio management responsibilities in 1996 and now serves as portfolio manager for all of the Funds.
  
Perritt MicroCap Opportunities Fund, Inc. (2010 - 2013)

(1)
Mr. Corbett is an interested person of the Funds based upon his position with the Adviser
 
 
Name, Address, and Age
  
Position(s) Held with
Fund and Number of
Portfolios in Fund
Complex Overseen
by Director
  
Term of Office
and Length of
Time Served
  
Principal Occupation(s)
during Past 5 Years
  
Other
Directorships
Held by
Director during
the Past 5 Years
                 
Officers of the Funds Other Than Mr. Corbett
            
                 
Mark Buh
Age: 52
300 South Wacker
Drive, Suite 2880
Chicago, IL  60606
  
Vice President and Treasurer
 
  
One-year term
 
Since 2012
 
  
Mr. Buh has been Vice President and Treasurer of the Funds and Chief Financial Officer of the Adviser since February 2012.  He has over 25 years of experience in corporate accounting, administration, tax analysis and strategic planning for growth and development.  He has a BS in accounting, an MBA from DePaul University, and is a CPA and CFA.
  
N/A
                 
Allison B. Hearst
Age: 51
300 South Wacker
Drive, Suite 2880
Chicago, IL 60606
  
Secretary
 
  
One-year term
 
Since 2010
  
Mrs. Hearst has 14 years of experience in the mutual fund industry, including a previous tenure at the Adviser beginning in 1990.  Mrs. Hearst returned to the Adviser in 2007.
  
N/A
 
 
Name, Address, and Age
  
Position(s) Held with
Fund and Number of
Portfolios in Fund
Complex Overseen
by Director
  
Term of Office
and Length of
Time Served
  
Principal Occupation(s)
during Past 5 Years
  
Other
Directorships
Held by
Director during
the Past 5 Years
                 
Officers of the Funds Other Than Mr. Corbett
            
                 
Lynn E. Burmeister
Age: 54
300 South Wacker
Drive, Suite 2880
 Chicago, IL 60606
  
Vice President and Chief Compliance Officer
  
One-year term
 
Since 2010
  
Mrs. Burmeister has been the Chief Compliance Officer since May 1, 2010, and oversees all compliance matters for the Funds and the Adviser.   She also coordinates the administration of the Funds and is a liaison with the firm’s corporate counsel.  Mrs. Burmeister has worked in the financial industry since 1980.  Her previous experience includes work at Harris Associates, Gofen & Glossberg and Optimum Investments.
  
N/A
 
Qualification of Directors

Michael J. Corbett has been the president and a portfolio manager of the MicroCap Fund (including the Predecessor MicroCap Fund) since 1996 and a portfolio manager of the Ultra MicroCap Fund since its inception in 2004.  His experience and skills as a portfolio manager, as well as his familiarity with the investment strategies utilized by the Adviser and with the Funds’ portfolios, led to the conclusion that he should serve as a director.  Dianne C. Click’s experience as a partner and principal owner of a real estate sales company has provided her with a firm understanding of financial statements and the issues that confront businesses, enabling her to provide the Board of Directors valuable input and oversight.  As a partner in a law firm, David S. Maglich has extensive experience working with regulated industries, and a deep understanding of financial statements, making him a valuable source of information and insight.  Each of Ms. Click and Mr. Maglich take a conservative and thoughtful approach to addressing issues facing the Funds.  These combinations of skills and attributes led to the conclusion that each of Ms. Click and Mr. Maglich should serve as a director.
 

Board Leadership Structure

The Board has general oversight responsibility with respect to the operation of the Funds.  The Board has engaged the Adviser to manage the Funds and is responsible for overseeing the Adviser and other service providers to the Funds in accordance with the provisions of the 1940 Act and other applicable laws.
 
The Board does not have a Chairman of the Board.  As President of the Funds, Mr. Corbett is the presiding officer at all meetings of the Board.  The Board does not have a lead independent director.  The Board has determined that its leadership structure is appropriate because it has been in place for many years and during that time the Funds have delivered positive returns for their investors.

Board Oversight of Risk

Through the Board’s direct oversight role and the officers and service providers of the Funds, the Board performs a risk oversight function for the Funds.  To effectively perform its risk oversight function, the Board, among other things, performs the following activities: receives and reviews reports related to the performance and operations of the Funds; reviews and approves, as applicable, the compliance policies and procedures of the Funds; approves the Funds’ principal investment policies; adopts policies and procedures designed to deter market timing; meets with representatives of various service providers, including the Adviser and the independent registered public accounting firm of the Funds, to review and discuss the activities of the Funds and to provide direction with respect thereto; and appoints a chief compliance officer of the Funds who oversees the implementation and testing of the Funds’ compliance program and reports to the Board regarding compliance matters for the Funds and their service providers.

Not all risks that may affect the Funds can be identified nor can controls be developed to eliminate or mitigate their occurrence or effects. It may not be practical or cost effective to eliminate or mitigate certain risks, the processes and controls employed to address certain risks may be limited in their effectiveness, and some risks are simply beyond the reasonable control of the Funds, the Adviser or other service providers.  Moreover, it is necessary to bear certain risks (such as investment-related risks) to achieve the Funds’ goals.  As a result of the foregoing and other factors, the Funds’ ability to manage risk is subject to substantial limitations.

Board Committees

The Board has no committees.
 

Compensation

The Funds’ standard method of compensating the non-interested Directors is to pay each such Director an annual retainer of $12,000 plus $3,000 for each face-to-face meeting of the Board of Directors that the Director attends, $1,000 for each telephonic meeting of the Board of Directors that the Director attends and $500 for each meeting with the Chief Compliance Officer that the Director attends.  Under normal circumstances, the compensation for each of the non-interested Directors will amount to $44,000 from the Funds annually based on two face-to-face meetings, two telephonic meetings, and four meetings with the Chief Compliance Officer.  The Funds also reimburse such Directors for their reasonable travel expenses incurred in attending meetings of the Board of Directors. The Funds do not provide pension or retirement benefits to its Directors. The table below sets forth the compensation paid by the Funds to the directors of the Funds during the fiscal year ended October 31, 2013:

COMPENSATION TABLE
 
Name of Person
  
Aggregate
Compensation
from Funds
  
Pension or
Retirement Benefits
Accrued as Part of  
Fund Expenses
  
Estimated
Annual Benefits
Upon
Retirement
  
Total
Compensation
from Fund
Complex (1) Paid to
Directors
                 
Disinterested Persons of the Fund
            
                 
Dianne C. Click
  
$44,000
  
$0
  
$0
  
$44,000
                 
David S. Maglich
  
$44,000
  
$0
  
$0
  
$44,000
                 
Interested Person of the Funds
            
                 
Michael J. Corbett
  
$0
  
$0
  
$0
  
$0
(1)
The only funds in the “Fund Complex” are the MicroCap Fund and the Ultra MicroCap Fund.

Code of Ethics

The Funds and the Adviser have each adopted a Code of Ethics.  Each Code of Ethics permits personnel subject to the Code to invest in securities, including securities held by the Funds, subject to certain restrictions.  The Code generally prohibits, among other things, persons subject thereto from purchasing or selling securities if they know at the time of such purchase or sale that the security is being considered for purchase or sale by the Funds or is being purchased or sold by the Funds.

Proxy Voting Policy

The Funds have adopted a Proxy Voting Policy (the “Proxy Voting Policy”) that sets forth their proxy voting policies and related procedures.  When a Fund votes proxies relating to securities that it owns, the Fund generally follows the so-called “Wall Street Rule” (i.e., it votes as management recommends or instructs the Adviser to sell the stock prior to the meeting).  The Funds believe that following the “Wall Street Rule” is consistent with the economic best interests of their shareholders.

There may be instances where the interests of the Adviser, employees of which are officers of the Funds and vote proxies for the Funds, may conflict or appear to conflict with the interests of the Funds.  In such situations the Funds’ officers will, consistent with their duty of loyalty, vote the securities in accordance with the Funds’ pre-determined voting policy, the “Wall Street Rule,” but only after disclosing any such conflict to the Board prior to voting and affording the Board the opportunity to direct the officers in the voting of such securities.
 

Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 1-800-332-3133 and on the SEC’s website at http://www.sec.gov.


The Fund is newly offered; therefore, it does not have any shareholders.  The following table sets forth the dollar range of shares of the other Funds beneficially owned by each director of the Funds as of December 31, 2012:

Name of Director
  
Dollar Range of Shares
of the Predecessor
MicroCap Fund
  
Dollar Range of
Shares of the Ultra
MicroCap Fund
  
Aggregate Dollar Range of
Shares in All Funds Overseen
by Director in Family of
Investment Companies(1)
             
Disinterested Persons
            
             
Dianne C. Click
  
$10,001-$50,000
  
$10,001-$50,000
  
$10,001-$50,000
             
David S. Maglich
  
$10,001-$50,000
  
$10,001-$50,000
  
$10,001-$50,000
             
Interested Persons
            
             
Michael J. Corbett
  
Over $100,000
  
Over $100,000
  
Over $100,000
(1)
The only funds in the “Family of Investment Companies” are the MicroCap Fund and the Ultra MicroCap Fund.


Perritt Capital Management, Inc., 300 South Wacker Drive, Suite 2880, Chicago, Illinois, currently serves as investment adviser to the MicroCap Fund pursuant to an investment advisory agreement dated February 28, 2013, as investment adviser to the Ultra MicroCap Fund pursuant to an investment advisory agreement dated October 5, 2010, and as an investment adviser to the Low Priced Stock Fund pursuant to an investment advisory agreement dated _______ ___, 2014.  The Adviser is a wholly owned subsidiary of IIS.  Michael J. Corbett, President of the Adviser, owns a majority of the outstanding common stock of IIS and controls both IIS and the Adviser.

None of the directors who are Disinterested Persons, or any members of their immediate family, own shares of the Adviser or companies controlled by or under common control with the Adviser.

Under the terms of the Advisory Agreement, the Adviser manages the Fund’s investments subject to the supervision of the Company’s Board of Directors.  The Adviser is responsible for investment decisions and supplies investment research and portfolio management. Under the Advisory Agreement, the Adviser, at its own expense and without reimbursement from the Fund, will furnish office space and all necessary office facilities, equipment and executive personnel for making the investment decisions necessary for managing the Fund and maintaining its organization, will pay the salaries and fees of all officers and directors of the Fund (except the fees paid to disinterested directors) and will bear all sales and promotional expenses of the Fund.
 

For the foregoing, the Fund will pay to the Adviser a monthly advisory fee at the annual rate of 1.0% of its daily net assets.

The Fund will pay all of its expenses not assumed by the Adviser including, but not limited to, the professional costs of preparing and the cost of printing registration statements required under the Securities Act and the 1940 Act and any amendments thereto, the expenses of registering shares with the SEC and in the various states, the printing and distribution cost of prospectuses for existing shareholders, the cost of director and officer liability insurance, fidelity bond insurance, reports to shareholders, reports to government authorities and proxy statements, interest charges, brokerage commissions, and expenses incurred in connection with portfolio transactions.  The Fund will also pay salaries of administrative and clerical personnel, association membership dues, auditing and accounting services, fees and expenses of any custodian or trustees having custody of the Fund’s assets, expenses of calculating the NAV and repurchasing and redeeming shares, and charges and expenses of dividend disbursing agents, registrars, and share transfer agents, including the cost of keeping all necessary shareholder records and accounts and handling any problems relating thereto.

The Adviser has undertaken to reimburse the Funds in the event that the expenses and charges payable by the Fund in any fiscal year, including the investment advisory fee but excluding interest, reimbursement payments to securities lenders for dividend and interest payments on securities sold short, taxes, brokerage commissions and extraordinary items, exceed that percentage of the average NAV of the Fund for such year, as determined by valuations made as of the close of each business day of the year, which is the most restrictive  percentage provided by the state laws of the various states in which the Fund’s common stock is qualified for sale.  As of the date of this SAI, no such state law provision was applicable to the Fund.  Reimbursement of expenses in excess of the applicable limitation will be made on a monthly basis and will be paid to the Fund by reduction of the Adviser’s fee, subject to later adjustment month by month for the remainder of the Fund’s fiscal year.  The Adviser may from time to time, at its sole discretion, reimburse the Fund for expenses incurred in addition to the reimbursement of expenses in excess of applicable limitations.

The Fund is newly offered; therefore, it has not paid any advisory fees.
 
The Advisory Agreement continues in effect for as long as its continuance is specifically approved at least annually, by (i) the Board, or by the vote of a majority (as defined in the 1940 Act) of the outstanding shares of the Fund, and (ii) by the vote of a majority of the directors of the Company who are not parties to the Advisory Agreement or interested persons of the Adviser, cast in person at a meeting called for the purpose of voting on such approval (after its initial two year term, the Advisory Agreement will be required to be approved annually by the Board or by vote of a majority of the Fund’s outstanding voting securities).  The Advisory Agreement provides that they may be terminated at any time without the payment of any penalty, by the Board or by vote of a majority of the Fund’s shareholders, on a sixty (60) day written notice to the Adviser, and by the Adviser on the same notice to the Company, and that it shall be automatically terminated if it is assigned.
 


The adviser to the Fund is Perritt Capital Management, Inc.  Michael Corbett serves as portfolio manager of the Fund.  Brian Gillespie serves as co-portfolio manager of the Fund.  In addition to the Fund, Mr. Corbett, together with his team of investment professionals (including Mr. Gillespie), is responsible for the day-to-day management of accounts other than the Fund.  Information regarding the other accounts managed by Mr. Corbett, including the number of accounts, the total assets in those accounts and the categorization of the accounts as of October 31, 2013 is set forth in the following table.

Other Accounts
  
Total Number
of Accounts
  
Total Assets
  
Total Number of
Accounts with
Performance
Based Fees
  
Total Assets of
Accounts with
Performance
Based Fees
Registered Investment Companies
  
2
  
$546 million
  
0
  
$0
Other Pooled Investment Vehicles
  
0
  
$0
  
0
  
$0
Other Accounts
  
194
  
$122 million
  
0
  
$0

Information regarding the other accounts managed by Mr. Gillespie, including the number of accounts, the total assets in those accounts and the categorization of the accounts as of October 31, 2013 is set forth in the following table.

Other Accounts
  
Total Number
of Accounts
  
Total Assets
  
Total Number of
Accounts with
Performance
Based Fees
  
Total Assets of
Accounts with
Performance
Based Fees
Registered Investment Companies
  
0
  
$0
  
0
  
$0
Other Pooled Investment Vehicles
  
0
  
$0
  
0
  
$0
Other Accounts
  
37
  
$58 million
  
0
  
$0

Perritt Capital Management has not identified any material conflicts between the Funds and other accounts managed by the portfolio managers.  However, actual or apparent conflicts of interest may arise in connection with the day-to-day management of the Funds and other accounts.  The management of the Funds and other accounts may result in unequal time and attention being devoted to the Funds and other accounts.  Perritt Capital Management’s fees for the services it provides to other accounts vary and may be higher or lower than the advisory fees it receives from the Funds.  This could create potential conflicts of interest in which the portfolio manager may appear to favor one investment vehicle over another resulting in an account paying higher fees or one investment vehicle out performing another.
 

The portfolio managers’ compensation consists of a fixed salary and bonus.   The fixed salary is reviewed periodically by Mr. Corbett as the sole member of the Board of Directors of the Adviser, and may be increased based on the consideration of various factors including, but not limited to, the portfolio manager’s experience, overall performance (including how well the Funds and the other accounts perform generally under the management of the portfolio manager), and management responsibilities with the Adviser.  The portfolio manager’s fixed salary is not based on the Funds or the other accounts achieving certain performance targets or certain asset values in their portfolios.  When the Adviser’s Board of Directors considers the overall performance of the portfolio manager in managing the Funds and the other accounts, it uses the same methods for determining their performance with respect to the Funds and the other accounts.  Along with all other employees of the Adviser, the portfolio manger is eligible to receive a discretionary contribution from the Adviser to his IRA account.  These contributions range from 0% to 20% of their salary based on the Adviser’s profitability.  The portfolio manager is also eligible to receive a bonus based on the pre-tax investment performance of the MicroCap Fund measured against the performance of the Russell 2000® Index over rolling one, three and five calendar year periods, and a bonus based on the pre-tax investment performance of the Ultra MicroCap Fund measured against the performance of the Russell Microcap® Index over rolling one, three and five calendar year periods.  For each such period that the performance of a Fund outperforms its respective index, the portfolio manager receives a bonus equal to a percentage of the portfolio manager’s fixed salary. The percentage is determined by the Adviser in its discretion.

The Fund is newly offered; therefore, it does not have any shareholders.


Decisions to buy and sell securities for the Funds are made by the Adviser subject to review by the Board.  In placing purchase and sale orders for portfolio securities for the Funds, it is the policy of the Adviser to seek the best execution of orders at the most favorable price in light of the overall quality of custodial, brokerage, soft dollar and research services provided, as described in this and the following paragraph.  In selecting brokers to effect portfolio transactions, the determination of what is expected to result in best execution at the most favorable price involves a number of largely judgmental considerations.  Among these are the Adviser’s evaluation of the broker’s efficiency in executing and clearing transactions, block trading capability (including the broker’s willingness to position securities) and the broker’s financial strength and stability.  Over-the-counter securities are generally purchased and sold directly with principal market makers who retain the difference in their cost in the security and its selling price.  In some instances, better prices may be available from non-principal market makers who are paid commissions directly.  While some brokers with whom the Funds effect portfolio transactions may recommend the purchase of a Fund’s shares, the Funds may not allocate portfolio brokerage on the basis of recommendations to purchase shares of the Funds.

In allocating brokerage business for the Funds, the Adviser may take into consideration the research, analytical, statistical and other information and services provided by the broker, such as general economic reports and information, reports or analyses of particular companies or industry groups, market timing and technical information, and the availability of the brokerage firm’s analysts for consultation.  While the Adviser believes these services have substantial value, they are considered supplemental to the Adviser’s own efforts in the performance of its duties under the Advisory Agreement.  Other clients of the Adviser may indirectly benefit from the availability of these services to the Adviser, and the Funds may indirectly benefit from services available to the Adviser as a result of transactions for other clients.
 

Section 28(e) of the Securities Exchange Act of 1934 (“Section 28(e)”) permits an investment adviser, under certain circumstances, to cause an account to pay a broker or dealer who supplies brokerage and research services a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction.  Brokerage and research services include (a) furnishing advice as to the value of securities, the advisability of investing, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, (b) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts and (c) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement and custody).

The Advisory Agreement provides that the Adviser may cause the Fund to pay a broker that provides brokerage and research services to the Adviser a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting the transaction, if (a) the Adviser determines in good faith that such amount of commission is reasonable in relation to the value of brokerage and research services provided by the executing broker viewed in terms of either the particular transaction or the Adviser’s overall responsibilities with respect to the Fund and the other accounts as to which it exercises investment discretion, (b) such payment is made in compliance with the provisions of Section 28(e), other applicable state and federal laws, and the Advisory Agreement and (c) in the opinion of the Adviser, the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long term. The investment advisory fee paid by the Fund under the Advisory Agreement is not reduced as a result of the Adviser’s receipt of research services.

The Adviser places portfolio transactions for other advisory accounts.  Research services furnished by firms through which the Funds effect their securities transactions may be used by the Adviser in servicing all of its accounts; not all of such services may be used by the Adviser in connection with the Funds.  In the opinion of the Adviser, it is not possible to measure separately the benefits from research services to each of the accounts (including the Funds) managed by the Adviser.  Because the volume and nature of the trading activities of the accounts are not uniform, the amount of commissions in excess of those charged by another broker paid by each account for brokerage and research services will vary.  However, in the opinion of the Adviser, such costs to the Funds will not be disproportionate to the benefits received by the Funds on a continuing basis.

The Adviser seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by the Funds and another advisory account. In some cases, this procedure could have an adverse effect on the price or the amount of securities available to the Funds.  In making such allocations between the Funds and other advisory accounts, the main factors considered by the Adviser are the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and opinions of the persons responsible for recommending the investment.

The Fund is newly offered; therefore, it has not paid any brokerage commissions.
 


Although the Funds have differing investment objectives, there will be times when certain securities will be eligible for purchase by all Funds or will be contained in the portfolios of all Funds. Although securities of a particular company may be eligible for purchase by all Funds, the Adviser may determine at any particular time to purchase a security for one Fund, but not the other, based on each Fund’s investment objective and in a manner that is consistent with the Adviser’s fiduciary duties under federal and state law to act in the best interests of each Fund.

There may also be times when a given investment opportunity is appropriate for some or all of the Adviser’s other client accounts. It is the policy and practice of the Adviser not to favor or disfavor consistently or consciously any client or class of clients in the allocation of investment opportunities, so that to the extent practical, such opportunities will be allocated among clients, including the Funds, over a period of time on a fair and equitable basis.

It is the Adviser’s policy to aggregate the transactions of its large institutional clients (“block trades”), including the Funds, when it believes this will result in the best execution at the most favorable price. When securities are being purchased and/or sold by the Adviser’s large institutional clients, including the Funds, the Adviser will attempt to allocate block trades on a pro rata basis based on the dollar amount available for investing by the client accounts and each client account’s proportionate share of that amount. Each large institutional client, including the Funds, that participates in a block trade will participate at the average share price for all of the Adviser’s transactions in that security on that business day, entered into on behalf of the same group of client accounts.

It is the Adviser’s general policy not to purchase a security in one Fund while simultaneously selling it in the other. However, there may be circumstances outside of the Adviser’s control that require the purchase of a security in one portfolio and a sale in the other. For example, when one Fund experiences substantial cash inflows while the other experiences substantial cash outflows the Adviser may be required to buy securities to maintain a fully invested position in one Fund while selling securities in the other Fund to meet shareholder redemptions. In such circumstances, any Fund may acquire assets from the other Fund that are otherwise qualified investments for the acquiring Fund, so long as neither Fund bears any markup or spread, and no commission, fee or other remuneration is paid in connection with the acquisition, and the acquisition complies with Section 17(a) of the 1940 Act and Rule 17a-7 thereunder. If the purchase and sale are not effected pursuant to Rule 17a-7, then the purchase and/or sale of a security common to both portfolios may result in a higher price being paid by the Fund in the case of a purchase than would otherwise have been paid, or a lower price being received by the Fund in the case of a sale than would otherwise have been received. In any event, management of the Fund believes that under normal circumstances such events will have a minimal impact on the Fund’s per share NAV and its subsequent long-term investment return.


The Funds impose a 2% redemption/exchange fee on the value of shares redeemed ninety (90) days or less after the date of purchase.  The redemption/exchange fee will not apply to shares redeemed through the SWP, nor does it apply to shares acquired through the reinvestment of dividends and capital gains.  The Funds reserve the right to waive the redemption/exchange fee, subject to their sole discretion, in instances deemed by the Adviser not to be disadvantageous to the Funds or their shareholders and which do not indicate market timing strategies.  The redemption/exchange fee is part of the Funds’ market timing policy and is designed to deter market timers and excessive trading.  Any proceeds of the fee will be paid to that Fund.
 

In calculating whether a redemption of Fund shares is subject to a redemption/exchange fee, a shareholder’s holdings will be viewed on a “first in/first out” basis.  This means that, in determining whether any fee is due, the shareholder will be deemed to have redeemed the shares he or she acquired earliest.  The fee will be calculated based on the current price of the shares as of the redemption date.

Pursuant to Rule 22c-2 under the 1940 Act and shareholder information agreements with financial intermediaries, the Funds have the ability to request information from financial intermediaries concerning trades placed in an omnibus or other multi-investor account (“Omnibus Account”), in order to attempt to monitor trades that are placed by the underlying shareholders of the Omnibus Account.  The ability of the Funds to apply their market timing policy to investors investing through financial intermediaries is dependent on the receipt of information necessary to identify transactions by the underlying investors and the financial intermediary’s cooperation in implementing the policy.  Investors seeking to engage in excessive short-term trading practices may deploy a variety of strategies to avoid detection, and despite the efforts of the Funds to prevent excessive short-term trading, there is no assurance that the Funds or their agents will be able to identify those shareholders or curtail their trading practices.  The ability of the Funds and their agents to detect and limit excessive short-term trading also may be restricted by operational systems and technological limitations.

If suspicious trading patterns are detected in an Omnibus Account, the Funds will request information from the financial intermediary concerning trades placed in the Omnibus Account.  The Funds will use this information to monitor trading in the Funds and to attempt to identify shareholders in the Omnibus Account engaged in trading that is inconsistent with the market timing policy or otherwise not in the best interests of the Funds.  If the Funds detect such activity then the Funds may request that the financial intermediary take action to prevent the particular investor or investors from engaging in frequent or short-term trading.  The Funds generally will communicate with the financial intermediary and request that the financial intermediary take action to cause the inappropriate trading by that participant or participants to cease. If inappropriate trading recurs, the Funds may refuse all future purchases from the Omnibus Account, including those of plan participants not involved in the inappropriate activity.


U.S. Bancorp Fund Services, LLC (“USBFS”), 615 East Michigan Street, Milwaukee, Wisconsin  53202, an affiliate of U.S. Bank, N.A., serves as administrator and fund accountant to the Funds, subject to the overall supervision of the Board.  Pursuant to a Fund Administration Servicing Agreement (the “Administration Agreement”), USBFS provides certain administrative services to the Funds.  USBFS services include, but are not limited to, the following: acting as a liaison among the Funds’ service providers; coordinating the Board’s communications; maintaining and managing a regulatory compliance calendar; preparing and filing appropriate state securities law filings; maintaining state registrations; preparing and filing annual and semiannual reports on Forms N-CSR,  N-Q and N-SAR; preparing financial reports for officers, shareholders, tax authorities and independent registered public accountants; monitoring expense accruals; and preparing monthly financial statements.
 

The Fund is newly offered; therefore, it has not paid any administration fees.

The Administration Agreement provides that USBFS shall not be liable to the Funds or their shareholders for anything other than bad faith, negligence or willful misconduct of its obligations or duties.  The Administration Agreement does not prohibit USBFS from engaging in other businesses whether of a similar or dissimilar nature or rendering services to others.

USBFS has entered into a fund accounting services agreement with the Funds pursuant to which it acts as fund accountant.  As fund accountant, USBFS maintains and keeps current the books, accounts, journals and other records of original entry relating to the business of the Fund and calculates each Fund’s NAV on a daily basis. USBFS also acts as the Funds’ transfer agent and dividend disbursing agent.  As transfer agent, USBFS keeps records of shareholder accounts and transactions.


U.S. Bank, N.A., 1555 North RiverCenter Drive, Suite 302, Milwaukee, WI 53212, an affiliate of USBFS, acts as custodian for the Funds pursuant to a custody agreement.  As such, U.S. Bank, N.A. holds all securities and cash of the Funds, delivers and receives payment for securities sold, receives and pays for securities purchased, collects income from investments and performs other duties, all as directed by officers of the Funds.  U.S. Bank, N.A. does not exercise any supervisory function over the management of the Funds, the purchase and sale of securities or the payment of distributions to shareholders.


The Funds and the Adviser entered into a Distribution Agreement with Quasar Distributors, LLC (“Quasar”), an affiliate of USBFS, pursuant to which Quasar serves as principal underwriter for the Funds.  Its principal business address is 615 East Michigan Street, Milwaukee, WI  53202.  Quasar sells the Funds’ shares on a best efforts basis.  Shares of the Funds are offered continuously.  Pursuant to the terms of the Distribution Agreement, the Adviser compensates Quasar for the services that Quasar provides to the Funds under the Agreement.  The Fund is newly offered; therefore, it has not paid any underwriting commissions.


The NAV of a Fund is determined as of the close of trading on each day the New York Stock Exchange (“NYSE”) is open for trading.  The Funds do not determine NAV on days the NYSE is closed and at other times described in the Prospectus.  The NYSE is closed on New Year’s Day, Dr. Martin Luther King, Jr. Day, President’s Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.  Additionally, if any of the aforementioned holidays falls on a Sunday, the NYSE will not be open for trading on the succeeding Monday, unless unusual business conditions exist, such as the ending of a monthly or the yearly accounting period.  If any of the aforementioned holidays falls on a Saturday, the NYSE will not be open for trading on the preceding Friday.  The NYSE also may be closed on national days of mourning or due to natural disaster or other extraordinary events or emergency.
 

The NAV per share is calculated by adding the value of all securities, cash or other assets, subtracting liabilities, and dividing the remainder by the number of shares outstanding.  Each security traded on a national stock exchange (other than on The NASDAQ OMX Group, Inc. (NASDAQ®)) is valued at its last sale price on that exchange on the day of valuation.  Each security traded on NASDAQ® is valued at the NASDAQ® Official Closing Price.  If there are no sales on the applicable stock exchange on the day in question, then a security is valued at the mean between the then current closing bid and asked prices, unless the spread between the bid and ask is so large that the Adviser believes using the mean would overstate the value of the security, in which case in which case the security will be “fair valued” as described below.  OTC Bulletin Board securities are valued at the mean of the latest bid and ask prices unless the spread between the bid and ask is so large that the Adviser believes using the mean would overstate the value of the security, in which case the security will be “fair valued” as described below.

When market quotations are not readily available or are deemed unreliable, the Adviser values securities and other assets by appraisal at their fair value as determined in good faith by the Adviser under procedures established by and under the general supervision and responsibility of the Board.  Demand notes, commercial paper, U. S. Treasury Bills and warrants are valued at amortized cost, which approximates fair value.  Each Fund values money market instruments that it holds with remaining maturities of less than sixty (60) days at their amortized cost.  Other types of securities that the Funds may hold for which fair value pricing might be required include, but are not limited to:  (a) illiquid securities, including “restricted” securities and private placements for which there is no public market; (b) securities of an issuer that has entered into a restructuring; (c) securities whose trading has been halted or suspended; and (d) fixed income securities that have gone into default and for which there is not a current market value quotation.  Further, if events occur that materially affect the value of a security between the time trading ends on that particular security and the close of the normal trading session of the NYSE, a Fund may value the security at its fair value.  Valuing securities at fair value involves greater reliance on judgment than securities that have readily available market quotations.  There can be no assurance that a Fund could obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the Fund determines its NAV per share.


Set forth below is a summary of certain United States federal income tax considerations applicable to the Funds and the purchase, ownership and disposition of shares.  This discussion does not purport to be a complete description of the income tax considerations that may be applicable to an investment in the Funds.  For example, this summary does not discuss certain tax considerations that may be relevant to non U.S. holders or holders who are subject to special rules under the Internal Revenue Code (the “Code”), including shareholders subject to the alternative minimum tax, tax-exempt organizations, certain financial institutions, dealers in securities, and pension plans and trusts.  In addition, this summary does not discuss any aspect of U.S. estate or gift tax or foreign, state, or local taxes.
 

Taxation of the Funds

The Funds have elected to be treated, have qualified, and intend to qualify as a regulated investment company under Subchapter M of the Code.  To qualify as a regulated investment company, the Funds must comply with certain requirements of the Code relating to, among other things, the sources of its income and the diversification of its assets.  If a Fund so qualifies as a regulated investment company and distributes to its shareholders at least 90% of its investment company taxable income (generally including ordinary income and net short-term capital gain), it will not be subject to U.S. federal income tax on its investment company taxable income (including net short-term capital gain, if any), realized during any fiscal year, or on its net capital gain realized during any fiscal year, to the extent that it distributes such income and gain to the Fund’s shareholders.  If a Fund failed to qualify as a regulated investment company under Subchapter M in any fiscal year, it would be treated as a corporation for federal income tax purposes and, as such, the Fund (but not its shareholders) would be required to pay income taxes on the Fund’s net investment income and net realized capital gains, if any, at the rates generally applicable to corporations, whether or not the Fund distributed such income or gains.  In addition, distributions to a Fund’s shareholders, whether from the Fund’s net investment income or net realized capital gains, would be treated as taxable dividends to the extent of current or accumulated earnings and profits of the Fund.

As a regulated investment company, a Fund is generally not allowed to utilize any net operating loss realized in a taxable year in computing investment company taxable income in any prior or subsequent taxable year.  A Fund may, however, carry forward capital losses in excess of capital gains (“net capital losses”) from a taxable year to offset capital gains, if any, realized in a subsequent taxable year, subject to certain limitations.  Net capital losses incurred in taxable years beginning after December 22, 2010 may be carried forward for an unlimited period and retain their character as either short-term or long-term capital losses.

The Fund is newly offered; therefore, it does not have any capital losses which may be carried forward to offset future capital gains.

A Fund will be subject to income tax at regular corporate rates on any taxable income or gains that it does not distribute to its shareholders.  The Funds intend to distribute substantially all of their investment company taxable income and net capital gain each fiscal year.

The Code imposes a 4% nondeductible excise tax on a Fund to the extent the Fund does not distribute by the end of any calendar year at least the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year and (ii) 98.2% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year.  In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any under-distribution or over-distribution, as the case may be, from the previous year.  While each Fund intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% nondeductible excise tax, there can be no assurance that sufficient amounts of the Fund’s taxable income and capital gain will be distributed to avoid entirely the imposition of the excise tax.  In that event, a Fund will be liable for the excise tax only on the amount by which it does not meet the foregoing distribution requirement.
 

A Fund may use “equalization accounting” (in lieu of making some cash distributions) in determining the portion of its income and gains that has been distributed.  If the a Fund uses equalization accounting, it will allocate a portion of its undistributed investment company taxable income and net capital gain to redemptions of Fund shares and will correspondingly reduce the amount of such income and gains that it distributes in cash.  If the IRS determines that the a Fund’s allocation is improper and that the Fund has under-distributed its income and gain for any taxable year, the Fund may be liable for federal income and/or excise tax.  If, as a result of such adjustment, the a Fund fails to satisfy the distribution requirements for maintaining its status as a regulated investment company, the Fund will not qualify that year as a regulated investment company.

Taxation of Shareholders

Dividends from net investment income and short-term capital gains are taxable to shareholders as ordinary income (although a portion of such dividends may be taxable to shareholders at the lower rate applicable to dividend income), while distributions of net long-term capital gains are taxable as long-term capital gain regardless of the shareholder’s holding period for the shares.  Distributions from the a Fund are taxable to shareholders, whether received in cash or in additional shares of the Fund.  In the case of domestic corporate shareholders, a portion of a Fund’s income distributions may be eligible for the 70% dividends-received deduction.

Any dividend or capital gain distribution paid shortly after a purchase of shares of a Fund will have the effect of reducing the per share net asset value of such shares by the amount of the dividend or distribution.  Even if the net asset value of the shares of a Fund immediately after a dividend or distribution is less than the cost of such shares to the shareholder so that the dividend or distribution is the economic equivalent of a return of capital to the shareholder, the dividend or distribution will be taxable to the shareholder.

Redemption of shares will generally result in a capital gain or loss for income tax purposes for shareholders who hold such shares for investment.  Such capital gain or loss will be long-term or short-term, depending on the shareholder’s holding period in the redeemed shares.  However, if a loss is realized on shares held for six months or less, and the investor received a capital gain distribution during that period, then such loss is treated as a long-term capital loss to the extent of the capital gain distribution received.  Any loss realized on a sale or exchange of Fund shares will be disallowed to the extent that shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the original shares.  In that case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
 

In addition to reporting gross proceeds from redemptions, exchanges or other sales of mutual fund shares, federal law requires mutual funds, such as the Funds, to report to the IRS and shareholders the “cost basis” of shares acquired by shareholders on or after January 1, 2012 (“covered shares”) that are redeemed, exchanged or otherwise sold on or after such date.  These requirements generally do not apply to investments through a tax-deferred arrangement or to certain types of entities (such as C corporations).  S corporations, however, are not exempt from these new rules.

Please note that if a shareholder is a C corporation, unless the shareholder has previously notified the Funds in writing that it is a C corporation, the shareholder must complete a new Form W−9 exemption certificate informing the Funds of such C corporation status or the Funds will be obligated to presume that the shareholder is an S corporation and to report the cost basis of covered shares that are redeemed, exchanged or otherwise sold after January 1, 2012 to the IRS and to the shareholder pursuant to these rules.  Also, if a shareholder holds Fund shares through a broker (or another nominee), the shareholder should contact that broker (nominee) with respect to the reporting of cost basis and available elections for the shareholder’s account.

If a shareholder holds Fund shares directly, the shareholder may request that the shareholder’s cost basis be calculated and reported using any one of a number of IRS approved alternative methods.  A shareholder should contact the Funds to make, revoke or change the shareholder’s election.  If a shareholder does not affirmatively elect a cost basis method, the Funds will use the average cost basis method as their default method for determining the shareholder’s cost basis.

Shareholders should note that they will continue to be responsible for calculating and reporting the tax basis, as well as any corresponding gains or losses, of Fund shares purchased prior to January 1, 2012 and subsequently redeemed, exchanged or sold.  Shareholders are encouraged to consult with their tax advisors regarding the application of the new cost basis reporting rules to them and, in particular, which cost basis calculation method they should elect.  In addition, because the Funds are not required to, and in many cases do not possess the information to, take into account all possible basis, holding period or other adjustments into account in reporting cost basis information to shareholders, shareholders also should carefully review the cost basis information provided to them by the Funds and make any additional basis, holding period or other adjustments that are required when reporting these amounts on their federal income tax return.

The Funds may be required to withhold Federal income tax at a current rate of 28% (“backup withholding”) from dividend payments and redemption proceeds if a shareholder fails to furnish the Funds with a correct social security or other tax identification number and certify under penalty of perjury that such number is correct and that he or she is not subject to backup withholding due to the underreporting of income.  The certification form is included as part of the share purchase application and should be completed when the account is opened.
 

Fund shareholders may be subject to state, local and foreign taxes on their Fund distributions.

This section is not intended to be a complete discussion of present or proposed federal income tax laws and the effect of such laws on an investor.  Investors are urged to consult with their respective tax advisers for a complete review of the tax ramifications of an investment in the Funds.


The Maryland General Corporation Law permits registered investment companies, such as the Company, to operate without an annual meeting of shareholders under specified circumstances if an annual meeting is not required by the 1940 Act.  The Company has adopted the appropriate provisions in its Bylaws and may, at its discretion, not hold an annual meeting in any year in which the election of directors is not required to be acted upon by the shareholders under the 1940 Act.

The Company’s Bylaws also contain procedures for the removal of directors by its shareholders.  At any meeting of shareholders, duly called and at which a quorum is present, the shareholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors.

Upon the written request of the holders of shares entitled to not less than ten percent (10%) of all the votes entitled to be cast at such meeting, the Secretary of the Company shall promptly call a special meeting of shareholders for the purpose of voting upon the question of removal of any director.  Whenever ten (10) or more shareholders of record who have been such for at least six (6) months preceding the date of application, and who hold in the aggregate either shares having a NAV of at least Twenty-Five Thousand Dollars ($25,000) or at least one percent (1%) of the total outstanding shares, whichever is less, shall apply to the Company’s Secretary in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a meeting as described above and accompanied by a form of communication and request which they wish to transmit, the Secretary shall within five (5) business days after such application either:  (1) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the Company; or (2) inform such applicants as to the approximate number of shareholders of record and the approximate cost of mailing to them the proposed communication and form of request.

If the Secretary elects to follow the course specified in clause (2) of the last sentence of the preceding paragraph, the Secretary, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books unless within five (5) business days after such tender the Secretary shall mail to such applicants and file with the SEC, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Board of Directors to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion.
 

After opportunity for hearing upon the objections specified in the written statement so filed, the SEC may, and if demanded by the Board of Directors or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them.  If the SEC shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the SEC shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Secretary shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender.


The Company’s Articles of Incorporation permit the Board of Directors to issue One Billion (1,000,000,000) shares of common stock.  The Board of Directors has the power to designate one or more classes (“series”) of shares of common stock and to classify or reclassify any unissued shares with respect to such series.  Currently the shares of the Low Priced Stock Fund, the MicroCap Fund and the Ultra MicroCap Fund are the only class of shares being offered by the Company.  Shareholders are entitled:  (i) to one vote per full share; (ii) to such distributions as may be declared by the Company’s Board of Directors out of funds legally available; and (iii) upon liquidation, to participate ratably in the assets available for distribution.  Fractional shares have the same rights proportionately as do full shares.  There are no conversion or sinking fund provisions applicable to the shares, and the holders have no preemptive rights and may not cumulate their votes in the election of directors.  Consequently the holders of more than fifty percent (50%) of the shares of the Funds voting for the election of directors can elect the entire Board of Directors and in such event the holders of the remaining shares voting for the election of directors will not be able to elect any person or persons to the Board of Directors.

The shares are redeemable and are transferable.  All shares issued and sold by the Funds will be fully paid and nonassessable.  Fractional shares entitle the holder to the same rights as whole shares.  The Funds will not issue certificates evidencing shares.  Instead the shareholder’s account will be credited with the number of shares purchased, relieving shareholders of responsibility for safekeeping of certificates and the need to deliver them upon redemption.  Written confirmations are issued for all purchases of shares.


Cohen Fund Audit Services, Ltd., serves as the Funds’ independent registered public accounting firm.
 
 

The Funds may invest in commercial paper and commercial paper master notes assigned ratings of A-1 or A-2 by Standard & Poor’s Corporation (“Standard & Poor’s”) or Prime-1 or Prime-2 by Moody’s Investors Service, Inc. (“Moody’s”).  A brief description of the ratings symbols and their meanings follows:

Standard & Poor’s Commercial Paper Ratings.  A Standard & Poor’s commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market.  Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest.  The categories rated A-3 or higher are as follows:

A-1.        This highest category indicates that the degree of safety regarding timely payment is strong.  Those issuers determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.

A-2.        Capacity for timely payment on issues with this designation is satisfactory.  However the relative degree of safety is not as high as for issuers designed “A-1.”

A-3.        Issues carrying this designation have adequate capacity for timely payment.  They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designation.

Moody’s Short-Term Debt Ratings.  Moody’s short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year.  Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated.

Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:

Prime-1.  Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations.  Prime-1 repayment ability will often be evidenced by many of the following characteristics:

 
·
Leading market positions in well-established industries.

 
·
High rates of return on funds employed.

 
·
Conservative capitalization structure with moderate reliance on debt and ample asset protection.

 
·
Broad margins in earnings coverage of fixed financial charges and high internal cash generation.

 
·
Well-established access to a range of financial markets and assured sources of alternate liquidity.
 
 
Prime-2.  Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations.  This will normally be evidenced by many of the characteristics cited above but to a lesser degree.  Earnings trends and coverage ratios, while sound, may be more subject to variation.  Capitalization characteristics, while still appropriate, may be more affected by external conditions.  Ample alternate liquidity is maintained.

Prime-3.  Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations.  The effect of industry characteristics and market compositions may be more pronounced.  Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage.  Adequate alternate liquidity is maintained.
 
 
Perritt Funds, Inc.

PART C

OTHER INFORMATION

Item 28.    Exhibits.

(a)
(i)
Articles of Incorporation are incorporated herein by reference to the Registrant’s Initial Registration Statement on Form N-1A filed with the Securities and Exchange Commission on April 9, 2004.
     
 
(ii)
Articles Supplementary are incorporated herein by reference to Post-Effective Amendment
No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
(b)
  
Bylaws for Perritt Funds, Inc. are incorporated herein by reference to Post-Effective Amendment No. 7 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 26, 2010.
     
(c)
  
See relevant portions of Articles of Incorporation and Bylaws, as amended.
     
(d)
(i)
Investment Advisory Agreement for the Perritt Ultra MicroCap Fund is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(ii)
Investment Advisory Agreement for the Perritt MicroCap Opportunities Fund is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(iii)
Form of Investment Advisory Agreement for the Perritt Low Priced Stock Fund – filed herewith.
     
(e)
(i)
Distribution Agreement is incorporated herein by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 27, 2007.
     
 
(ii)
Letter Agreement to the Distribution Agreement is incorporated herein by reference to Post-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 27, 2007.
     
 
(iii)
Amended Exhibit A to the Distribution Agreement – to be filed by amendment.
     
(f)
  
Bonus, profit sharing contracts – None.
     
(g)
(i)
Custody Agreement is incorporated herein by reference to Post-Effective Amendment No. 7 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 26, 2010.
 
 
C-1
 
 
 
(ii)
First Amendment to Custody Agreement is incorporated herein by reference to Post-Effective Amendment No. 10 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2012.
     
 
(iii)
Second Amendment to Custody Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(iv)
Third Amendment to Custody Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(v)
Fourth Amendment to Custody Agreement – to be filed by amendment.
     
(h)
(i)
Fund Administration Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(ii)
Amendment to Fund Administration Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(iii)
Second Amendment to Fund Administration Servicing Agreement – to be filed by amendment.
     
 
(iv)
Transfer Agent Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 7 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 26, 2010.
     
 
(v)
First Amendment to Transfer Agent Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 10 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2012.
     
 
(vi)
Second Amendment to Transfer Agent Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(vii)
Third Amendment to Transfer Agent Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(viii)
Fourth Amendment to Transfer Agent Servicing Agreement – to be filed by amendment.
     
 
(ix)
Fund Accounting Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 3 to the Registrant’s Form N-1A Registration Statement filed with the Securities and Exchange Commission on February 27, 2007.
     
 
(x)
Second Amendment to the Fund Accounting Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
 
C-2
 
 
 
(xi)
Third Amendment to the Fund Accounting Servicing Agreement is incorporated herein by reference to Post-Effective Amendment No. 13 to the Registrant’s Registration Statement on Form N-1A filed with the Securities and Exchange Commission on February 28, 2013.
     
 
(xii)
Fourth Amendment to the Fund Accounting Servicing Agreement – to be filed by amendment.
     
 
(xiii)
Amendment to the Custody Agreement, Fund Accounting Servicing Agreement, Transfer Agent Agreement and the Distribution Agreement is incorporated herein by reference to Post-Effective Amendment No. 3 to the Registrant’s Form N-1A Registration Statement filed with the Securities and Exchange Commission on February 27, 2007.
     
(i)
  
Opinion and Consent of Counsel – to be filed by amendment.
     
(j)
  
Consent of Independent Registered Public Accounting Firm – to be filed by amendment.
     
(k)
  
Financial statements of the Predecessor - to be filed by amendment.
     
(l)
  
Stock Subscription Agreement is incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registrant’s Form N-1A Registration Statement filed with the Securities and Exchange Commission on August 18, 2004.
     
(m)
  
Distribution Plan pursuant to Rule 12b-1 – None.
     
(n)
  
Plan pursuant to Rule 18f-3 – None.
     
(o)
  
Reserved.
     
(p)
(i)
Code of Ethics of Perritt Funds, Inc. is incorporated herein by reference to Post-Effective Amendment No. 5 to the Registrant’s Form N-1A Registration Statement filed with the Securities and Exchange Commission on February 27, 2009.
     
 
(ii)
Code of Ethics of Perritt Capital Management, Inc. is incorporated herein by reference to Post-Effective Amendment No. 8 to the Registrant’s Form N-1A Registration Statement filed with the Securities and Exchange Commission on February 28, 2011.

Item 29.
Persons Controlled by or Under Common Control with Registrant

None.

Item 30.
Indemnification

Pursuant to the authority of the Maryland General Corporation Law, particularly Section 2-418 thereof, Registrant’s Board of Directors has adopted the By-Law set forth below, which is in full force and effect and has not been modified or cancelled. The general effect of this By-Law may be to reduce the circumstances under which a director or officer may be required to bear the economic burden of such director’s or officer’s liabilities and expenses.
 
 
 
C-3
 
 
Article VII

GENERAL PROVISIONS

Section 7. Indemnification .

A.           The corporation shall indemnify all of its corporate representatives against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with the defense of any action, suit or proceeding, or threat or claim of such action, suit or proceeding, whether civil, criminal, administrative, or legislative, no matter by whom brought, or in any appeal in which they or any of them are made parties or a party by reason of being or having been a corporate representative, if the corporate representative acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal proceeding, if he had no reasonable cause to believe his conduct was unlawful provided that the corporation shall not indemnify corporate representatives in relation to matters as to which any such corporate representative shall be adjudged in such action, suit or proceeding to be liable for gross negligence, willful misfeasance, bad faith, reckless disregard of the duties and obligations involved in the conduct of his office, or when indemnification is otherwise not permitted by the Maryland General Corporation Law.

B.           In the absence of an adjudication which expressly absolves the corporate representative, or in the event of a settlement, each corporate representative shall be indemnified hereunder only if there has been a reasonable determination based on a review of the facts that indemnification of the corporate representative is proper because he has met the applicable standard of conduct set forth in paragraph A. Such determination shall be made: (i) by the board of directors, by a majority vote of a quorum which consists of directors who were not parties to the action, suit or proceeding, or if such a quorum cannot be obtained, then by a majority vote of a committee of the board consisting solely of two or more directors, not, at the time, parties to the action, suit or proceeding and who were duly designated to act in the matter by the full board in which the designated directors who are parties to the action, suit or proceeding may participate; or (ii) by special legal counsel selected by the board of directors or a committee of the board by vote as set forth in (i) of this paragraph, or, if the requisite quorum of the full board cannot be obtained therefor and the committee cannot be established, by a majority vote of the full board in which directors who are parties to the action, suit or proceeding may participate.

C.           The termination of any action, suit or proceeding by judgment, order or settlement does not create a presumption that the person was guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties and obligations involved in the conduct of his or her office. The termination of any action, suit or proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment shall create a rebuttable presumption that the person was guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties and obligations involved in the conduct of his or her office, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

D.           Expenses, including attorneys’ fees, incurred in the preparation of and/or presentation of the defense of a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Section 2-418(F) of the Maryland General Corporation Law upon receipt of: (i) an undertaking by or on behalf of the corporate representative to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this bylaw; and (ii) a written affirmation by the corporate representative of the corporate representative’s good faith belief that the standard of conduct necessary for indemnification by the corporation has been met.

E.           The indemnification provided by this bylaw shall not be deemed exclusive of any other rights to which those indemnified may be entitled under these bylaws, any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person subject to the limitations imposed from time to time by the Investment Company Act of 1940, as amended.
 
 
C-4
 
 
F.           This corporation shall have power to purchase and maintain insurance on behalf of any corporate representative against any liability asserted against him or her and incurred by him or her in such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under this bylaw provided that no insurance may be purchased or maintained to protect any corporate representative against liability for gross negligence, willful misfeasance, bad faith or reckless disregard of the duties and obligations involved in the conduct of his or her office.

G.           “Corporate Representative” means an individual who is or was a director, officer, agent or employee of the corporation or who serves or served another corporation, partnership, joint venture, trust or other enterprise in one of these capacities at the request of the corporation and who, by reason of his or her position, is, was, or is threatened to be made, a party to a proceeding described herein.

Insofar as indemnification for and with respect to liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person or Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Item 31. Business and Other Connections of Investment Adviser

Incorporated by reference to the information contained under “MANAGEMENT OF THE FUND” in the Prospectus and under “DIRECTORS AND OFFICERS” in the Statement of Additional Information, all pursuant to Rule 411 under the Securities Act.

Item 32. Principal Underwriter
 
 
 
(a) 
To the best of Registrant’s knowledge, Quasar Distributors, LLC, the Registrant’s principal underwriter, acts as principal underwriter for the following investment companies:

Academy Funds Trust
Jensen Portfolio, Inc.
Advisors Series Trust
Kirr Marbach Partners Funds, Inc.
Aegis Funds
KKR Alternative Corporate Opportunities Fund P
Aegis Value Fund, Inc.
KKR Series Trust
Allied Asset Advisors Funds
Litman Gregory Funds Trust
Alpine Equity Trust
LKCM Funds
Alpine Income Trust
LoCorr Investment Trust
Alpine Series Trust
Loeb King Trust
 
 
C-5
 
 
Barrett Opportunity Fund, Inc.
Lord Asset Management Trust
Brandes Investment Trust
MainGate Trust
Bridge Builder Trust
Managed Portfolio Series
Bridges Investment Fund, Inc.
Matrix Advisors Value Fund, Inc.
Brookfield Investment Funds
Merger Fund
Brown Advisory Funds
Monetta Trust
Buffalo Funds
Nicholas Family of Funds, Inc.
Country Mutual Funds Trust
Permanent Portfolio Family of Funds, Inc.
Cushing Funds Trust
Perritt Funds, Inc.
DoubleLine Funds Trust
PRIMECAP Odyssey Funds
ETF Series Solutions
Professionally Managed Portfolios
Evermore Funds Trust
Prospector Funds, Inc.
FactorShares Trust
Provident Mutual Funds, Inc.
First American Funds, Inc.
Purisima Funds
First American Investment Funds, Inc.
Rainier Investment Management Mutual Funds
First American Strategy Funds, Inc.
RBC Funds Trust
Glenmede Fund, Inc.
SCS Financial Funds
Glenmede Portfolios
Stone Ridge Trust
Greenspring Fund, Inc.
Thompson IM Funds, Inc.
Guinness Atkinson Funds
TIFF Investment Program, Inc.
Harding Loevner Funds, Inc.
Trust for Professional Managers
Hennessy Funds Trust
USA Mutuals
Hennessy Funds, Inc.
USFS Funds Trust
Hennessy Mutual Funds, Inc.
Wall Street Fund, Inc.
Hennessy SPARX Funds Trust
Westchester Capital Funds
Hotchkis & Wiley Funds
Wexford Trust/PA
Intrepid Capital Management Funds Trust
Wisconsin Capital Funds, Inc.
IronBridge Funds, Inc.
WY Funds
Jacob Funds, Inc.
YCG Funds


 
(b) 
To the best of Registrant’s knowledge, the directors and executive officers of Quasar Distributors, LLC are as follows:

Name and Principal
Business Address
Position and Offices with Quasar
Distributors, LLC
Positions and Offices
with Registrant
James R. Schoenike(1)
President, Board Member
None
Andrew M. Strnad(2)
Secretary
None
Joe D. Redwine(1)
Board Member
None
Robert Kern(1)
Board Member
None
Eric W. Falkeis(1)
Board Member
None
Susan LaFond(1)
Treasurer
None
Teresa Cowan(1)
Assistant Secretary
None
John Kinsella(3)
Assistant Treasurer
None
Brett Scribner(3)
Assistant Treasurer
None
 
(1) This individual is located at 615 East Michigan Street, Milwaukee, Wisconsin, 53202.
(2) This individual is located at 6602 East 75th Street, Indianapolis, Indiana, 46250.
(3) This individual is located at 800 Nicollet Mall, Minneapolis, Minnesota, 55402.
 
 
 
C-6
 
 
 
(c) 
The total commissions and other compensation received by Quasar Distributors, LLC pursuant to the Distribution Agreement during the fiscal year ended October 31, 2010 is as follows (all of which, if any, was paid by Perritt Capital Management, Inc.):

Principal
Underwriter
Net Underwriting Discounts
and Commissions
Compensation on
Redemption and
Repurchases
Brokerage
Commissions
Other
Compensation
Quasar Distributors, LLC
N/A
N/A
N/A
$0

Item 33. Location of Accounts and Records

The books, accounts and other documents required by Section 31(a) under the Investment Company Act of 1940, as amended, and the rules promulgated thereunder will be maintained at the offices of:

Perritt Capital Management, Inc., 300 South Wacker Drive, Suite 2880, Chicago, Illinois 60606.
 (records relating to its function as investment adviser of the Perritt Funds)

U.S. Bancorp Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202 (records relating to its function as administrator, transfer agent and dividend disbursing agent)

U.S. Bank, N.A., 1555 North River Center Drive, Suite 302, Milwaukee, Wisconsin 53212 (records relating to its function as custodian)

Item 34. Management Services

All management-related service contracts entered into by Registrant are discussed in Parts A and B of this Registration Statement.

Item 35. Undertakings

The Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant’s latest annual report to stockholders, upon request and without charge.
 
 
 
C-7
 
 
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment to its Registration Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and the State of Illinois on December 13, 2013.

 
Perritt Funds, Inc.
   
 
By:   /s/ Michael J. Corbett
 
 Michael J. Corbett
 
 President

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature
  
Title
Date
       
/s/ Michael J. Corbett
  
Principal Executive Officer and
December 11, 2013
Michael J. Corbett
  
Director
  
       
/s/ Mark Buh
  
Principal Financial and
December 11, 2013
Mark Buh
  
Accounting Officer
  
       
/s/ David S. Maglich
  
Director
December 11, 2013
David S. Maglich
      
       
/s/ Dianne C. Click
  
Director
December 11, 2013
Dianne C. Click
      
       

 
 
C-8
 
 
INDEX TO EXHIBITS

Exhibit No.
Description of Exhibit
   
(d)(iii)
Form of Investment Advisory Agreement for the Perritt Low Priced Stock Fund
 
 
 
C-9