N-CSR

As filed with the Securities and Exchange Commission on January 9, 2006

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21556

Perritt Funds, Inc.

(Exact name of registrant as specified in charter)

300 South Wacker Drive, Suite 2880, Chicago, IL 60606
(Address of principal executive offices) (Zip code)

Gerald W. Perritt, 300 South Wacker Drive, Suite 2880, Chicago, IL 60606
(Name and address of agent for service)

1-312-669-1650
Registrant’s telephone number, including area code

Date of fiscal year end: October 31, 2005

Date of reporting period: For the annual period October 31, 2005

Item 1. Report to Stockholders.

MicroCap
Opportunities
Fund

Emerging
Opportunities
Fund

Annual Reports
October 31, 2005

The PERRITT MICROCAP OPPORTUNITIES FUND invests in a diversified portfolio of equity securities that at the time of purchase have a market capitalization (equity market value) of $400 million or less. The Fund seeks micro-cap companies that management believes have the potential for long-term capital appreciation based on superior or niche products or services, favorable operating characteristics, superior management, and/or other exceptional factors. Investors should expect the Fund to contain a mix of both value and growth stocks.

The PERRITT EMERGING OPPORTUNITIES FUND invests in a diversified portfolio of equity securities that at the time of purchase have a market capitalization (equity market value) of $250 million or less. The fund seeks to invest in very small companies that have a significant percentage of stock owned by management, low levels of long-term debt, above average revenue and earnings growth rates, and/or possess reasonable valuations based on the ratios of price-to-sales, price-to-earnings, and price-to-book values.

Table of Contents

Annual Reports
October 31, 2005

Perritt Capital Management, Inc.
From the desk of Dr. G.W. Perritt, President	2
Perritt MicroCap Opportunities Fund
From the desk of Michael Corbett, President	4
Performance	6
Ten Largest Holdings	7
Allocation of Portfolio Net Assets	7
Schedule of Investments	8
Statement of Operations	11
Financial Highlights	11
Statements of Changes in Net Assets	12
Statement of Assets and Liabilities	12
Notes to Financial Statements	13
Report of Independent Registered Public Accounting Firm	14
Expense Example	15
Perritt Emerging Opportunities Fund
From the desk of Michael Corbett, President	16
Performance	18
Ten Largest Holdings	19
Allocation of Portfolio Net Assets	19
Schedule of Investments	20
Statement of Operations	22
Financial Highlights	22
Statements of Changes in Net Assets	23
Statement of Assets and Liabilities	23
Notes to Financial Statements	24
Report of Independent Registered Public Accounting Firm	25
Expense Example	26
Perritt Funds
Directors and Officers	27
Information	28

Dr. G. W. Perritt
President
Perritt Capital
Management, Inc.

     It’s been 34 years since I began teaching investments and finance at the University level and nearly 23 years since I created Investment Horizons, an investment newsletter that focused on the analysis of small company stocks. The newsletter was an outgrowth of research conducted by a University of Chicago student working on his doctoral dissertation who “accidentally” discovered that portfolios of small firm stocks consistently outperformed portfolios of large firm stocks, even after adjusting for the greater risk in the former. This phenomenon was dubbed “the small firm effect” by academic researchers. It marked the first crack in the solidly built foundation of the efficient market theory. According to this well-accepted theory, portfolios of common stocks are not supposed to provide greater returns than can be accounted for by their underlying risk. Unlikely as it could be, small firm stock portfolios provide the equivalent of an investment free lunch. The goal of the newsletter was to allow individual investors to capture the small firm effect.

     Five years after the creation of my newsletter, I established Perritt Capital Management to manage small firm stock portfolios for individual investors and for the Perritt MicroCap Opportunities Fund. As was the case with my newsletter, the objective of this fund was to give individual investors an opportunity to capture the small firm effect. I am pleased to report that this experiment has thus far been an unqualified success.

     During the three and a half decades that I have been involved in the investment world as an educator and practitioner, I have seen investment bubbles expand and ultimately burst. In 1970, investors’ love affair with so-called conglomerate stocks abruptly ended during a severe bear market. In the mid-1970s, the real estate investment trust bubble burst, in the early 1980s biotech mania ended in near disaster for most investors, in the late 1990s, of course, it was the dot.com bubble that burst the dreams of investment riches for many investors. In short, I have seen many investment fads come and go, with investors being left worse off when a group of stocks suddenly fell out of fashion.

     However, since its discovery in 1978 by researcher Rolf Banz, the small firm effect has continued to provide superior returns for investors who possessed the patience to maintain their portfolios of small firm stocks over long time periods. During each of the last five years and so far during the sixth, small firm stock returns have exceeded those of large firm stocks as represented by the Standard & Poor’s 500 Index. Such a

2

streak of over performance for small firm stocks is not unique. Small firm stock returns possess positive serial correlation and over performance streaks, nearly twice the length of this one, can be observed during the last 80 years for which reliable data exist.

     Of course, if something can’t go on for ever, it will eventually end. That is certainly the case for the current streak of over performance of small firm stocks relative to the performance of large firm stocks. However, when the streak will end is open to conjecture. Large firm stock aficionados have been calling for the end of the streak for nearly two years. According to these pundits, it is time to sell your small firm stocks and park your money in portfolios crammed with large firm stocks. I don’t want to offend these prognosticators, so I will duck the debate.

     If you want to earn the greatest possible investment returns, you should park your money in the asset class that performs best. However, you have to know which asset class will be the return leader before you make the investment, and history strongly suggests that the ability to hop from the best performing investment class year-after-year is nearly a metaphysical impossibility. However, if you want to earn all of the return that you deserve (given the underlying risk of your portfolio), you should maintain a diversified portfolio containing asset classes whose returns are less than perfectly correlated with one another. Although the reasons are beyond the scope of this brief note, statisticians tell us that portfolios consisting of asset classes with less than perfectly correlated returns can reduce portfolio risk without sacrificing a concomitant reduction in investment return. In other words, portfolios containing both large firm and small firm stocks can provide greater returns per unit of risk than can portfolios consisting of a single asset class.

     A small firm stock portfolio is not a substitute for investing in other asset classes. It would be foolish to park all of one’s money in a small firm stock portfolio. It would be equally as foolish to invest one’s entire nest egg in any other single asset class. Investment in small firm stocks is a compliment to and not a substitute for other asset classes contained in a well-diversified portfolio.

     Investment fads will continually come and go. However, the rules of successful investing have remained constant over time. Assume no more risk than you can tolerate, diversify your portfolio across many asset classes, minimize the cost of investing, take a long-term perspective, and invest as much as you can as often as you can.

Dr. G. W. Perritt
President

Opinions expressed are those of Dr. Perritt and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Perritt Capital Management, Inc.

3

Michael Corbett

President
Perritt MicroCap
Opportunities Fund

     We are proud to report that the Perritt MicroCap Opportunities Fund has performed well in both the short term and long term. During the last twelve months, the Fund rose 24.4 percent versus the 12.1 percent return for the benchmark Russell 2000 Index. Over the last 10 years, the Fund provided investors with a 14.8 annualized return compared to a 9.5 annualized return for the Russell 2000 Index. If someone invested $10,000 in the Fund 10 years ago it would now be $39,619 compared to $24,851 in the Russell 2000 Index. A more detailed report of the Fund and its benchmark’s long-term performance results can be found on page 6.

     Our disciplined stock selection process and the long-term investment philosophy we adhere to with each investment best explains the Fund’s strong performance. We use a value-based approach toward selecting stocks. In other words, we closely scrutinize a company’s financial characteristics and current valuations, such as price-to-sales, price-to-earnings and price-to-cash flow. In addition to our value-based selection process, we subject each potential investment to a nine-factor proprietary test. To pass this test, a company must possess a strong balance sheet, positive cash flow and expanding profitability. We also use this nine-factor test to evaluate a company’s progress after the stock is purchased for the portfolio.

     During the past year, we sold 29 issues from the portfolio. Five of those liquidations were sold due to buyouts: AMX Corporation, Boston Acoustics, Haggar Corporation, The Keith Companies and TBC Corporation. We also received a buyout offer for Captiva Software and Transport Corporation of America, but those positions have not been liquidated as of October 31, 2005. As you may know, we also sell when a company’s market capitalization becomes too large. Three companies grew beyond our market capitalization limitation: Centene, Global Industries and KCS Energy. The remaining 21 of the 29 issues were sold due to disappointing operating results.

     At fiscal year end, the portfolio contained 164 companies, 51 of which were added during the year (The Fund’s 10 largest holdings are described in detail on page 7). The Fund’s portfolio is now priced at 20 times our 2005 earnings estimate and a little more than 16 times our 2006 earnings estimate. On average, the

4

stocks in the portfolio are priced at 1.1 times revenue and the median market capitalization is approximately $220 million. At fiscal year-end, the Fund held more than 17 percent in cash equivalents. Our cash position is higher than normal largely due to inflows. We believe it is prudent to invest new money slowly and wait for more attractively priced securities.

     On December 7, 2005, the Perritt MicroCap Opportunities Fund closed to most new investors due to the amount of assets in the Fund. In addition to the Fund’s large cash position, investing in micro-cap companies becomes difficult at a large asset base. Therefore, our Board of Directors voted to close the Fund at this time so that current shareholders can continue to reap the benefits of our investment strategy.

     As we discussed in previous reports, the reported scandals in the mutual fund industry have spawned a host of new rules and regulations, which in turn have increased the cost to fund shareholders. In order to comply with the new rules and regulations, we have increased both the Fund’s compliance staff and outsourced services. As a result, the Fund’s expenses increased modestly to 1.29 percent. We are proud to report, however, that the Fund’s expense ratio is still below the industry average, for micro-cap funds.

     I want to thank my fellow shareholders for their continued support and confidence in the Perritt Capital Management team. If you have any questions or comments about this report or your investment in the Perritt MicroCap Opportunities Fund, please call us toll-free at (800) 331-8936 or visit our new web page at www.perrittmutualfunds.com. Once again, thank you for choosing the Perritt MicroCap Opportunities Fund.

Michael Corbett
President

     Small- and Medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Growth stocks typically are more volatile than value stocks; however, value stocks have a lower expected growth rate in earnings and sales.

     Micro-cap 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 micro-cap company stocks are more volatile than those of larger companies.

     The price to sales ratio is a tool for calculating a stock’s valuation relative to other companies, calculated by dividing a stock’s current price by its revenue per share. The price to earnings (P/E) ratio reflects the multiple of earnings at which a stock sells. The price to book (P/B) ratio compares a stock’s market value to the value of total assets less total liabilities.

Perritt MicroCap Opportunities Fund

5

Performance

There are several ways to evaluate a fund’s historical performance. You can look at the total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund’s share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells stocks that have grown in value).

Average Annual Total Returns
Periods ended October 31, 2005

	Past 1 Year			Past 3 Years			Past 5 Years			Past 10 Years
Perritt MicroCap Opportunities Fund		24.41	%		31.63	%		20.58	%		14.76	%
Russell 2000 Index		12.08	%		21.54	%		6.75	%		9.53	%
MSCI MicroCap Index		13.25	%	NA			NA			NA
(reflects no deduction for fees and expenses)
CPI		4.35	%		3.18	%		2.74	%		2.62	%

Average annual total returns take the Fund’s actual (or cumulative) return and show you what would have happened if the Fund had performed at a constant rate each year.

Cumulative Total Returns
Periods ended October 31, 2005

	Past 1 Year			Past 3 Years			Past 5 Years			Past 10 Years
Perritt MicroCap Opportunities Fund		24.41	%		128.06	%		154.89	%		296.20	%
Russell 2000 Index		12.08	%		79.53	%		38.60	%		148.51	%
MSCI MicroCap Index		13.25	%	NA			NA			NA
(reflects no deduction for fees and expenses)
CPI		4.35	%		9.87	%		14.48	%		29.60	%

Cumulative total returns reflect the Fund’s actual performance over a set period. For example, if you invested $1,000 in a fund that had a 5% return over one year, you would end up with $1,050. You can compare the Fund’s returns to the Russell 2000 Index, which currently reflects a popular measure of the stock performance of small companies. CPI is the rate of inflation as measured by the government’s consumer price index.

This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund 10 years ago. Assumes reinvestment of dividends and capital gains, but does not reflect the effect of any applicable sales charge or redemption fees. This chart does not imply any future performance.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-331-8936.

6

Ten Largest Holdings

Newpark Resources Inc. (NR) markets its services to the oil and gas exploration and production (E&P) industry. The Company operates in west Texas, the United States mid-continent, the United States Rocky Mountains, Canada, Mediterranean Sea and Mexico. It provides, either individually or as part of a package, drilling fluids, associated engineering and technical services; mat and integrated services, and processing and disposing of E&P waste and non-hazardous industrial wastes.

Barrett Business Services, Inc. (BBSI) engages in providing staffing and professional employer organization services. The Company’s range of services in human resource management include payroll processing, employee benefits and administration, workers’ compensation coverage, risk management and workplace safety programs and human resource administration, which includes functions such as recruiting, interviewing, drug testing, hiring, placement, training and regulatory compliance.

Escala Group, Inc. (ESCL) operates as a global collectibles merchant and auction house network with operations in North America, Europe, and Asia, as well as on the Internet. The company, through its subsidiaries, specializes in auctions, merchant/dealer operations, and trading. In North America, the company engages in Internet, interactive telephone, and Internet and live simulcast-auctioning and merchandising/dealing of collectibles.

Flanders Corporation (FLDR) designs, manufactures and markets air filters and related products. The Company is focused on providing complete environmental filtration systems for end uses, ranging from controlling contaminants in residences and commercial office buildings through specialized manufacturing environments for semiconductors, pharmaceuticals, chemical, biological, radiological and nuclear processing.

Rimage Corp. (RIMG) provider of compact disc, recordable, and digital video disc, recordable, publishing systems required for producing discs with customized digital content on an on-demand basis. The Company focuses its disc publishing solutions on a set of vertical markets with special needs for customized, on-demand digital information.

NATCO Group, Inc. (NTG) provides wellhead equipment, systems, and services used in the production of oil and gas. It offers a range of production equipment, including separators that separate hydrocarbon steam into oil, water, and gas; heaters, which prevent hydrates from forming in gas streams and reduce the viscosity of oil; oil dehydration equipment that removes water from oil; gas conditioning equipment, which removes contaminants from hydrocarbon and gas streams.

Natus Medical, Inc. (BABY) engages in the development, manufacture, and marketing of products for the detection, monitoring, treatment, and tracking of common medical disorders in newborns. The company’s product line includes ALGO Newborn Hearing Screener, a product line for hearing screening; neoBLUE LED Phototherapy device, a medical device for the treatment of newborn jaundice; Neometrics line of diagnostic reagents, used for newborn metabolic screening.

Keystone Automotive Industries, Inc. (KEYS) distributes aftermarket collision repair parts to collision repair shops in the United States and Canada. It also recycles and produces chrome plated and plastic bumpers, and remanufactures alloy and steel wheels. Keystone operates a hub and spoke distribution system, including 125 distribution centers.

Michael Baker Corporation (BKR) is a global provider of engineering and energy expertise for various public and private sector clients, primarily through its subsidiaries. The Company’s primary services include engineering design for the transportation and civil infrastructure markets, operation and maintenance of oil and gas production facilities, architectural and environmental services, and construction management services for buildings and transportation projects.

Medical Action Industries, Inc. (MDCI) engages in the development, manufacture, marketing, and supply of medical and surgical disposable products. It also manufactures and supplies collection systems for the containment of medical waste; minor procedure kits and trays; and sterile operating room towels and sterile laparotomy sponges.

Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

Allocation of Portfolio Net Assets October 31, 2005

Perritt MicroCap Opportunities Fund

7

Schedule of Investments October 31, 2005

Shares		COMMON STOCKS 82.4% (a)	Value
Air Transport — 1.3%
	276,000	Air Methods Corporation *	$	3,209,880
	223,740	World Air Holdings, Inc. *		2,349,270
				5,559,150
Biotechnology — 1.5%
	206,000	Stratagene Corp. *		2,027,040
	275,000	ThermoGenesis Corp. *		1,369,500
	304,551	Trinity Biotech PLC — ADR *		2,040,492
	301,000	Zila, Inc. *		936,110
				6,373,142
Business Services — 8.5%
	340,000	24/7 Real Media, Inc. *		2,172,600
	254,400	Barrett Business Services, Inc. *		6,792,480
	211,812	BB Holdings Ltd.		1,450,912
	140,000	Click Commerce, Inc. *		2,556,400
	400,334	Escala Group, Inc. *		6,589,498
	45,000	Exponent, Inc. *		1,296,900
	33,500	Forrester Research, Inc. *		645,210
	275,000	RCM Technologies, Inc. *		1,771,000
	214,700	Rentrak Corporation *		1,754,314
	134,200	Team, Inc. *		3,408,680
	115,000	TechTeam Global, Inc. *		1,071,800
	322,000	Tier Technologies, Inc. *		2,582,440
	70,000	World Fuel Services Corporation		2,233,000
	668,530	Zomax Incorporated *		1,771,604
				36,096,838
Chemicals & Related Products — 0.8%
	303,000	Aceto Corporation		1,784,670
	137,600	Penford Corporation		1,794,304
				3,578,974
Computers & Electronics — 2.6%
	133,400	COMARCO, Inc. *		1,175,254
	75,300	Metrologic Instruments, Inc. *		1,473,621
	73,800	NovAtel, Inc. *		2,106,252
	43,900	PAR Technology Corp. *		1,070,721
	177,350	Rimage Corporation *		5,139,603
				10,965,451
Consumer Products — Distributing — 0.3%
	99,500	Collegiate Pacific, Inc.		1,139,275
Consumer Products — Manufacturing — 9.1%
	297,500	Ashworth, Inc. *		2,091,425
	233,000	BriteSmile, Inc. *		135,140
	120,500	Emak Worldwide, Inc. *		903,750
	586,400	Emerson Radio Corp. *		1,964,440
	125,000	Hartmarx Corporation *		872,500
	261,500	Hauppauge Digital, Inc. *		836,800
	88,150	Hooker Furniture Corporation		1,273,768
	104,443	Lifetime Brands, Inc.		2,441,877
	112,000	Matrixx Initiatives, Inc. *		1,874,880
	65,000	Measurement Specialties, Inc. *		1,552,850
	50,000	The Middleby Corporation *		3,625,000
	165,600	Monaco Coach Corporation		2,031,912
	40,000	Noble International, Ltd.		939,600
	110,000	Perry Ellis International, Inc. *		2,275,900
	295,200	Phoenix Footwear Group, Inc. *		1,697,400
	60,500	Q.E.P. Co., Inc. *		635,250
	32,500	RC2 Corporation *		1,136,850
	94,000	Stanley Furniture Company, Inc.		2,011,600
	118,600	Tandy Brands Accessories, Inc.		1,389,992
	80,600	Twin Disc, Incorporated		2,982,200
	203,000	Universal Electronics, Inc. *		3,517,990
	112,000	Water Pik Technologies, Inc.*		2,212,000
				38,403,124
Consumer Services — 0.6%
	111,689	LESCO, Inc. *		1,831,700
	180,000	Stewart Enterprises, Inc. — Class A		918,000
				2,749,700
Energy & Related Services — 4.9%
	1,448,000	Electric City Corp. *		1,013,600
	75,000	GulfMark Offshore, Inc. *		2,140,500
	139,500	Layne Christensen Company *		2,936,475
	162,400	Michael Baker Corporation *		4,230,520
	848,500	Newpark Resources, Inc.*		6,872,850
	100,000	OMI Corporation		1,808,000
	125,000	Willbros Group, Inc. *		1,951,250
				20,953,195
Environmental Services — 1.9%
	210,000	American Ecology Corporation		3,397,800
	128,600	Duratek, Inc. *		1,835,122
	364,200	Synagro Technologies, Inc.		1,602,480
	303,200	Versar, Inc. *		1,118,808
				7,954,210
Financial Services — 2.7%
	140,000	EZCORP, Inc. — Class A *		2,056,600
	231,419	Nicholas Financial, Inc.		2,383,616
	105,000	QC Holdings, Inc. *		1,273,650
	154,500	Sanders Morris Harris Group, Inc.		2,632,680
	135,000	TradeStation Group, Inc. *		1,347,300
	239,500	U.S.Global Investors, Inc. — Class A*		1,676,500
				11,370,346
Food — 0.9%
	241,250	Landec Corporation *		1,638,087
	341,800	Poore Brothers, Inc. *		1,199,718
	187,000	SunOpta, Inc. *		923,780
				3,761,585

The accompanying notes to financial statements are an integral part of this schedule.

8

Schedule of Investments Continued October 31, 2005

Leisure — 1.2%
	409,700	Century Casinos, Inc. *	3,080,944
	99,100	Monarch Casino & Resort, Inc. *	1,919,567
			5,000,511
Medical Supplies & Services — 7.4%
	208,804	Allied Healthcare Products, Inc. *	1,054,460
	211,100	BioScrip, Inc. *	1,266,600
	386,500	CardioTech International, Inc. *	830,975
	80,000	Healthcare Services Group, Inc.	1,491,200
	131,042	Horizon Health Corporation *	2,599,873
	55,020	Lifeline Systems, Inc. *	1,815,660
	215,831	Medical Action Industries, Inc. *	4,055,464
	214,900	Microtek Medical Holdings, Inc. *	747,852
	90,246	National Dentex Corporation *	1,759,797
	280,000	Natus Medical, Inc. *	4,589,200
	238,950	Option Care, Inc.	2,979,707
	842,200	PainCare Holdings, Inc. *	3,023,498
	100,100	Phase Forward, Inc. *	1,093,092
	97,700	Psychemedics Corporation	1,260,330
	50,000	SFBC International, Inc. *	2,132,000
	124,000	ZEVEX International, Inc. *	620,000
			31,319,708
Military Equipment — 0.2%
	47,100	The Allied Defense Group, Inc. *	1,050,330
Minerals & Resources — 2.2%
	142,300	AM Castle & Co. *	2,836,039
	57,000	Century Aluminum Company *	1,036,260
	78,000	Metal Management, Inc.	1,888,380
	900,000	Northern Orion Resources Inc. *	2,268,000
	140,000	NovaGold Resources, Inc. *	1,173,200
			9,201,879
Oil & Gas — 5.4%
	186,600	Brigham Exploration Company *	2,638,524
	120,000	Carrizo Oil & Gas, Inc. *	3,112,800
	77,500	Dawson Geophysical Co. *	2,094,825
	504,300	Gasco Energy, Inc. *	3,066,144
	54,000	Giant Industries, Inc. *	3,088,260
	224,300	NATCO Group, Inc. — Class A *	5,087,124
	216,500	TransGlobe Energy Corporation *	1,054,355
	790,000	VAALCO Energy, Inc. *	2,765,000
			22,907,032
Real Estate — 0.6%
	182,912	Monmouth Real Estate Investment Corporation — Class A	1,499,878
	24,200	Tejon Ranch Co. *	1,074,480
			2,574,358
Retail — 2.7%
	455,282	DrugMax, Inc. *	728,451
	96,100	Factory Card & Party Outlet Corp. *	789,942
	135,000	MarineMax, Inc. *	3,334,500
	48,000	Monro Muffler Brake, Inc.	1,437,600
	204,495	PC Mall, Inc. *	1,147,217
	80,000	REX Stores Corporation *	1,065,600
	92,797	Rush Enterprises, Inc. — Class A *	1,397,523
	92,318	Rush Enterprises, Inc. — Class B *	1,343,227
			11,244,060
Retail — Auto Parts — 1.4%
	151,200	Keystone Automotive Industries, Inc. *	4,325,832
	85,000	LoJack Corp. *	1,615,850
			5,941,682
Semiconductor & Related Products — 1.8%
	260,200	Actel Corporation *	3,629,790
	265,300	Catalyst Semiconductor, Inc. *	1,281,399
	524,987	FSI International, Inc. *	2,021,200
	200,000	SpatiaLight, Inc. *	888,000
			7,820,389
Software — 4.3%
	191,800	Aladdin Knowledge Systems *	3,373,762
	298,000	American Software, Inc. — Class A	1,630,060
	431,514	Captaris Inc. *	1,553,450
	156,402	Captiva Software Corporation *	3,412,692
	481,800	iPass, Inc. *	2,649,900
	230,000	MapInfo Corporation *	2,826,700
	196,710	Moldflow Corporation *	2,875,900
			18,322,464
Specialty Manufacturing — 8.9%
	127,700	Aaon, Inc. *	2,196,440
	177,400	AEP Industries, Inc. *	3,601,220
	41,000	Ameron International Corporation	1,752,750
	201,000	Apogee Enterprises, Inc.	3,292,380
	50,000	Cascade Corporation	2,435,000
	313,900	China Yuchai International Limited	2,903,575
	525,300	Flanders Corporation *	5,741,529
	151,910	Integral Systems, Inc.	3,348,096
	238,350	Modtech Holdings, Inc. *	2,414,486
	49,491	Northwest Pipe Company *	1,119,981
	157,000	Olympic Steel, Inc. *	2,791,460
	54,500	Printronix, Inc.	777,715
	56,000	Raven Industries, Inc.	1,760,640
	189,500	RF Monolithics, Inc. *	1,027,583
	259,399	Spartan Motors, Inc.	2,645,870
			37,808,725

The accompanying notes to financial statements are an integral part of this schedule.

Perritt MicroCap Opportunities Fund

9

Schedule of Investments Continued October 31, 2005

Telecommunications — 6.3%
	315,000	Digi International, Inc. *		3,342,150
	334,600	EFJ, Inc. *		3,325,924
	300,000	Gilat Satellite Networks Ltd. *		1,857,000
	312,200	Globecomm Systems Inc. *		2,282,182
	250,000	Harmonic, Inc. *		1,152,500
	108,100	Intervoice, Inc. *		1,007,492
	700,200	The Management Network Group, Inc. *		1,869,534
	220,500	RADVision Ltd. *		2,866,500
	220,700	Radyne ComStream, Inc. *		2,577,776
	850,000	Stratex Networks, Inc. *		2,176,000
	542,085	TeleCommunication Systems, Inc. — Class A *		1,409,421
	265,000	WatchGuard Technologies, Inc. *		922,200
	409,000	Westell Technologies, Inc. *		1,922,300
				26,710,979
Transportation — 4.6%
	165,000	Celadon Group, Inc. *		3,821,400
	159,000	Dynamex, Inc. *		2,610,780
	936,000	Grupo TMM S.A. — ADR — Class A*		3,510,000
	136,500	StealthGas, Inc. *		1,785,420
	162,300	Transport Corporation Of America, Inc. *		1,564,572
	167,500	USA Truck, Inc. *		3,887,675
	139,070	Vitran Corporation, Inc. *		2,407,302
				19,587,149
Other — 0.3%				1,468,170
TOTAL COMMON STOCKS
		(Cost $279,769,676)		349,862,426
WARRANTS — 0.0% (a)
	22,267	Tengasco Inc Warrants, Expiring 9/12/2008		3,117
TOTAL WARRANTS
		(Cost $0)		3,117
Principal Amount		SHORT TERM INVESTMENTS — 16.4% (a)
		COMMERCIAL PAPER - 13.9%
Automotive — 6.7%
	10,000,000	Daimler Chrysler, 3.806%, 03/20/2006		9,857,139
	5,000,000	Daimler Chrysler Holding, 3.798%, 11/16/2005		4,992,292
	9,200,000	Daimler Chrysler Holding, 3.697%, 12/20/2005		9,154,544
				24,003,975
Financial Services — 8.2%
	10,126,000	General Electric Capital, 3.797%, 01/17/2006		10,044,781
	10,000,000	General Electric Capital, 3.771%, 02/27/2006		9,878,722
	5,160,000	General Electric Capital, 4.283%, 07/11/2006		5,010,102
	10,000,000	Prudential Funding Corp., 3.978%, 04/05/2006		9,832,083
				34,765,688
TOTAL COMMERCIAL PAPER				58,769,663
Variable Rate Demand Notes — 2.5% #
	8,316,568	American Family Demand Note, 3.643%		8,316,568
	2,451,019	Wisconsin Corporate Central Credit Union Demand Note, 3.730%		2,451,019
				10,767,587
TOTAL SHORT TERM INVESTMENTS
		(Cost $69,537,250)		69,537,250
TOTAL INVESTMENTS
		(Cost $349,306,926) - 98.8%	$	419,402,793

(a)	Percentages for various classifications relate to total net assets.
*	Non-income producing security.
ADR	American Depository Receipt.
#	Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates shown are as of October 31, 2005.

The accompanying notes to financial statements are an integral part of this schedule.

10

Statement of Operations

For the Year Ended October 31, 2005
Investment Income:
Dividend income	$	847,699
Interest income		1,230,895
Other income		5,749
Total investment income		2,084,343
Expenses:
Investment advisory fee		3,002,529
Shareholder servicing		362,916
Administration fee		97,417
Reports to shareholders		79,533
Professional fees		75,972
Custodian fees		68,822
Federal & state registration fees		65,721
Fund accounting expenses		59,901
Payroll expense **		20,127
Directors’ fees and expenses		14,931
Other		11,633
Total expenses		3,859,502
Net investment loss		(1,775,159	)
Realized and Unrealized Gain on Investments:
Realized gain on investments		24,469,030
Change in unrealized appreciation on investments		34,418,656
Net realized and unrealized gain on investments		58,887,686
Net Increase in Net Assets Resulting from Operations	$	57,112,527

** Chief Compliance Officer compensation

The accompanying notes to financial statements are an integral part of this statement.

Financial Highlights

For a Fund share outstanding throughout the period

	2005			2004			2003			2002			2001
Net asset value, beginning of period	$	24.46		$	22.82		$	14.02		$	13.86		$	14.92
Income (loss) from investment operations:
Net investment loss		(0.16	) 2		(0.21	) 2		(0.16	) 2		(0.16	) 2		(0.13	) 2
Net realized and unrealized gain on investments		6.04			2.65			9.16			0.21			0.94
Total from investment operations		5.88			2.44			9.00			0.05			0.81
Less dividends and distributions:
Dividends from net investment income		—			(0.49	)		(0.09	)		—			(1.95	)
Distributions from net realized gains		(0.60	)		(0.34	)		(0.14	)		(0.11	)		—
Total dividends and distributions		(0.60	)		(0.83	)		(0.23	)		(0.11	)		(1.95	)
Redemption fees		0.01			0.03			0.03			0.22			0.08
Net asset value, end of period	$	29.75		$	24.46		$	22.82		$	14.02		$	13.86
Total return1		24.41	%		10.92	%		65.30	%		1.93	%		9.62	%
Supplemental data and ratios:
Net assets, end of period (in thousands)	$	424,466		$	192,884		$	131,279		$	14,402		$	12,979
Ratio of expenses to average net assets:		1.29	%		1.25	%		1.44	%		1.60	%		1.75	%
Ratio of net investment loss to average net assets:		(0.59	%)		(0.90	%)		(0.90	%)		(1.00	%)		(1.00	%)
Portfolio turnover rate		24.1	%		30.2	%		32.0	%		118.0	%		94.3	%

1	Total return reflects reinvested dividends but does not reflect the impact of taxes.
2	Net investment income (loss) per share has been calculated based on average shares outstanding during the period.

The accompanying notes to financial statements are an integral part of this schedule.

Perritt MicroCap Opportunities Fund

11

Statement of Changes in Net Assets

	For the year ended			For the year ended
	October 31, 2005			October 31, 2004
Operations:
Net investment loss	$	(1,775,159	)	$	(1,564,426	)
Net realized gain on investments		24,469,030			5,568,696
Net increase in unrealized appreciation on investments		34,418,656			10,624,718
Net increase in net assets resulting from operations		57,112,527			14,628,988
Dividends and Distributions to Shareholders:
Net investment income		—			(3,204,234	)
Net realized gains		(5,489,974	)		(2,211,649	)
Total dividends and distributions		(5,489,974	)		(5,415,883	)
Capital Share Transactions:
Proceeds from shares issued (11,070,763 and 6,843,667 shares, respectively)		306,124,558			164,942,531
Cost of shares redeemed (4,881,963 and 4,910,684 shares, respectively)		(131,306,552	)		(117,461,224	)
Reinvestment of distributions (189,916 and 199,672 shares, respectively)		5,011,889			4,708,272
Redemption fees		129,159			202,114
Net increase in net assets from capital share transactions		179,959,054			52,391,693
Total Increase in Net Assets		231,581,607			61,604,798
Net Assets
Beginning of the Period		192,884,262			131,279,464
End of the Period (including undistributed net investment loss of $8,786,727 and $7,011,568, respectively)	$	424,465,869		$	192,884,262

The accompanying notes to financial statements are an integral part of these statements.

Statement of Assets and Liabilities

	October 31, 2005
Assets:
Investments at fair value (cost $349,306,926)	$	419,402,793
Dividends and interest receivable		62,675
Receivable for investments sold		334,866
Receivable for fund shares issued		8,438,610
Other assets		16,650
Total Assets		428,255,594
Liabilities:
Payable for investments purchased		3,172,521
Payable for fund shares purchased		87,935
Payable to Advisor		348,557
Accrued expenses and other liabilities		180,712
Total Liabilities		3,789,725
Net Assets	$	424,465,869
Net Assets Consist of:
Capital stock	$	333,622,650
Accumulated net investment loss		(8,786,727	)
Accumulated undistributed net realized gain on investments sold		29,534,079
Net unrealized appreciation on investments		70,095,867
Total Net Assets	$	424,465,869
Capital shares issued and outstanding, $0.01 par value, 20,000,000 shares authorized		14,265,406
Net asset value price per share	$	29.75

The accompanying notes to financial statements are an integral part of this statement.

12

Notes to Financial Statements

October 31, 2005

The Perritt MicroCap Opportunities Fund, Inc., which consists solely of the Perritt MicroCap Opportunities Fund (the “Fund”), was formed under the laws of the state of Maryland, and is registered under the Investment Company Act of 1940 as an open-end diversified management investment company.

1. Summary of Significant Accounting Policies

a.	Listed securities are valued at the last sale price reported by the principal security exchange on which the issue is traded, or if no sale is reported, the mean between the latest bid and ask price. Securities traded over-the-counter are valued at the NASDAQ Official Closing Price. Demand notes, commercial paper and U.S. Treasury Bills are valued at amortized cost, which approximates fair value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Directors of the Fund. Cost amounts, as reported on the statement of assets and liabilities and schedule of investments, are the same for federal income tax purposes.
b.	Net realized gains and losses on securities are computed using the first-in, first-out method.
c.	Dividend income is recognized on the ex-dividend date, and interest income is recognized on the accrual basis. Discounts and premiums on securities purchased are amortized over the life of the respective securities. Investment and shareholder transactions are recorded on trade date. Dividends to shareholders are recorded on the ex-dividend date.
d.	Provision has not been made for federal income tax since the Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies.
e.	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

2. Investment Advisory Agreement

The Fund has an investment advisory agreement with Perritt Capital Management, Inc. (“PCM”), with whom certain officers and directors of the Fund are affiliated. Under the terms of the agreement, the Fund pays PCM a monthly investment advisory fee at the annual rate of 1% of the daily net assets of the Fund. At October 31, 2005, the Fund had fees due PCM of $348,557. For the year ended October 31, 2005, the Fund incurred advisory fees of $3,002,529 pursuant to the investment advisory agreement.

PCM manages the Fund’s investments subject to the supervision of the Fund’s Board of Directors. PCM is responsible for investment decisions and supplies investment research and portfolio management. Under the investment advisory agreement, PCM, at its own expense and without reimbursement from the Fund, will furnish office space and all necessary office facilities, equipment and 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.

The investment advisory agreement requires PCM to reimburse the Fund in the event the Fund’s expenses, as a percentage of the average net asset value, exceed the most restrictive percentage, as these terms are defined. The most restrictive percentage for the year ended October 31, 2005 was 1.75%. For the year ended October 31, 2005, no expenses were required to be reimbursed by PCM.

3. Investment Transactions

Purchases and sales of securities for the year ended October 31, 2005 aggregated $173,377,770 and $63,381,051, respectively.

At October 31, 2005, the Fund had no capital loss carry forwards.

At October 31, 2005, the components of capital on a tax basis were as follows:

Cost of Investments	$	349,306,926
Gross unrealized appreciation	$	91,055,785
Gross unrealized depreciation		(20,959,918	)
Net unrealized appreciation	$	70,095,867
Undistributed net investment loss	$	(8,786,727	)
Undistributed capital gains		29,534,079
Total undistributed earnings	$	20,747,352

The tax character of distributions paid during the years ended October 31, 2005 and 2004 were as follows:

	Year Ended		Year Ended
	October 31, 2005		October 31, 2004
Ordinary Income	$	—	$	3,204,234
Long Term Capital Gain		23,803,063		2,211,649

4. Subsequent Event

On November 19, 2005, the Fund’s Board of Directors approved a resolution authorizing Fund management to close the Fund to most new Investors, effective December 7, 2005.

Perritt MicroCap Opportunities Fund

13

Report of Independent Registered
Public Accounting Firm

Shareholders and Board of Directors of Perritt MicroCap Opportunities Fund

We have audited the accompanying statement of assets and liabilities of the Perritt MicroCap Opportunities Fund, Inc. (the “Fund”), including the schedule of investments, as of October 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Perritt MicroCap Opportunities Fund, Inc. as of October 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.

Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
December 2, 2005

14

Expense Example

October 31, 2005

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs consisting of redemption fees on shares held less than three months; and (2) ongoing costs, including management fees; shareholder servicing fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 — October 31, 2005).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. Although the Fund charges no sales load or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, currently a $15.00 fee is charged by the Fund’s transfer agent. You will be charged a transaction fee equal to 2.00% of the net amount of the redemption if you redeem your shares within three months of purchase. IRA accounts will be charged a $15.00 annual maintenance fee. To the extent the Fund invests in shares of other investment companies as part of its investment strategy, you will indirectly bear your proportionate share of any fees and expenses charged by the underlying funds in which the Fund invests in addition to the expenses of the Fund. Actual expenses of the underlying funds are expected to vary among the various underlying funds. These expenses are not included in the example below. The example below includes, but is not limited to, management fees, shareholder servicing fees, fund accounting, custody and transfer agent fees. However, the example below does not include portfolio trading commissions and related expenses, interest expense and other extraordinary expenses as determined under generally accepted accounting principles. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Beginning		Ending		Expenses Paid
	Account Value		Account Value		During Period
	5/1/05		10/31/05		5/1/05 - 10/31/051
Actual	$	1,000.00	$	1,167.10	$	7.05
Hypothetical (5% return before expenses)		1,000.00		1,018.70		6.56

1 Expenses are equal to the Fund’s annualized expense ratio of 1.29%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

Perritt MicroCap Opportunities Fund

15

     The Perritt Emerging Opportunities Fund finished its first fiscal year with a 17.3 percent return, which compares to the MSCI MicroCap Index return of 13.3 percent. The Russell 2000 Index rose by 12.1 percent during the same period. The complete performance results can be viewed on page 18. We have included both the Russell 2000 Index and the MSCI MicroCap Index to compare performance of the Fund to the small-cap and micro-cap segment of the marketplace. However, we believe the MSCI MicroCap Index is a better proxy of performance for the Fund, mainly due to the size of companies in each index.

     During the past year, we sold 17 positions from the Fund. Three of those positions, Boston Acoustics, Nortran and Transport Corporation of America, were sold due to buyout offers. Seven of the positions were sold due to lofty valuations and another six issues were sold due to disappointing operating results. Lastly, Nutrisystem (NTRI) was sold because the company’s market capitalization became too large. In fact, Nutrisystem’s stock rose by more than 10-fold in less than one year. While we certainly would like to have all our investments perform so well, we realize this is quite rare. However, we must acknowledge our nine-factor model and one of our analysts, Matt Brackmann, for uncovering this gem.

     We use a proprietary nine-factor test to select stocks. To pass this test, a company must possess a strong balance sheet, positive cash flow and expanding profitability. If a company passes the test, the Perritt team conducts more detailed analysis of the company and its management team. We also evaluate the company’s financial characteristics and current valuations, such as price-to-sales, price-to-earnings and price-to-cash flow.

     Micro-cap companies may get a unique operating edge next year. As some of you may know, the Sarbanes-Oxley Act of 2002 was introduced in the wake of scandals at Enron and WorldCom to bolster confidence in U.S. business and capital markets. Section 404 of the Act requires firms to assess the effectiveness of their internal controls and financial-reporting procedures and have an external auditor check that assessment. Since the Act came into effect in 2004, there has been an increasing level of complaints from businesses about the cost of complying with the law, especially for smaller companies. In response, the Securities and Exchange Commission (SEC) established a committee in late 2004 to examine Sarbanes-Oxley’s impact on small businesses.

     According to the preliminary recommendations of the SEC Subcommittee on Internal Controls, micro-cap companies with a market capitalization of less than about $100 million to $125 million and annual revenue below $125 million should be exempt from Sarbanes-Oxley Section 404. Small companies with a market cap of less than $750 million and sales below $250 million should be exempt from the external audit requirement of Sarbanes-Oxley 404. If the SEC accepts the recommendations (a vote on final recommendations is expect-

16

ed in the first half of 2006), the changes would make life as a public company much easier and cheaper. Given some of the research we have done about the cost, the savings could be significant for smaller companies.

     As of October 31, 2005, the Fund’s portfolio contained the common stocks of 112 companies, 71 of which were added during the year. The Fund’s largest holdings and a detailed description can be found on page 19 of this report. Based on our earnings estimate, the Fund’s portfolio is trading at slightly less than 19 times 2005 earnings and 15 times 2006 earnings. The average stock in the portfolio is priced at 0.8 times revenue and the median market capitalization is approximately $65 million.

     As we have discussed before, the reported scandals in the mutual fund industry have spawned a host of new rules and regulations, which in turn have increased the cost to fund shareholders. In order to comply with the new rules and regulations, we have increased both the Fund’s compliance staff and outsourced services. As a result, the Fund’s expense ratio increased to 2.22 percent. Our challenge is to grow assets to bring the expense ratio back below 2.00 percent.

     While the Perritt MicroCap Opportunities Fund is closed to most new investors (as of December 7, 2005), the Perritt Emerging Opportunities Fund remains open to all investors. Given the fact that we hope to maintain a median market capitalization of $100 million or less, this Fund may also be forced to close to new investors.

     Thank you for investing in this truly unique product. If you have any questions or comments about this report or your investment in the Perritt Emerging Opportunities Fund, please call us toll-free at (800)331-8936 or visit our new web site at www.perrittmutualfunds.com.

Michael Corbett
President

     Small- and Medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Growth stocks typically are more volatile than value stocks; however, value stocks have a lower expected growth rate in earnings and sales.

     Micro-cap 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 micro-cap company stocks are more volatile than those of larger companies.

     The price to sales ratio is a tool for calculating a stock’s valuation relative to other companies, calculated by dividing a stock’s current price by its revenue per share. The price to earnings (P/E) ratio reflects the multiple of earnings at which a stock sells. The price to book (P/B) ratio compares a stock’s market value to the value of total assets less total liabilities.

Perritt MicroCap Opportunities Fund

17

Performance

There are several ways to evaluate a fund’s historical performance. You can look at the total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund’s share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells stocks that have grown in value).

Average Annual Total Returns

Periods ended October 31, 2005

	Past 1 Year			Since Inception
Perritt Emerging Opportunities Fund		17.26	%		16.35	%
Russell 2000 Index		12.08	%		17.19	%
MSCI MicroCap Index		13.25	%		17.66	%
(reflects no deduction for fees and expenses)
CPI		4.35	%		4.36	%

Average annual total returns take the Fund’s actual (or cumulative) return and show you what would have happened if the Fund had performed at a constant rate each year.

Cumulative Total Returns

Periods ended October 31, 2005

	Past 1 Year			Since Inception
Perritt Emerging Opportunities Fund		17.26	%		19.38	%
Russell 2000 Index		12.08	%		20.39	%
MSCI MicroCap Index		13.25	%		20.95	%
(reflects no deduction for fees and expenses)
CPI		4.35	%		5.12	%

Cumulative total returns reflect the Fund’s actual performance over a set period. For example, if you invested $1,000 in a fund that had a 5% return over one year, you would end up with $1,050. You can compare the Fund’s returns to the Russell 2000 Index, which currently reflects a popular measure of the stock performance of small companies. CPI is the rate of inflation as measured by the government’s consumer price index.

This chart illustrates the performance of a hypothetical $10,000 investment made in the Fund at inception (August 27, 2004) through October 31, 2005. Assumes reinvestment of dividends and capital gains, but does not reflect the effect of any applicable sales charge or redemption fees. This chart does not imply any future performance.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-331-8936.

18

Ten Largest Holdings

PDG Environmental, Inc. (PDGE) through its wholly owned subsidiaries, provides environmental and specialty contracting services in the United States. Its services include asbestos and lead abatement, insulation, microbial remediation, disaster response, loss mitigation and reconstruction, and demolition and related services. The company’s asbestos abatement services include removal and disposal, enclosure, and encapsulation of asbestos abatement.

Twin Disc, Inc. (TWIN) engages in the design, manufacture, and sale of heavy duty off-highway power transmission equipment primarily in the United States. Its products include hydraulic torque converters, power-shift transmissions, marine transmissions and surface drives, universal joints, gas turbine starting drives, power take-offs and reduction gears, industrial clutches, and fluid couplings and control systems.

Waters Instruments, Inc. (WTRS)¹ engages in the design, manufacture, and marketing of electronic perimeter fence systems and medical products primarily in the United States and the United Kingdom. Its products include energizers, high tensile fence systems, insulators, poly wire, tape and rope, automatic gate openers and perimeter security fence systems for human and animal control, containment, and deterrent.

Hurco Companies, Inc. (HURC) is an industrial technology company, engages in the design and production of interactive, personal computer-based, computer control systems and software, and computerized machine tools for sale to the metal working industry. The company’s primary products consist of general purpose computerized machine tools for the metal cutting industry, principally vertical machining centers.

Collegiate Pacific, Inc. (BOO) is a marketer, manufacturer and distributor of sporting goods and equipment, team uniforms, and physical education, recreational and leisure products primarily to the institutional market in the United States. The institutional market consists of youth sports programs, park and recreational organizations, schools, colleges, churches, government agencies, athletic teams, athletic clubs and dealers.

Ready Mix, Inc. (RMX) provides ready-mix concrete products to the construction industry. It operates two ready-mix concrete plants in Phoenix, Arizona; two ready-mix concrete plants in Las Vegas, Nevada; a ready-mix plant in Moapa, Nevada; and a sand and gravel crushing and screening facility in Moapa. The company also manufactures decorative rock products used primarily for landscaping.

Emerson Radio Corp. (MSN) designs, sources, imports, markets, and sells video products, including televisions, digital video discs, video cassette recorders and set top boxes. Its audio products include portable stereo systems, digital clock radios, shelf stereo systems and specialty clock radios.

Far East Energy Corp. (FEEC) is a development stage company that engages in the acquisition, exploration, development, production, and sale of coalbed methane gas (CBM). It explores for CBM in the Guizhou and Yunnan Provinces of China through production-sharing contracts and farmout agreements covering approximately 1.3 million acres.

CE Franklin LTD. (CFK) distributes products and related services to the Canadian oil and gas industry, including projects involving drilling and completions, production, and maintenance and capital construction. The company distributes pipe, valves, flanges, fittings, production equipment, and other supplies to producers of oil and gas. It also offers general oilfield supplies to the oilsands, refining, heavy oil and petrochemical, and nonoilfield related industries, such as forestry and mining industries.

Featherlite, Inc. (FTHR) engages in the design, manufacture, and marketing of aluminum trailers and luxury motorcoaches. The company operates through two divisions, Specialty Trailer and Motorcoach divisions. The Specialty Trailer division trailers are for specific hauling purposes rather than for general commercial freight. The Motorcoach division manufactures luxurious recreational vehicles, including bus conversions made according to customer specifications.

Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

1     Name change approved October 27, 2005, effective November 1, 2005 to Zareba Systems, Inc. (ZRBA).

Allocation of Portfolio Net Assets October 31, 2005

Perritt Emerging Opportunities Fund

19

Schedule of Investments October 31,2005

Shares		COMMON STOCKS-93.6% (a)	Value
Air Transport — 2.3%
	40,700	AeroCentury Corp. *	$	141,229
	35,000	Air Methods Corporation *		407,050
	20,000	World Air Holdings, Inc. *		210,000
				758,279
Building Materials — 2.4%
	53,500	MFRI, Inc. *		319,395
	40,000	Ready Mix, Inc. *		471,200
				790,595
Business Services — 7.8%
	50,000	24/7 Real Media, Inc. *		319,500
	5,500	Barrett Business Services, Inc. *		146,850
	406,667	BrandPartners Group, Inc. *		268,400
	48,000	Imergent, Inc. *		151,680
	162,000	Newtek Business Services, Inc. *		322,299
	45,000	PacificNet, Inc. *		371,250
	47,300	Perceptron, Inc. *		307,450
	35,100	RCM Technologies, Inc. *		226,044
	25,805	Rentrak Corporation *		210,853
	80,000	Zomax Incorporated *		212,000
				2,536,326
Chemical Manufacturing — Specialty - 1.9%
	100,000	Flexible SolutionsR (Acquired 4/13/05, Cost $375,000)		355,000
	48,000	TOR Minerals International, Inc. *		243,360
				598,360
Computers & Electronics — 6.5%
	91,300	ADDvantage Technologies Group, Inc. *		333,245
	47,000	COMARCO, Inc. *		414,070
	15,000	Cyberoptics Corp. *		198,600
	18,500	Napco Security Systems, Inc. *		216,265
	10,000	Rimage Corp. *		289,800
	143,000	Socket Communications, Inc. *		170,170
	47,500	Spectrum Control, Inc. *		297,825
	25,000	TransAct Technologies Incorporated *		182,000
				2,101,975
Consumer Products — Distributing — 2.5%
	41,700	Collegiate Pacific, Inc.		477,465
	77,700	Image Entertainment, Inc. *		319,347
				796,812
Consumer Products — Manufacturing — 9.0%
	42,527	Emak Worldwide Inc. *		318,953
	134,800	Emerson Radio Corp. *		451,580
	55,100	Hauppauge Digital, Inc. *		176,320
	73,500	International Absorbents, Inc. *		231,525
	240,000	Mad Catz Interactive, Inc. *		156,000
	18,000	Matrixx Initiatives, Inc. *		301,320
	17,100	Motorcar Parts of America, Inc. *		166,896
	23,900	Q.E.P. Co., Inc. *		250,950
	23,000	Tandy Brands Accessories, Inc.		269,560
	16,300	Twin Disc, Incorporated		603,100
				2,926,204
Consumer Services — 0.8%
	112,600	Internet America, Inc. *		48,418
	35,000	Pacific Internet Ltd. *		220,500
				268,918
Energy & Related Services — 5.1%
	60,000	Deli SolarR* (Acquired 3/15/05, Cost $210,000)		405,000
	60,000	Deli SolarR* (Acquired 10/31/05, Cost $231,000)		405,000
	344,940	Electric City Corp. *		241,458
	25,000	Mitcham Industries, Inc. *		297,250
	41,700	TGC Industries, Inc. *		291,483
				1,640,191
Environmental Services — 4.0%
	320,000	PDG Environmental, Inc. *		614,400
	40,000	Synagro Technologies, Inc.		176,000
	347,166	TurboSonic Technologies, Inc. *		253,431
	64,000	Versar, Inc. *		236,160
				1,279,991
Financial Services — 1.9%
	34,000	Nicholas Financial, Inc.		350,200
	40,000	U.S. Global Investors, Inc. - Class A *		280,000
				630,200
Food — 3.1%
	32,900	Armanino Foods of Distinction, Inc.		88,830
	43,300	Landec Corporation *		294,007
	52,500	Monterey Gourmet Foods Inc. *		225,750
	200,000	New Dragon Asia Corp. *		388,000
				996,587
Leisure — 3.8%
	43,600	Century Casinos, Inc. *		327,872
	550,000	IA Global, Inc. *		181,500
	42,500	Red Lion Hotels Corporation *		328,525
	42,000	The Sands Regent *		399,462
				1,237,359
Medical Supplies & Services — 10.7%
	69,100	Allied Healthcare Products, Inc. *		348,955
	43,000	American Medical Alert Corp. *		274,340
	5,300	Birner Dental Management Services, Inc.		107,007
	73,000	CardioTech International, Inc. *		156,950
	1,006,069	Curon Medical, Inc. *		291,760
	157,000	Health Fitness Corp. *		306,150
	74,500	LMS Medical Systems Inc. *		115,475
	53,500	MEDTOX Scientific, Inc. *		347,215
	70,000	Microtek Medical Holdings, Inc. *		243,600
	21,000	National Dentex Corporation *		409,500
	139,310	Pharsight Corporation *		202,000
	55,498	Waters Instruments, Inc.1		490,047
	31,609	ZEVEX International, Inc. *		158,045
				3,451,044

The accompanying notes to financial statements are an integral part of this schedule.

20

Schedule of Investments Continued October 31, 2005

Minerals and Resources — 2.5%
	31,000	Empire Resources, Inc.		220,100
	405,000	Golden Odyssey Mining Inc. *		64,800
	195,000	Uranium Resources, Inc. *		120,900
	93,000	Vista Gold Corp. *		391,530
				797,330
Oil & Gas — 4.2%
	41,000	CE Franklin Ltd. *		424,350
	250,000	Far East Energy Corp.R* (Acquired 12/31/04, Cost $200,000)		437,500
	50,000	Far East Energy Corp.R* (Acquired 10/31/05, Cost $75,000)		87,500
	40,000	Matrix Service Company *		393,200
				1,342,550
Retail — 5.4%
	39,000	Cost-U-Less, Inc. *		234,000
	99,500	DrugMax, Inc. *		159,200
	36,700	Factory Card & Party Outlet Corp. *		301,674
	43,900	GTSI Corp. *		357,346
	49,100	Hastings Entertainment, Inc. *		273,978
	15,400	Touchstone Applied Science Associates, Inc. *		66,990
	200,000	Western Power & Equipment Corp. *		349,000
				1,742,188
Semiconductor Related Products — 3.7%
	31,000	Advanced Power Technology, Inc. *		294,500
	48,000	Catalyst Semiconductor, Inc. *		231,840
	70,000	FSI International, Inc. *		269,500
	44,100	Sparton Corporation		412,776
				1,208,616
Specialty Manufacturing — 8.8%
	39,000	Amerigon Incorporated *		230,100
	56,000	Core Molding Technologies, Inc. *		249,200
	104,200	Featherlite, Inc. *		416,800
	20,000	Hawk Corporation — Class A *		260,000
	27,000	Hurco Companies, Inc. *		481,410
	47,000	LMI Aerospace, Inc. *		340,280
	18,500	Modtech Holdings, Inc. *		187,405
	40,000	RF Monolithics, Inc. *		216,904
	14,500	Universal Stainless & Alloy Products, Inc.*		216,050
	40,000	Veri-Tek International Corp. *		246,000
				2,844,149
Technology — 0.2%
	60,000	AstradaR* (Acquired 4/26/05, Cost $210,000)		63,600
Telecommunications — 5.6%
	37,350	EFJ, Inc. *		371,259
	54,855	Globecomm Systems Inc. *		400,990
	17,500	Interphase Corporation *		71,750
	31,000	Micronetics, Inc. *		282,100
	18,000	Radyne ComStream, Inc. *		210,240
	50,000	RELM Wireless Corporation *		256,500
	90,000	TeleCommunication Systems, Inc. — Class A *		234,000
				1,826,839
Transportation — 0.9%
	10,000	Maritrans, Inc.		298,200
Other — 0.5%				141,787
TOTAL COMMON STOCKS
		(Cost $29,527,661)		30,278,100
Shares		WARRANTS — 0.0% (a)
		Warrants - 0.0%
	60,000	Astrada Warrants, Expiring 04/15/2010 *		—
	100,000	Flexible Solutions Warrants, Expiring 04/08/2009 *		—
TOTAL WARRANTS (Cost $0)				—
Principal Amount		CORPORATE BONDS — 0.8% (a)
Real Estate — 0.8%
$	250,000	Monmouth Capital Corporation® (Acquired 3/30/05, Cost $250,000) 8.000%, Due 03/30/2015		250,000
TOTAL CORPORATE BONDS
		(Cost $250,000)		250,000
SHORT TERM INVESTMENTS — 1.8% (a)
Variable Rate Demand Notes — 1.8% #
	589,879	American Family Demand Note, 3.643%		589,879
TOTAL SHORT TERM INVESTMENTS
		(Cost $589,879)		589,879
TOTAL INVESTMENTS
		(Cost $30,367,540) — 96.2%	$	31,117,979

1	Name change approved October 27, 2005, effective November 1, 2005 to Zareba Systems, Inc. (ZRBA).
(a)	Percentages for various classifications relate to total net assets.
R	Restricted under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2005 the value of restricted securities amounted to $2,003,600 or 6.2% of total net assets.
*	Non-income producing security.
ADR	American Depository Receipt.
#	Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates shown are as of October 31, 2005.

The accompanying notes to financial statements are an integral part of this schedule.

Perritt Emerging Opportunities Fund

21

Statement of Operations

	For the Year Ended October 31, 2005
Investment Income:
Dividend income	$	41,393
Interest income		196,648
Total investment income		238,041
Expenses:
Investment advisory fee		324,866
Offering expenses		78,347
Audit fees		39,649
Custodian fees		31,415
Fund accounting expenses		28,708
Legal fees		19,609
Shareholder servicing		15,919
Administration fee		12,148
Federal & state registration fees		9,380
Reports to shareholders		7,201
Directors’ fees and expenses		5,605
Payroll expense **		1,845
Other		1,521
Total expenses		576,213
Net investment loss		(338,172	)
Realized and Unrealized Gain on Investments:
Realized gain on investments		1,054,935
Change in unrealized appreciation on investments		742,376
Net realized and unrealized gain on investments		1,797,311
Net Increase in Net Assets Resulting from Operations	$	1,459,139

** Chief Compliance Officer compensation

The accompanying notes to financial statements are an integral part of this statement.

Financial Highlights

For a Fund share outstanding throughout the period

	For the Year Ended			For the period August 27, 20041
	October 31, 2005			through October 31, 2004
Net asset value, beginning of period	$	10.17		$	10.00
Income (loss) from investment operations:
Net investment loss		(0.15	) 2		(0.01	) 2
Net realized and unrealized gain on investments		1.92			0.15
Total from investment operations		1.77			0.14
Less dividends and distributions:
Dividends from net investment income		(0.01	)		—
Distributions from net realized gains		—			—
Total dividends and distributions		(0.01	)		—
Redemption fees		—	#		0.03
Net asset value, end of period	$	11.93		$	10.17
Total return3		17.26	%		1.70	% 4
Supplemental data and ratios:
Net assets, end of period (in thousands)	$	32,348		$	2,996
Ratio of expenses to average net assets:
Before waiver and reimbursement		2.22	%		17.32	% 5
After waiver and reimbursement		2.22	%		1.95	% 5
Ratio of net investment loss to average net
assets:
Before waiver and reimbursement		(1.30	%)		(16.23	%) 5
After waiver and reimbursement		(1.30	%)		(0.86	%) 5
Portfolio turnover rate		64.41	%		1.46	%

1	Commencement of operations.
2	Net investment income (loss) per share has been calculated based on average shares outstanding during the period.
3	Total return reflects reinvested dividends but does not reflect the impact of taxes.
4	Not annualized — calculated since August 27, 2004.
5	Annualized.
#	Amount is less than $0.01 per share.

The accompanying notes to financial statements are an integral part of this schedule.

22

Statement of Changes in Net Assets

	For the year ended			For the period August 27, 20041
	October 31, 2005			through October 31, 2004
Operations:
Net investment loss	$	(338,172	)	$	(2,253	)
Net realized gain (loss) on investments		1,054,935			(623	)
Net increase in unrealized appreciation on investments		742,376			8,063
Net increase in net assets resulting from operations.		1,459,139			5,187
Dividends and Distributions to Shareholders:
Net investment income		(3,035	)		—
Net realized gains		—			—
Total dividends and distributions		(3,035	)		—
Capital Share Transactions:
Proceeds from shares issued (4,378,328 and 308,172 shares, respectively)		49,910,457			3,120,027
Cost of shares redeemed (1,959,157 and 26,585 shares, respectively)		(21,990,691	)		(264,408	)
Reinvestment of distributions (247 and 0 shares, respectively)		2,719			—
Redemption fees		2,902			5,288
Net increase in net assets from capital share transactions		27,925,387			2,860,907
Total Increase in Net Assets		29,381,491			2,866,094
Net Assets
Beginning of the Period		2,966,094			100,000
End of the Period (including undistributed net investment loss of $343,460 and $2,253, respectively)	$	32,347,585		$	2,966,094

1 Commencement of operations.

The accompanying notes to financial statements are an integral part of these statements.

Statement of Assets and Liabilities

	October 31, 2005
Assets:
Investments at fair value (cost $30,367,540)	$	31,117,979
Interest receivable		13,695
Receivable for investments sold		1,415,852
Receivable for fund shares issued		261,444
Other assets		23,298
Total Assets		32,832,268
Liabilities:
Payable for investments purchased		358,981
Payable for fund shares purchased		40,000
Payable to Advisor		39,865
Accrued expenses and other liabilities		45,837
Total Liabilities		484,683
Net Assets	$	32,347,585
Net Assets Consist of:
Capital stock	$	30,886,294
Accumulated net investment loss		(343,460	)
Accumulated undistributed net realized gain on investments sold		1,054,312
Net unrealized appreciation on investments		750,439
Total Net Assets	$	32,347,585
Capital shares issued and outstanding, $0.00001 par value, 100,000,000 shares authorized		2,711,005
Net asset value price per share	$	11.93

The accompanying notes to financial statements are an integral part of this statement.

Perritt Emerging Opportunities Fund

23

Notes to Financial Statements

October 31, 2005

Perritt Funds, Inc., which consists solely of the Perritt Emerging Opportunities Fund (the “Company”), was formed under the laws of the state of Maryland, and is registered under the Investment Company Act of 1940 as an open-end diversified management investment company.

1. Summary of Significant Accounting Policies

a.	Listed securities are valued at the last sale price reported by the principal security exchange on which the issue is traded, or if no sale is reported, the mean between the latest bid and ask price. Securities traded over-the-counter are valued at the NASDAQ Official Closing Price. Demand notes, commercial paper and U.S. Treasury Bills are valued at amortized cost, which approximates fair value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Directors of the Company. Cost amounts, as reported on the statement of assets and liabilities and schedule of investments, are the same for federal income tax purposes.
b.	Net realized gains and losses on securities are computed using the first-in, first-out method.
c.	Dividend income is recognized on the ex-dividend date, and interest income is recognized on the accrual basis. Discounts and premiums on securities purchased are amortized over the life of the respective securities. Investment and shareholder transactions are recorded on trade date. Dividends to shareholders are recorded on the ex-dividend date.
d.	Provision has not been made for federal income tax since the Company has elected to be taxed as a “regulated investment company” and intends to distribute substantially all income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies.
e.	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

2.	Investment Advisory Agreement
	The Company has an investment advisory agreement with Perritt Capital Management, Inc. (“PCM”), with whom certain officers and directors of the Company are affiliated. Under the terms of this agreement, the Company pays an annual investment advisory fee equal to 1.25% of its average net assets less than or equal to $100 million; 1.00% with respect to average net assets in excess of $100 million and less than or equal to $200 million; and 0.50% with respect to average net assets in excess of $200 million. At October 31, 2005, the Company had fees due PCM of $39,865. For the year ended October 31, 2005, the Company incurred advisory fees of $324,866 pursuant to the investment advisory agreement.
	PCM manages the Company’s investments subject to the supervision of the Company’s Board of Directors. PCM is responsible for investment decisions and supplies investment research and portfolio management. Under the investment advisory agreement, PCM, at its own expense and without reimbursement from the Company, will furnish office space and all necessary office facilities, equipment and personnel for making the investment decisions necessary for managing the Company and maintaining its organization, will pay the salaries and fees of all officers and directors of the Company (except the fees paid to disinterested directors) and will bear all sales and promotional expenses of the Company. Any reimbursement of expenses by PCM (whether required by state law or voluntary on the part of PCM) shall be made on a monthly basis and will be paid to the Fund by a reduction in PCM’s advisory fee, subject to later adjustment month by month for the remainder of the Company’s fiscal year if accrued expenses thereafter fall below the expense limitation. For the year ended October 31, 2005, $33,681 of expenses were waived by PCM and PCM recouped $33,681 of such expenses. There were no cumulative expenses subject to recapture pursuant to the aforementioned conditions at October 31, 2005.
3.	Investment Transactions
	Purchases and sales of securities, excluding short-term investments, for the year ended October 31, 2005 aggregated $39,295,613 and $12,172,827, respectively. At October 31, 2005, the Fund had no capital loss carry forwards.
	At October 31, 2005, the components of capital on a tax basis were as follows:

Cost of investments	$	30,367,540
Gross unrealized appreciation	$	4,188,670
Gross unrealized depreciation		(3,438,231	)
Net unrealized appreciation	$	750,439
Undistributed net investment loss	$	(343,460	)
Undistributed capital gains		1,059,312
Total undistributed earnings	$	710,852

The tax character of distributions paid during the year ended October 31, 2005 and the period August 27, 2004 through October 31, 2004 were as follows:

			August 27, 2004
	Year Ended		through
	October 31, 2005		October 31, 2004
Ordinary Income	$	622,754	$	3,035
Long Term Capital Gain.		33,229		—

4. Restricted Securities

The Company owns investment securities which are unregistered and thus restricted as to resale. These securities are valued by the Company after giving due consideration to pertinent factors including recent private sales, market conditions and the issuer’s financial performance. Where future disposition of these securities requires registration under the Securities Act of 1933, the Company has the right to include these securities in such registration, generally without cost to the Company. The Company has no right to require registration of unregistered securities. At October 31, 2005, the Company held restricted securities with an aggregate market value of $2,003,600 representing 6.2% of total net assets of the Company.

24

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors of Perritt Emerging Opportunities Fund

We have audited the accompanying statement of assets and liabilities of the Perritt Emerging Opportunities Fund (the “Fund”), a series of Perritt Funds, Inc., including the schedule of investments, as of October 31, 2005, and the related statement of operations for the year then ended, the statement or changes in net assets and the financial highlights for the year ended October 31, 2005 and the period from August 27, 2004 (commencement of operations) to October 31, 2004. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Perritt Emerging Opportunities Fund as of October 31, 2005, and the results of its operations for the year then ended, changes in its net assets and the financial highlights for the year ended October 31, 2005 and the period from August 27, 2004 (commencement of operations) to October 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
December 2, 2005

Perritt MicroCap Opportunities Fund

25

Expense Example

October 31, 2005

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs consisting of redemption fees on shares held less than three months; and (2) ongoing costs, including management fees; shareholder servicing fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 - October 31, 2005).

Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. Although the Fund charges no sales load or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, currently a $15.00 fee is charged by the Fund’s transfer agent. You will be charged a transaction fee equal to 2.00% of the net amount of the redemption if you redeem your shares within three months of purchase. IRA accounts will be charged a $15.00 annual maintenance fee. To the extent the Fund invests in shares of other investment companies as part of its investment strategy, you will indirectly bear your proportionate share of any fees and expenses charged by the underlying funds in which the Fund invests in addition to the expenses of the Fund. Actual expenses of the underlying funds are expected to vary among the various underlying funds. These expenses are not included in the example below. The example below includes, but is not limited to, management fees, shareholder servicing fees, fund accounting, custody and transfer agent fees. However, the example below does not include portfolio trading commissions and related expenses, interest expense and other extraordinary expenses as determined under generally accepted accounting principles. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Beginning		Ending		Expenses Paid
	Account Value		Account Value		During Period
	5/1/05		10/31/05		5/1/05 - 10/31/051
Actual	$	1,000.00	$	1,113.90	$	11.83
Hypothetical (5% return before expenses)		1,000.00		1,014.01		11.27

1 Expenses are equal to the Fund’s annualized expense ratio of 2.22%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

26

Directors and Officers

Perritt MicroCap Opportunities Fund & Perritt Emerging Opportunities Fund

The funds are governed by a Board of Directors that meets regularly to review investments, performance, expenses, and other business matters, and is responsible for protecting the interests of shareholders. The majority of the funds’ directors are independent of Perritt Capital Management, Inc. “Inside” directors are officers of Perritt Capital Management. The Board of Directors elects the funds’ officers, who are listed below. The business address of each director and officer is 300 South Wacker Drive, Suite 2880, Chicago, IL 60606.

Independent Directors

Dianne C. Click, 43

MicroCap — Indefinite Term 10 years of service

Emerging — Indefinite Term 1 year of service

Ms. Click is a licensed Real Estate Broker in the State of Montana. She recently started her own real estate sales company, Bozeman Broker Group, in April 2004. She has been licensed in the state of Montana since 1995. Prior to her real estate business, she was a marketing consultant to financial management companies.

David S. Maglich, 48

MicroCap — Indefinite Term 17 years of service

Emerging — Indefinite Term 1 year of service

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.

Inside Director

Gerald W. Perritt, 63

MicroCap — Indefinite Term 18 years of service

Emerging — Indefinite Term 1 year of service

Dr. Perritt has been a director of each fund since its inception. He has been Vice President of the MicroCap Opportunities Fund since November 1999 and Vice President of the Emerging Opportunities Fund since August 2004. Prior thereto he served as President of the MicroCap Opportunities Fund and has served as President of Perritt Capital Management since its inception in 1987.

Officers

Michael J. Corbett, 40

MicroCap — Indefinite Term 14 years of service

Emerging — Indefinite Term 1 year of service

Mr. Corbett has been President and Treasurer of the MicroCap Opportunities Fund since November 1999 and President and Treasurer of the Emerging Opportunities Fund since August 2004. He served as Vice President of the MicroCap Opportunities Fund from March 1991 until November 1999, and has been Vice President of Perritt Capital Management since February 1997.

Gerald W. Perritt, 63

MicroCap — Indefinite Term 18 years of service

Emerging — Indefinite Term 1 year of service

Dr. Perritt has been a director of each fund since its inception. He has been Vice President of the MicroCap Opportunities Fund since November 1999 and Vice President of the Emerging Opportunities Fund since August 2004. Prior thereto he served as President of the MicroCap Opportunities Fund and has served as President of Perritt Capital Management since its inception in 1987.

Robert A. Laatz, 61

MicroCap — Indefinite Term 8 years of service

Emerging — Indefinite Term 1 year of service

Mr. Laatz serves as Chief Compliance Officer for both funds since September 30, 2004. Mr. Laatz has served as Vice President of the MicroCap Opportunities Fund since November 1997, Secretary since November 1998. He has served as Vice President and Secretary of the Emerging Opportunities Fund since August 2004.

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MicroCap Opportunities Fund

Emerging Opportunities Fund

The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Securities and Exchange Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Funds’ latest Form N-Q is also available without charge upon request by calling 1-800-332-3133.

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-332-3133 and on the Securities and Exchange Commission’s website at http://www.sec.gov.

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 Securities and Exchange Commission’s website at http://www.sec.gov.

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Investment Advisor

Perritt Capital Management, Inc.
300 South Wacker Drive, Suite 2880
Chicago, IL 60606-6703
800-331-8936

Independent Registered
Public Accounting Firm

Altschuler, Melvoin and Glasser LLP
One South Wacker Drive
Chicago, IL 60606-3392

Legal Counsel

Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202

Custodian, Transfer Agent
and Dividend Disbursing Agent

U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701

Distributor

Quasar Distributor, LLC
615 East Michigan Street
Milwaukee, WI 53202

Effective November 2005

For assistance with your existing account,
call our Shareholder Service Center at 1-800-332-3133

The Funds’ Statements of Additional Information contain
information about the Funds’ directors and are available
without charge upon request by calling 1-800-332-3133.

MicroCap Opportunities Fund
Emerging Opportunities Fund

Minimum Initial Investment $1000
IRA Minimum Initial Investment $250
Dividend Reinvestment Plan
Systematic Withdrawal Plan
Automatic Investment Plan
Retirement Plans Including:

• IRA
• SEP
• 403b • Keogh
• Roth IRA
• Education IRA

2% redemption fee imposed for shares
held less than three months

This report is authorized for distribution only to
shareholders and others who have received a copy of the
prospectus of the Perritt MicroCap Opportunities Fund
and/or the Perritt Emerging Opportunities Fund.

300 S. Wacker Drive • Suite 2880 • Chicago, IL 60606-6703
Tel 312-669-1650 • 800-331-8936 • Fax: 312-669-1235
E-mail: PerrittCap@PerrittCap.com
Web Site: www.perrittmutualfunds.com

Item 2. Code of Ethics.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The registrant has not made any amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.

A copy of the registrant’s Code of Ethics is filed herewith as Exhibit 12(a)(1).

Item 3. Audit Committee Financial Expert.

The registrant’s board of directors has determined that the registrant does not have at least one audit committee financial expert serving on its board of directors, which functions as registrant’s audit committee since registrant does not have a separate audit committee.

The board of directors has determined that the members of the board of directors have sufficient background, experience and financial knowledge to fulfill their responsibilities and obligations to the registrant and its shareholders. Accordingly, the board of directors has determined that the search for, and possible appointment of, a person who would satisfy the definition of an audit committee financial expert is not necessary.

Item 4. Principal Accountant Fees and Services.

The registrant has engaged its principal accountant, Altschuler, Melvoin and Glasser LLP (the “Audit Firm”), to perform audit services, audit-related services and tax services during the past two fiscal years. The table below discloses the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Audit Firm for the audit of the registrant’s annual financial statements or services that are normally provided by the Audit Firm in connection with statutory and regulatory filings or engagements for those fiscal years. The table also discloses the aggregate fees billed (if any) in each of the last two fiscal years (collectively, the “Other Audit Firm Services”): (a) for assurance and related services by the Audit Firm that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported as audit services (“Audit-Related Fees”); (b) for professional services rendered by the Audit Firm for tax compliance, tax advice, and tax planning (“Tax Fees”); and (c) for products and services provided by the Audit Firm, other than the audit services, audit-related services and tax services described above (“All Other Fees”).

	FYE 10/31/2005		FYE 10/31/2004
Audit Fees	$	26,000	$	21,500
Audit-Related Fees	$	0	$	0
Tax Fees	$	0	$	2,000	(1)
All Other Fees	$	0	$	0

(1) The Tax Fees involved assistance in preparing tax returns.

1

It is the policy of the board of directors that all audit and non-audit services rendered by the registrant’s principal accountant must have the prior approval of the board of directors. There were no Other Audit Firm Services described above that were approved by the board of directors pursuant to paragraph (c)(7)(i)(C)of Rule 2-01 of Regulation S-X.

100% of the hours expended on the Audit Firm’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the Audit Firm’s full-time, permanent employees. The Audit Firm has a continuing relationship with RSM McGladrey, Inc. (“RSM”), from which it leases auditing staff who are full-time, permanent employees of RSM and through which the Audit Firm’s partners provide audit and non-audit services. As a result of this arrangement, the Audit Firm has no full-time, permanent employees. The Audit Firm manages and supervises the audit and audit staff, and is exclusively responsible for the opinion rendered in connection with the Audit Firm’s examination.

The following table discloses the aggregate non-audit fees billed by the Audit Firm for services rendered to the registrant, and rendered to the registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant (the “Adviser Service Affiliates”) for each of the last two fiscal years of the registrant.

Non-Audit Related Fees	FYE 10/31/2005		FYE 10/31/2004
Registrant	$	0	$	2,000
Registrant’s Investment Adviser	$	0	$	0

During the last two fiscal years, the Audit Firm has not rendered any non-audit services to the registrant’s investment adviser or the Adviser Service Affiliates that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (“Non Pre-Approved Services”). So, the registrant’s board of directors has not considered whether the provision of Non Pre-Approved Services to the registrant’s investment adviser or the Adviser Service Affiliates is compatible with maintaining the Audit Firm’s independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable to open-end investment companies.

Item 6. Schedule of Investments.

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable to open-end investment companies.

2

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases.

Not applicable to open-end investment companies.

Item 10. Submission of Matters to a Vote of Security Holders.

Not Applicable.

Item 11. Controls and Procedures.

As of a date during the ninety days prior to the filing date of this report, an evaluation was performed by management with the participation of the registrant’s principal executive officer and principal financial officer of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940). Based on that evaluation, the registrant’s principal executive officer and principal financial officer concluded that the registrant’s disclosure controls and procedures were effective.

There were no changes in the registrant’s internal controls over financial reporting that occurred during the registrant’s last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)	(1) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith.
	(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
	(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
(b)	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

3

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

          (Registrant)   Perritt Funds, Inc.  

By (Signature and Title)*	/s/ Michael J. Corbett
	Michael J. Corbett, President

          Date   January 9, 2006  

          Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)*	/s/ Michael J. Corbett
	Michael J. Corbett, President

          Date   January 9, 2006  

By (Signature and Title)*	/s/ Michael J. Corbett
	Michael J. Corbett, Treasurer

          Date   January 9, 2006  

* Print the name and title of each signing officer under his or her signature.

4

EX-99.CODE

PERRITT FUNDS, INC.

SARBANES-OXLEY
CODE OF ETHICS FOR THE PRINCIPAL EXECUTIVE OFFICER,
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER

(Adopted June 22, 2004)

Introduction

     Perritt Funds, Inc. (the “Company”) expects all of its officers to maintain high ethical standards of conduct and to comply with applicable laws and governmental regulations. Officers include, without limitation, the Company’s principal executive officer, principal financial officer and principal accounting officer (the principal executive officer, principal financial officer and principal accounting officer of the Company are collectively referred to herein as the “Senior Financial Officers”). (The Company anticipates that most of the time the Senior Financial Officers will consist of only two persons.) In this regard, the Company requires all of its officers, including the Senior Financial Officers, to adhere to such other rules, codes and guidelines as the Company may adopt from time to time, including, without limitation, codes of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended (collectively, the “Company Guidelines”).

     To deter wrongdoing and to promote honest and ethical conduct, compliance with applicable laws and regulations, avoidance of conflicts of interest and full, fair, accurate, timely and understandable disclosure in the Company’s public filings and communications, the Company has approved this Sarbanes-Oxley Code of Ethics to codify certain standards to which the Senior Financial Officers will be held accountable and certain specific duties and responsibilities applicable to the Senior Financial Officers. As the professional and ethical conduct of the Senior Financial Officers is essential to the proper conduct and success of the Company’s business, the Senior Financial Officers must adhere to the standards, duties and responsibilities set forth in this Sarbanes-Oxley Code of Ethics in addition to adhering to the Company Guidelines. To the fullest extent possible, the Company Guidelines and this Sarbanes-Oxley Code of Ethics should be read to supplement one another. If there is a conflict between the Company Guidelines and this Sarbanes-Oxley Code of Ethics, then this Sarbanes-Oxley Code of Ethics will control.

Code of Ethics

General Standards

     The Company and the Company’s Board of Directors will hold each Senior Financial Officer accountable for adhering to and advocating the following standards to the best of his or her knowledge and ability:

A. Act in an honest and ethical manner, including in connection with the handling and avoidance of actual or apparent conflicts of interest between personal and professional relationships;

B.	Comply with all applicable laws, rules and regulations of federal, state and local governments (both United States and foreign) and other applicable regulatory agencies (collectively, the “Laws”);
C.	Proactively promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”) and in other public communications the Company makes; and
D.	Proactively promote ethical and honest behavior within the Company, including, without limitation, the prompt reporting of violations of, and being accountable for adherence to, this Sarbanes-Oxley Code of Ethics.

Specific Duties and Responsibilities

     In adhering to and advocating the standards set forth above, each Senior Financial Officer shall fulfill the following duties and responsibilities to the best of his or her knowledge and ability:

1.	Each Senior Financial Officer shall handle all conflicts of interest between his or her personal and professional relationships in an ethical and honest manner, and shall disclose in advance to the Company’s Board of Directors the relevant details of any transaction or relationship that reasonably could be expected to give rise to an actual or apparent conflict of interest between the Company and such Senior Financial Officer. The Board of Directors shall thereafter take such action with respect to the conflict of interest as it shall deem appropriate. It is the general policy of the Company that conflicts of interest should be avoided whenever practicable. For purposes of this Sarbanes-Oxley Code of Ethics, a “conflict of interest” will be deemed to be present when an individual’s private interest interferes in any way, or even appears to interfere, with the interests of the Company as a whole.
2.	Each Senior Financial Officer will use his or her best efforts to ensure the timely and understandable disclosure of information that, in all material respects, is accurate, complete, objective and relevant in all reports and documents the Company files with, or submits to, the SEC or in other public communications that the Company makes. As part of this undertaking, each Senior Financial Officer will periodically consider the adequacy and effectiveness of the Company’s “internal control over financial reporting” and “disclosure controls and procedures” (as such terms are defined or used in rules proposed or adopted by the SEC).
3.	Each Senior Financial Officer will use his or her best efforts to ensure compliance in all material respects by such Senior Financial Officer and the Company with all applicable Laws.
4.	Each Senior Financial Officer shall respect the confidentiality of information acquired in the course of his or her work and shall not disclose such information, except when the Senior Financial Officer believes he or she is authorized or

2

	legally obligated to disclose the information. No Senior Financial Officer may use confidential information acquired in the course of his or her work for his or her personal advantage.
5.	No Senior Financial Officer may take or direct or allow any other person to take or direct any action to fraudulently influence, coerce, manipulate or mislead the Company’s independent auditing firm.

Reporting Violations

     If any person believes that a Senior Financial Officer has violated this Sarbanes-Oxley Code of Ethics or the Company has or is about to violate a Law, or a Senior Financial Officer believes that he or she is being asked to violate this Sarbanes-Oxley Code of Ethics or any Law in the performance of his or her duties for the Company, then the matter should be promptly reported to the Board of Directors. The Board of Directors will take appropriate steps to maintain the confidentiality of the reporting person’s identity, to the extent consistent with the Company’s obligations to investigate and remedy the matter and, if appropriate, to report the matter to government officials. Persons may report violations of this Sarbanes-Oxley Code of Ethics on an anonymous basis. No retribution will be taken against a person for reporting, in good faith, a violation or suspected violation of this Sarbanes-Oxley Code of Ethics.

Interpretation and Enforcement

     The Board of Directors is responsible for overseeing the interpretation and enforcement of this Sarbanes-Oxley Code of Ethics. When the Board of Directors considers any matter relating to this Sarbanes-Oxley Code of Ethics, it shall act in executive session.

     Each Senior Financial Officer will be held accountable for his or her adherence to this Sarbanes-Oxley Code of Ethics by the Company’s Board of Directors. A Senior Financial Officer’s failure to adhere to this Sarbanes-Oxley Code of Ethics will be subject to appropriate disciplinary action, ranging from warnings to possible termination or removal.

     Only the Board of Directors may waive or amend this Sarbanes-Oxley Code of Ethics. All waivers and amendments of this Sarbanes-Oxley Code of Ethics must be publicly disclosed in a manner that complies with the requirements of the SEC and other applicable Laws.

3

EX-99.CERT

CERTIFICATIONS

I, Michael J. Corbett, certify that:

1.	I have reviewed this report on Form N-CSR of Perritt Funds, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 9, 2006	/s/ Michael J. Corbett
	Michael J. Corbett
	President

CERTIFICATIONS

I, Michael J. Corbett, certify that:

1.	I have reviewed this report on Form N-CSR of Perritt Funds, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 9, 2006	/s/ Michael J. Corbett
	Michael J. Corbett
	Treasurer

EX-99.906CERT

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of the Perritt Funds, Inc., does hereby certify, to such officer’s knowledge, that the report on Form N-CSR of the Perritt Funds, Inc. for the year ended October 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Perritt Funds, Inc. for the stated period.

/s/ Michael J. Corbett.	/s/ Michael J. Corbett.
Michael J. Corbett President, Perritt Funds, Inc.	Michael J. Corbett Treasurer, Perritt Funds, Inc.

Dated: January 9, 2006

This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by Perritt Funds, Inc. for purposes of the Securities Exchange Act of 1934.