CUSIP Number 648224103 NASDAQ Symbol NPCGX
________________________________________________________________________________
NEW PROVIDENCE CAPITAL GROWTH FUND
A series of the
New Providence Investment Trust
A NO LOAD FUND
________________________________________________________________________________
Prospectus
September 30, 1999
The New Providence Capital Growth Fund seeks long-term capital growth consisting
of both realized and unrealized capital gains by investing primarily in equity
securities that are traded on domestic U.S. exchanges or on over-the-counter
markets.
Investment Advisor
------------------
New Providence Capital Management, L.L.C.
2859 Paces Ferry Road, Suite 2125
Atlanta, Georgia 30339
1-800-639-7768
www.npcm.com
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
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TABLE OF CONTENTS
Page
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THE FUND.......................................................................2
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Investment Objective........................................................2
Principal Investment Strategies.............................................2
Principal Risks Of Investing In The Fund....................................3
Bar Chart And Performance Table.............................................5
Fees And Expenses Of The Fund...............................................6
MANAGEMENT OF THE FUND.........................................................7
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The Investment Advisor......................................................7
The Administrator...........................................................7
The Transfer Agent..........................................................8
The Distributor.............................................................8
YOUR INVESTMENT IN THE FUND....................................................9
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Minimum Investment..........................................................9
Purchase And Redemption Price...............................................9
Purchasing Shares...........................................................9
Redeeming Your Shares......................................................11
OTHER IMPORTANT INVESTMENT INFORMATION........................................13
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Dividends, Distributions And Taxes.........................................13
Year 2000..................................................................13
Financial Highlights.......................................................14
Additional Information.............................................Back Cover
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THE FUND
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INVESTMENT OBJECTIVE
The New Providence Capital Growth Fund (the "Fund") seeks long-term capital
growth consisting of both realized and unrealized capital gains. Current income
is of secondary importance.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by normally remaining fully invested
in a portfolio of equity securities, such as common stock, preferred stock,
convertible preferred stock, and convertible bonds, traded on domestic U.S.
exchanges or on over-the-counter markets. Up to 10% of the Fund's total assets
may be invested in foreign securities. Cash, money market, and other short-term
instruments will typically represent 10% or less of the Fund's net assets.
Under normal market conditions the portfolio allocation range for the Fund will
be:
% of Total Assets
-----------------
Equity securities 90 - 100%
Cash, money market, and
other short-term instruments 0 - 10%
The Fund's portfolio will generally include a limited number of equity
securities of companies that, in the opinion of New Providence Capital
Management, L.L.C. (the "Advisor"), offer superior prospects for growth. The
Advisor begins the investment selection process by "screening" the universe of
equity securities to be considered for the portfolio. This universe consists of
approximately 1,700 equity securities with both a history of positive earnings
characteristics and that have a minimum market capitalization of approximately
$500 million. The Advisor screens the universe to identify the most attractive
5%-7% of those companies with attributes of successful long-term growth such as:
o long-term earnings growth consistency,
o positive earnings surprises (earnings reported in excess of conservative
estimates),
o upward earnings estimate revisions, and/or
o accelerating sales and earnings growth.
The resulting universe of 100-120 companies is subjected to further fundamental
analysis that includes the following:
o projected earnings per share growth,
o projected company revenue growth, and
o projected price to earnings ratio.
2
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As a result of this "screen," approximately 2.5% of the original universe, or
approximately 60 equity securities, are selected for further analysis. Of these
remaining companies, the Advisor attempts to identify the most attractive 20-40
equity securities using what can best be described as "common sense valuation,"
that focuses substantially on the following factors:
o price to future expected earnings,
o price to current earnings,
o price to sales, and
o price to cash flow.
Although portfolio securities are generally acquired for the long term, they may
be sold under any of the following circumstances:
o the anticipated price appreciation has been achieved or is no longer
probable;
o the company's fundamentals appear, in the analysis of the Advisor, to be
deteriorating;
o general market expectations regarding the company's future performance, as
reflected by the security's market price, exceed those expectations held by
the Advisor; or
o alternative investments offer, in the view of the Advisor, superior potential
for appreciation.
In addition, under certain conditions when the Advisor determines that market
conditions warrant such investments, the Advisor may for temporary or defensive
purposes invest up to 100% of the Fund's assets in cash and cash equivalents,
investment-grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments. When the Fund invests in these investments as a
temporary or defensive measure, it is not pursuing its stated investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested and there can be no assurance that the
Fund will be successful in meeting its objective. Generally, the Fund will be
subject to the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Growth-Style Investing Risk: Different types of stocks tend to shift into and
out of favor with stock market investors depending on market and economic
conditions. Because the Fund focuses on growth-style stocks, the Fund's
performance may at times be better or worse than the performance of stock
funds that focus on other types of stocks, or that have a broader investment
style.
3
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o Foreign Securities: The Fund may invest up to 10% of its total assets in
foreign securities. Foreign securities present special circumstances not
typically associated with investment in domestic securities that may reduce
the value of such investment, such as: additional foreign taxes on dividends;
currency exchanges rate fluctuations; at times, less volume and liquidity in
the markets for these securities; unfavorable differences between U.S. and
foreign economies and government regulations; and possible additional U.S.
governmental regulations and taxation's imposed on foreign investment. Also,
there may be difficulty in obtaining accurate information regarding
individual securities due to lack of uniform accounting, auditing and
financial reporting standards by foreign countries; less public information;
and less regulation of foreign issuers. Additionally, some countries have
been known to expropriate or nationalize assets; and foreign investments may
be subject to political, financial or social instability or adverse
diplomatic developments. Because of some of these additional risks related to
foreign securities, the Fund will generally limit foreign investments to
those traded domestically as American Depository Receipts ("ADRs"). ADRs are
receipts issued by a U.S. bank or trust company evidencing ownership of
securities of a foreign issuer. ADRs may be listed on a national securities
exchange or may trade in the over-the-counter market. The prices of ADRs are
denominated in U.S. dollars while the underlying security may be denominated
in a foreign currency.
o Portfolio Turnover. The Fund may sell portfolio securities without regard to
the length of time they have been held in order to take advantage of new
investment opportunities. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover may also have capital gains tax consequences.
However, the Fund's portfolio turnover rate is not expected to exceed 150%
per year. See the "Financial Highlights" section for the Fund's past
portfolio turnover rates.
o Short-Term Investments. As a temporary defensive position, the Advisor may
determine that market conditions warrant investing in investment-grade bonds,
U.S. Government Securities, repurchase agreements, money market instruments,
and to the extent permitted by applicable law and the Fund's investment
restriction, shares of other investment companies. Since investment companies
investing in other investment companies pay management fees and other
expenses relating to those investment companies, shareholders of the Fund
would indirectly pay both the Fund's expenses and the expenses relating to
those other investment companies with respect to the Fund's assets invested
in such investment companies. To the extent the Fund is invested in
short-term investments, it will not be pursuing its investment objective.
4
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BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing (on a calendar year basis) the Fund's annual
total return from the previous year and by showing (on a calendar year basis)
how the Fund's average annual returns for one year and since inception compare
to those of a broad-based securities market index. How the Fund has performed in
the past is not necessarily an indication of how the Fund may perform in the
future.
[Bar Chart Here]
1998 5.10%
o During the 1-year period shown in the bar chart, the highest return for a
calendar quarter was 33.60% (quarter ended December 31, 1998).
o During the 1-year period shown in the bar chart, the lowest return for a
calendar quarter was -25.34% (quarter ended September 30, 1998).
o The year-to-date return as of the most recent calendar quarter was 7.50%
(quarter ended June 30, 1999).
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Average Annual Total Returns
Period ended December 31, 1998 Past 1 Year Since Inception*
- --------------------------------------------- --------------- ------------------
New Providence Capital Growth Fund Shares 5.10% 2.35%
- --------------------------------------------- --------------- ------------------
S&P MidCap 400 Index** 19.09% 15.64%
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* September 29, 1997
** The S&P MidCap 400 Index is an unmanaged index of 400 domestic stocks
chosen for their market size, liquidity, and industry group
representation and is a widely recognized index of common stock
prices.
5
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FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ..................................None
Redemption fee ...........................................................None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees...........................................................0.75%
Distribution and/or Service (12b-1) Fees..................................0.25%
Other Expenses............................................................0.58%
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Total Annual Fund Operating Expenses..................................1.58%*
====
* "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by the Fund for the fiscal year ended May 31, 1999.
Example. This Example shows you the expenses you may pay over time by investing
in the Fund. Since all funds use the same hypothetical conditions, it should
help you compare the costs of investing in the Fund versus other funds. The
Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return, and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
- --------------------- ------------- ------------- ------------ --------------
Period Invested 1 Year 3 Years 5 Years 10 Years
- --------------------- ------------- ------------- ------------ --------------
Your Costs $161 $499 $860 $1,878
- --------------------- ------------- ------------- ------------ --------------
6
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MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
The Fund's Investment Advisor is New Providence Capital Management, L.L.C., 2859
Paces Ferry Road, Suite 2125, Atlanta, Georgia 30339. Pursuant to an investment
advisory agreement with the Trust, the Advisor provides the Fund with a
continuous program of supervision of the Fund's assets and furnishes advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities. The Advisor is also responsible for the
selection of broker-dealers through which the Fund executes portfolio
transactions, subject to the brokerage policies established by the Trustees, and
it provides certain executive personnel to the Fund.
The Advisor, established as a Georgia limited liability company in 1996, is
controlled by John K. Donaldson. The Advisor currently has approximately $50
million in assets under management. The Advisor has been rendering investment
counsel, utilizing investment strategies substantially similar to that of the
Fund, to individuals, banks and thrift institutions, pension and profit sharing
plans, trusts, estates, charitable organizations, corporations, and other
business and individual accounts since its formation. The Advisor was formed in
1996 to succeed to the investment management business previously maintained by
Donaldson & Co., Incorporated, former distributor to the Fund.
John K. Donaldson, Kyle A. Tomlin, CFA, and Shannon D. Coogle are responsible
for day-to-day management of the Fund's portfolio. Messrs. Donaldson and Tomlin
have been with the Advisor since its formation in 1996. Mr. Tomlin served as
portfolio manager for Donaldson & Co., Incorporated from 1994-97. Ms. Coogle has
been with the Advisor since 1997. Previously, Ms. Coogle was a client service
specialist with J.O. Patterson & Company from 1990-1993. Mr. Donaldson has been
President of Donaldson & Co., Incorporated, and New Providence Capital
Management, L.L.C. since inception.
The Advisor's Compensation. As compensation for the investment advisory services
provided to the Fund, the Fund paid the Advisor, during the most recent fiscal
year, monthly compensation based on the Fund's average daily net assets at the
annual rate of 0.75% of the Fund's average daily net assets.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers. Certain securities
trades may be cleared through Donaldson & Co., Incorporated, a registered
broker-dealer affiliate of the Advisor and former distributor of the Fund.
THE ADMINISTRATOR
The Nottingham Company, Inc., ("Administrator") serves as the Fund's
administrator and fund accounting agent for the Fund. The Administrator assists
the New Providence Investment Trust (the "Trust") in the performance of its
administrative responsibilities to the Fund, coordinates the services of each
vendor of services to the Fund, and provides the Fund with other necessary
administrative, fund accounting, and compliance services. In addition, the
Administrator makes available the office space, equipment, personnel, and
facilities required to provide such services to the Fund. For these services,
the Administrator is compensated by the Fund pursuant to a Fund Accounting and
Compliance Administration Agreement.
7
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THE TRANSFER AGENT
NC Shareholder Services, LLC, ("NCSS") serves as the Fund's transfer agent and
dividend disbursing agent of the Fund. As indicated later in the section of this
Prospectus, "Investing in the Fund," NCSS will handle your orders to purchase
and redeem shares of the Fund and will disburse dividends paid by the Fund. The
Transfer Agent is compensated for its services by the Fund pursuant to a
Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") is the principal underwriter and
distributor of the Fund's shares and serves as the Fund's exclusive agent for
the distribution of Fund shares. The Distributor may sell the Fund's shares to
or through qualified securities dealers or others.
Distribution of the Fund's Shares. The Fund has adopted a Distribution Plan in
accordance with Rule 12b-1 (the "Distribution Plan") under the 1940 Act.
Pursuant to the Distribution Plan, the Fund compensates the Distributor for
services rendered and expenses borne in connection with activities primarily
intended to result in the sale of the Fund's shares (this compensation is
commonly referred to as "12b-1 fees").
The Distribution Plan provides that the Fund will pay annually up to 0.25% of
the average daily net assets of the Fund's shares for activities primarily
intended to result in the sale of those shares, including to reimburse entities
for providing distribution and shareholder servicing with respect to the Fund's
shares. Because the 12b-1 fees are paid out of the Fund's assets on an on-going
basis, these fees, over time, will increase the cost of your investment and may
cost you more than paying other types of sales loads.
Other Expenses. In addition to the management fees and the Rule 12b-1 fees for
the Fund's shares, the Fund pays all expenses not assumed by the Fund's Advisor,
including, without limitation: the fees and expenses of its administrator,
custodian, transfer agent, independent accountants, and legal counsel; the costs
of printing and mailing to shareholders annual and semi-annual reports, proxy
statements, prospectuses, statements of additional information, and supplements
thereto; the costs of printing registration statements; bank transaction charges
and custodian's fees; any proxy solicitors' fees and expenses; filing fees; any
federal, state, or local income or other taxes; any interest; any membership
fees of the Investment Company Institute and similar organizations; fidelity
bond and Trustees' liability insurance premiums; and any extraordinary expenses,
such as indemnification payments or damages awarded in litigation or settlements
made. All general Trust expenses are allocated among and charged to the assets
of each separate series of the Trust, such as the Fund, on a basis that the
Trustees deem fair and equitable, which may be on the basis of relative net
assets of each series or the nature of the services performed and relative
applicability to each series.
8
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YOUR INVESTMENT IN THE FUND
---------------------------
MINIMUM INVESTMENT
The Fund's shares are sold and redeemed at net asset value. Shares may be
purchased by any account managed by the Advisor and any broker-dealer authorized
to sell Fund shares. The minimum initial investment is $2,500 ($1,000 for
Individual Retirement Accounts ("IRAs"), Keogh Plans, 401(k) Plans, or purchases
under the Uniform Transfer to Minors Act). The minimum additional investment is
$250 ($100 for those participating in the Automatic Investment Plan). The Fund
may, in the Advisor's sole discretion, waive such minimum investment amounts.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange (currently 4:00 p.m. Eastern time,
Monday through Friday), except on business holidays when the New York Stock
Exchange is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. All redemption requests will be processed and payment with
respect thereto will normally be made within seven days after tenders. The Fund
may suspend redemption, if permitted by the 1940 Act, for any period during
which the New York Stock Exchange is closed or during which trading is
restricted by the Securities Exchange Commission ("SEC") or if the SEC declares
that an emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Fund's shareholders.
Additionally, during drastic economic and market changes, telephone redemption
privileges may be difficult to implement. Also, if the Trustees determine that
it would be detrimental to the best interest of the Fund's remaining
shareholders to make payment in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "New
Providence Capital Growth Fund," to:
New Providence Capital Growth Fund
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
9
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The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S. investors if certain IRS requirements
regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or to add to an existing account by wire, please call
the Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the New Providence Capital Growth Fund
Acct. # 2000001068078
For further credit to (shareholder's name and SS# or TIN#)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $250. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Fund.
Exchange Feature. You may exchange shares of the Fund for shares of any other
class of shares of another series of the Trust with similar characteristics to
those of the Fund. Shares may be exchanged for shares of any other series of the
Trust at the net asset value plus the percentage difference between that series'
sales charge and any sales charge, if any, previously paid in connection with
the shares being exchanged. Prior to making an investment decision or giving us
your instructions to exchange shares, please read the prospectus for the series
in which you wish to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor not to be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
10
<PAGE>
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
New Providence Capital Growth Fund
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be
signed by all registered shareholders in the exact names in which they
are registered;
2) Any required signature guarantees (see "Signature Guarantees" below);
and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, the Fund may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (# 252-972-1908). The confirmation instructions must include:
1) Designation of the Fund,
2) Shareholder names and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder,
and
5) Shareholder signature as it appears on the application then on file
with the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10.00 per transaction for wiring redemption
proceeds. If this cost is passed through to redeeming shareholders by the Fund,
the charge will be deducted automatically from your account by redemption of
shares in your account. Your bank or brokerage firm may also impose a charge for
processing the wire. If wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
11
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You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$2,500 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application Form.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
12
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OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the Statement of Additional Information.
Shareholders should rely on their own tax advisers for advice about the
particular federal, state and local tax consequences to them of investing in the
Fund.
The Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, will be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although the Fund will
not be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
If the Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder who sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares. An exchange of shares may be
treated as a sale.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S.
federal income tax liability.
YEAR 2000
Like other mutual funds, the Fund and the service providers for the Fund rely
heavily on the reasonably consistent operation of their computer systems. Many
software programs and certain computer hardware in use today cannot properly
process information after December 31, 1999, because of the method by which
dates are encoded and calculated in such programs and hardware. This problem,
commonly referred to as the "Year 2000 Issue," could, among other things,
negatively impact the processing of trades, the distribution of securities, the
pricing of securities, and other investment-related and settlement activities.
The Trust is currently obtaining and assessing information with respect to the
actions that have been taken and the actions that are planned to be taken by
each of its service providers to prepare their computer systems for the Year
2000. While the Trust expects that each of the Fund's service providers will
have adapted their computer systems to address the Year 2000 Issue, there can be
no assurance that this will be the case or that the steps taken by the Trust
will be sufficient to avoid any adverse impact to the Fund.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the Fund. The financial data for the fiscal year ended
May 31, 1999, and for the fiscal period ended May 31, 1998, have been audited by
Deloitte & Touche LLP, independent auditors, whose report covering such year and
period is included in the Statement of Additional Information. This information
should be read in conjunction with the Fund's latest audited annual financial
statements and notes thereto, which are also included in the Statement of
Additional Information, a copy of which may be obtained at no charge by calling
the Fund. Further information about the performance of the Fund is contained in
the Annual Report of the Fund, a copy of which may also be obtained at no charge
by calling the Fund.
<TABLE>
<S> <C> <C> <C> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Period ended
May 31, May 31,
1999 1998 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................................. $11.57 $11.37 (b)
Income (loss) from investment operations
Net investment loss ....................................... (0.14) (0.08)
Net realized and unrealized gain on investments ........... 0.27 0.28
----------- -----------
Total from investment operations .................... 0.13 0.20
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions ............ (0.03) 0.00
----------- -----------
Net asset value, end of period ........................................ $11.67 $11.57
=========== ===========
Total return .......................................................... 1.18 % 1.76 %
=========== ===========
Ratios/supplemental data
Net assets, end of period ...................................... $23,023,705 $23,163,777
=========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...................... 1.58 % 1.79 % (c)
After expense reimbursements and waived fees ....................... 1.58 % 1.62 % (c)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...................... (1.29)% (1.41)% (c)
After expense reimbursements and waived fees ....................... (1.29)% (1.24)% (c)
Portfolio turnover rate ................................................. 148.37 % 57.27 %
(a) For the period from September 29, 1997 (date of initial public offering) to May 31, 1998.
(b) Includes undistributed net investment loss of $0.02 per share and undistributed net realized and unrealized gains of $1.39
per share, both of which were earned from July 11, 1997 (commencement of operations) through September 29, 1997.
(c) Annualized.
</TABLE>
14
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
NEW PROVIDENCE CAPITAL GROWTH FUND
A NO LOAD FUND
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information and in the Fund's Annual and Semiannual Report. The
Fund's Annual and Semiannual Reports include a discussion of market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
The Annual and Semiannual Reports and the Statement of Additional Information
are available free of charge upon request by contacting us:
By telephone: 1-800-773-3863
By mail: New Providence Capital Growth Fund
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.npcm.com
Information about the Fund can also be reviewed and copied at the Securities
Exchange Commission's ("Commission") Public Reference Room in Washington, D.C.
Inquiries on the operations of the public reference room may be made by calling
the Commission at 1-800-SEC-0330. Reports and other information about the Fund
are available on the Commission's Internet site at http:\\www.sec.gov and copies
of this information may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
Investment Company Act file number 811-08295
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
NEW PROVIDENCE CAPITAL GROWTH FUND
September 30, 1999
A series of the
NEW PROVIDENCE INVESTMENT TRUST
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-4365
Telephone 1-800-639-7768
Table of Contents
-----------------
Page
----
OTHER INVESTMENT POLICIES.................................................2
INVESTMENT LIMITATIONS....................................................4
PORTFOLIO TRANSACTIONS....................................................5
DESCRIPTION OF THE TRUST..................................................7
MANAGEMENT AND OTHER SERVICE PROVIDERS....................................8
SPECIAL SHAREHOLDER SERVICES.............................................11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...........................12
NET ASSET VALUE..........................................................14
ADDITIONAL TAX INFORMATION...............................................14
ADDITIONAL INFORMATION ON PERFORMANCE....................................15
FINANCIAL STATEMENTS.....................................................17
APPENDIX A...............................................................18
This Statement of Additional Information (the "SAI") is meant to be read in
conjunction with the Prospectus dated September 30, 1999, for the New Providence
Capital Growth Fund (the "Fund"), as the Prospectus may be amended or
supplemented from time to time, and is incorporated by reference in its entirety
into the Prospectus. Because this SAI is not itself a prospectus, no investment
in shares of the Fund should be made solely upon the information contained
herein. Copies of the Fund's Prospectus may be obtained at no charge by writing
or calling the Fund at the address and phone number shown above. Capitalized
terms used but not defined herein have the same meanings as in each Prospectus.
<PAGE>
OTHER INVESTMENT POLICIES
The following policies supplement the Fund's investment objective and policies
as set forth in the Prospectus of the Fund. Attached to this SAI is Appendix A,
which contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Fund may invest. The Fund commenced operations on
September 29, 1997 as a separate diversified investment portfolio to the New
Providence Investment Trust (the "Trust').
Repurchase Agreements. The Fund may acquire U.S. Government obligations or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
normally occur within one to five days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Fund will consider the creditworthiness of the vendor. If the
vendor fails to pay the agreed upon resale price on the delivery date, the Fund
will retain or attempt to dispose of the collateral. The Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Fund will not enter into any repurchase agreement, which will
cause more than 10% of its net assets to be invested in repurchase agreements,
which extend beyond seven days and other illiquid securities.
Foreign Securities. The Fund may invest in the securities of foreign private
issuers. The same factors would be considered in selecting foreign securities as
with domestic securities. Foreign securities investment presents special
consideration not typically associated with investment in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuations in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information, and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial, or social instability, or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the U.S. securities laws against such issuers. Favorable
or unfavorable differences between U.S. and foreign economies could affect
foreign securities values. The U.S. Government has, in the past, discouraged
certain foreign investments by U.S. investors through taxation or other
restrictions and it is possible that such restrictions could be imposed again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will limit foreign investments to those traded on domestic U.S. exchanges,
including American Depository Receipts ("ADRs"). The prices of such securities
are denominated in U.S. dollars. ADRs are receipts issued by a U.S. bank or
trust company evidencing ownership of securities of a foreign issuer. ADRs may
be listed on a national securities exchange or may trade in the over-the-counter
market. The prices of ADRs are denominated in U.S. dollars while the underlying
security may be denominated in a foreign currency. To the extent the Fund
invests in other foreign securities, it will limit such investments to foreign
securities traded on domestic U.S. securities exchanges. Although the Fund is
not limited in the amount of these types of foreign securities it may acquire,
it is not presently expected that within the next 12 months the Fund will have
in excess of 10% of its assets in foreign securities.
Money Market Instruments. Money market instruments may include U.S. Government
obligations or corporate debt obligations (including those subject to repurchase
agreements), provided that they mature in thirteen months or less from the date
of acquisition and are otherwise eligible for purchase by the Fund. Money market
instruments also may include Banker's Acceptances and Certificates of Deposit of
domestic branches of U.S. banks, Commercial Paper, and Variable Amount Demand
Master Notes ("Master Notes"). Banker's Acceptances are time drafts drawn on and
"accepted" by a bank. When a bank "accepts" such a time draft, it assumes
liability for its payment. When the Fund acquires a Banker's Acceptance, the
bank which "accepted" the time draft is liable for payment of interest and
principal when due. The Banker's Acceptance carries the full faith and credit of
such bank. A Certificate of Deposit ("CD") is an unsecured, interest bearing
debt obligation of a bank. Commercial Paper is an unsecured, short-term debt
obligation of a bank, corporation, or other borrower. Commercial Paper maturity
generally ranges from two to 270 days and is usually sold on a discounted basis
rather than as an interest-bearing instrument. The Fund will invest in
Commercial Paper only if it is rated in one of the top two rating categories by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services
("S&P"), Fitch Investors Service, Inc. ("Fitch"), or Duff & Phelps ("D&P"), or
if not rated, of equivalent quality in the Advisor's opinion. Commercial Paper
may include Master Notes of the same quality. Master Notes are unsecured
obligations which are redeemable upon demand of the holder and which permit the
investment of fluctuating amounts at varying rates of interest. Master Notes are
acquired by the Fund only through the Master Note program of the Fund's
custodian bank, acting as administrator thereof. The Advisor will monitor, on a
continuous basis, the earnings' power, cash flow, and other liquidity ratios of
the issuer of a Master Note held by the Fund.
Money market instruments may be purchased when the Advisor believes interest
rates are rising, the prospect for capital appreciation in the equity and longer
term fixed income securities' markets are not attractive, or when the "yield
curve" favors short-term fixed income instruments versus longer term fixed
income instruments. Money market instruments may be purchased for temporary
defensive purposes, to accumulate cash for anticipated purchases of portfolio
securities and to provide for shareholder redemptions and operating expenses of
the Fund. The Advisor may, when it believes that unusually volatile or unstable
economic and market conditions exist, depart from the Fund's investment approach
and assume temporarily a defensive portfolio posture, increasing the Fund's
percentage investment in money market instruments, even to the extent that 100%
of the Fund's assets may be so invested.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Investment Companies. In order to achieve its investment objective, the Fund may
invest in securities of other investment companies whose investment objectives
are consistent with the Fund's investment objective. The Fund will not acquire
securities of any one investment company if, immediately thereafter, the Fund
would own more than 3% of such company's total outstanding voting securities,
securities issued by such company would have an aggregate value in excess of 5%
of the Fund's assets, or securities issued by such company and securities held
by the Fund issued by other investment companies would have an aggregate value
in excess of 10% of the Fund's assets. To the extent that a Fund invests in
other investment companies, the shareholders of the Fund would indirectly pay a
portion of the operating costs of the underlying investment companies. These
costs include management, brokerage, shareholder servicing and other operational
expenses. Shareholders of the Fund would then indirectly pay higher operational
costs than if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate (including
mortgage loans and limited partnership interests), but may invest in readily
marketable securities issued by companies that invest in real estate or
interests therein. The Fund may also invest in readily marketable interests in
real estate investment trusts ("REITs"). REITs are generally publicly traded on
the national stock exchanges and in the over-the-counter market and have varying
degrees of liquidity. Although the Fund is not limited in the amount of these
types of real estate securities it may acquire, it is not presently expected
that within the next 12 months the Fund will have in excess of 10% of its assets
in real estate securities.
Borrowing. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary or emergency purposes and 15% of its total assets to meet
redemption requests, which might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on the portfolio's net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund could be forced to liquidate portfolio securities when
it is disadvantageous to do so. The Fund would incur interest and other
transaction costs in connection with borrowing. The Fund will borrow only from a
bank. The Fund will not make any further investments if the borrowing exceeds 5%
of its total assets until such time as repayment has been made to bring the
total borrowing below 5% of its total assets.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. In determining the liquidity of the Fund's investments, the Advisor
may consider various factors including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), and (5) the nature of the
marketplace for trades (including the ability to assign or offset the Fund's
rights and obligations relating to the investment). The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid securities before maturity may be time
consuming and expensive, and it may be difficult or impossible for the Fund to
sell illiquid investments promptly at an acceptable price. The Fund may not
invest in restricted securities, which are securities that cannot be sold to the
public without registration under the federal securities laws. If through a
change in values, net assets, or other circumstances, the Fund were in a
position where more than 10% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
to maintain in a segregated account until the settlement date cash, U.S.
Government Securities, or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date; this risk is in addition to the
risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose means the lesser of (i)
67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities, borrow money, or pledge its assets, except that it
may borrow from banks as a temporary measure (a) for extraordinary or
emergency purposes, in amounts not exceeding 5% of its total assets or (b)
to meet redemption requests in amounts not exceeding 15% of its total
assets. The Fund will not make any investments if borrowing exceeds 5% of
its total assets until such time as total borrowing represents less than 5%
of Fund assets;
2. With respect to 75% of its total assets, invest more than 5% of the value
of its total assets in the securities of any one issuer or purchase more
than 10% of the outstanding voting securities of any class of securities of
any one issuer (except that securities of the U.S. government, its
agencies, and instrumentalities are not subject to this limitation);
3. Invest 25% or more of the value of its total assets in any one industry
(except that securities of the U.S. Government, its agencies, and
instrumentalities are not subject to this limitation);
4. Invest for the purpose of exercising control or management of another
issuer;
5. Purchase or sell commodities or commodities contracts; real estate
(including limited partnership interests, but excluding readily marketable
interests in real estate investment trusts or other securities secured by
real estate or interests therein or readily marketable securities issued by
companies that invest in real estate or interests therein); or interests in
oil, gas, or other mineral exploration or development programs or leases
(although it may invest in readily marketable securities of issuers that
invest in or sponsor such programs or leases);
6. Underwrite securities issued by others except to the extent that the
disposition of portfolio securities, either directly from an issuer or from
an underwriter for an issuer, may be deemed to be an underwriting under the
federal securities laws;
7. Participate on a joint or joint and several basis in any trading account in
securities;
8. Invest its assets in the securities of one or more investment companies
except to the extent permitted by the 1940 Act;
9. Write, purchase, or sell puts, calls, straddles, spreads, or combinations
thereof or futures contracts or related options; and
10. Make loans of money or securities, except that the Fund may invest in
repurchase agreements, money market instruments, and other debt securities.
The following investment limitations are not fundamental and may be changed
without shareholder approval. As a matter of non-fundamental policy, the Fund
may not:
1. Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors) if more than 5% of its total assets would be invested in
such securities;
2. Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) securities for
which no readily available market exists or which have legal or contractual
restrictions on resale, (b) fixed-time deposits that are subject to
withdrawal penalties and have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven days;
3. Invest in the securities of any issuer if those officers or Trustees of the
Trust and those officers and directors of the Advisor who individually own
more than 1/2 of 1% of the outstanding securities of such issuer together
own more than 5% of such issuer's securities;
4. Make short sales of securities or maintain a short position, except short
sales "against the box." (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.) While the Fund has reserved
the right to make short sales "against the box," the Advisor has no present
intention of engaging in such transactions at this time or during the
coming year; and
5. Purchase foreign securities other than those traded on domestic U.S.
exchanges.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters, and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Fund. In addition, the Advisor is authorized to cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Fund. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries; general
summaries of groups of stocks or bonds and their comparative earnings and
yields; or broad overviews of the stock, bond, and government securities
markets; and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Fund. The Trustees will periodically review any
commissions paid by the Fund to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which the Advisor exercises
investment discretion. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Fund will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in, or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Fund will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, if any, and for any other investment companies and
accounts advised or managed by the Advisor. Such other investment companies and
accounts may also invest in the same securities as the Fund. To the extent
permitted by law, the Advisor may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount in a manner which the
Advisor believes to be equitable to the Fund and such other investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund.
For the fiscal year ended May 31, 1999, the Fund paid brokerage commissions of
$67,821. For the fiscal period ended May 31, 1998, the Fund paid brokerage
commissions of $41,681.
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Massachusetts law
on July 9, 1997. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of two series: the Fund and the Wisdom Fund.
The number of shares of each series shall be unlimited. The Trust does not
intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. The Trust has adopted an Amended and Restated
Rule 18f-3 Multi-Class Plan that contains the general characteristics of, and
conditions under which the Trust may offer multiple classes of shares of each
series. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series or class affected by the matter. A series or class is affected by a
matter unless it is clear that the interests of each series or class in the
matter are substantially identical or that the matter does not affect any
interest of the series or class. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, the Rule also provides that
the ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together, without regard to a
particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class. Shares
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Trustees can elect 100% of the
Trustees, and in this event, the holders of the remaining shares voting will not
be able to elect any Trustees. The Trustees will hold office indefinitely,
except that: (1) any Trustee may resign or retire; and (2) any Trustee may be
removed: (a) any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal; (b) at any meeting of shareholders of
the Trust by a vote of two-thirds of the outstanding shares of the Trust; or (c)
by a written declaration signed by shareholders holding not less than two-thirds
of the outstanding shares of the Trust and filed with the Trust's custodian.
Shareholders have certain rights, as set forth in the Declaration of Trust,
including the right to call a meeting of the shareholders. Shareholders holding
not less than 10% of the shares then outstanding may require the Trustees to
call a meeting, and the Trustees are obligated to provide certain assistance to
shareholders desiring to communicate with other shareholders in such regard
(e.g., providing access to shareholder lists, etc.). In case a vacancy or an
anticipated vacancy on the Board of Trustees shall for any reason exist, the
vacancy shall be filled by the affirmative vote of a majority of the remaining
Trustees, subject to certain restrictions under the 1940 Act. Otherwise, there
will normally be no meeting of shareholders for the purpose of electing
Trustees, and the Trust does not expect to have an annual meeting of
shareholders.
When issued for payment, as described in the Prospectus and this SAI, shares of
the Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
MANAGEMENT AND OTHER SERVICE PROVIDERS
Trustees and Officers. Following are the Trustees and Officers of the New
Providence Investment Trust (the "Trust"), their age, their present position
with the Trust or the Fund, and their principal occupation during the past five
years. An asterisk indicates those Trustees who are "interested persons" of the
Trust for purposes of the 1940 Act (*).
<TABLE>
<S> <C> <C>
- ----------------------------------------- ------------------------- -------------------------------------------------------
Name, Age, and Address Position(s) Principal Occupation(s) During Past Years
with Fund and/or Trust
- ----------------------------------------- ------------------------- -------------------------------------------------------
Jack E. Brinson, 67 Trustee President
1105 Panola Street Brinson Investment Co.;
Tarboro, North Carolina 27886 President
Brinson Chevrolet, Inc.
Tarboro, North Carolina
Board of Trustees: Nottingham Investment Trust II
and Gardner Lewis Investment Trust
- ----------------------------------------- ------------------------- -------------------------------------------------------
Shannon D. Coogle, 29 Research Analyst Research / Client Services
2859 Paces Ferry Road, Suite 2125 New Providence Capital Management, L.L.C.
Atlanta, Georgia 30339 (Advisor to the Fund)
Atlanta, Georgia since 1997;
Previously, Student Georgia State University
Atlanta, Georgia 1994-1997; Previously, Client Services
J.O. Patterson & Company Atlanta, Georgia
- ----------------------------------------- ------------------------- -------------------------------------------------------
Kyle A. Tomlin, CFA, 29 Portfolio Manager Portfolio Management
2859 Paces Ferry Road, Suite 2125 New Providence Capital Management, L.L.C.
Atlanta, Georgia 30339 (Advisor to the Fund)
Atlanta, Georgia since 1996; Previously, Portfolio
Management and Client Services Donaldson & Co., Incorporated
Atlanta, Georgia 1994-1996; Previously, Business Associate,
Investment Advisory Group, SEI Corporation
Wayne, Pennsylvania 1993-1994;
Previously, Student
Georgia Institute of Technology
Atlanta, Georgia
- ----------------------------------------- ------------------------- -------------------------------------------------------
C. Frank Watson, III, 29 Secretary President
105 North Washington Street The Nottingham Company
Rocky Mount, North Carolina 27802 (Administrator to the Fund)
Rocky Mount, North Carolina
- ----------------------------------------- ------------------------- -------------------------------------------------------
Julian G. Winters, 30 Treasurer Legal and Compliance Director
105 North Washington Street The Nottingham Company The Nottingham Company
(Administrator to the Fund) (Administrator to the Fund)
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina, since 1995;
Rocky Mount, North Carolina, Previously, Operations Manager
Tar Heel Medical, Inc.
Nashville, North Carolina
- ----------------------------------------- ------------------------- -------------------------------------------------------
</TABLE>
Compensation. Trustees and Officers of the Trust who are interested persons of
the Trust or the Advisor will receive no salary or fees from the Trust. Other
Trustees will receive $2,000 each year plus $250 per Fund per meeting attended
in person and $100 per Fund per meeting attended by telephone. The Trust will
also reimburse each Trustee for his or her travel and other expenses relating to
attendance at such meetings.
Compensation Table*
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------- ---------------------- ---------------------- --------------------- ----------------------
Total Compensation
Aggregate Estimated Annual From Fund and Fund
Compensation From Pension or Benefits Upon Complex Paid to
Name of Trustee the Fund Retirement Benefits Retirement Directors
- ---------------------- ---------------------- ---------------------- --------------------- ----------------------
- ---------------------- ---------------------- ---------------------- --------------------- ----------------------
Jack E. Brinson $2,700 N/A N/A $2,800
- ---------------------- ---------------------- ---------------------- --------------------- ----------------------
* The Figures above are for the fiscal year ended May 31, 1999.
</TABLE>
Principal Holders of Voting Securities. As of July 15, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of the Fund. On
the same date the following shareholders owned of record more than 5% of the
outstanding shares of beneficial interest of the Fund. Except as provided below,
no person is known by the Trust to be the beneficial owner of more than 5% of
the outstanding shares of the Fund as of July 15, 1999.
- ------------------------------------------------------------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
- ------------------------------------------------------------------
Faithfulness Ltd. 1,859,105.642 shares 94.017%*
P.O. Box N7776
Lyford Cay
Nassau, Bahamas
* Pursuant to applicable SEC regulations, this shareholder is deemed to
control the Fund.
Investment Advisor. Information about New Providence Capital Management, L.L.C.
(the "Advisor"), 2859 Paces Ferry Road, Suite 2125, Atlanta, Georgia 30339, and
its duties and compensation as Advisor is contained in the Prospectus. The
Advisor supervises the Fund's investments pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The Advisory Agreement is effective for a
two-year period and will be renewed thereafter only so long as such renewal and
continuance is specifically approved at least annually by the Board of Trustees
or by vote of a majority of the Fund's outstanding voting securities, provided
the continuance is also approved by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party. The
Advisory Agreement is terminable without penalty on 60-days' notice by the Board
of Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund. The Advisory Agreement provides that it will terminate
automatically in the event of its assignment.
The Advisor will receive a monthly management fee equal to an annual rate of
0.75% of the Fund's net assets. For the fiscal year ended May 31, 1999, the
Advisor received $163,383 for such services. For the fiscal period ended May 31,
1998, the Advisor received $95,545 for such services after waiving $4,553 of its
fees.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services; or a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of the Advisor in the performance of its duties; or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company, Inc. (the
"Administrator"), 105 North Washington Street, Post Office Drawer 69, Rocky
Mount, North Carolina 27802-0069. Compensation of the Administrator, based upon
the average daily net assets of the Fund for fund administration fees, is at the
annual rate of 0.125% on the first $50 million of the Fund's net assets; 0.10%
on the next $50 million; and 0.075% on all assets over $100 million. In
addition, the Administrator currently receives a monthly fund accounting fee of
$2,250 and $750 for each additional class for accounting and recordkeeping
services for the Fund. For the fiscal year ended May 31, 1999, the Administrator
received fund administration fees and fund accounting fees totaling $54,230. For
the fiscal period ended May 31, 1998, the Administrator received $16,683 in such
fees. The Administrator also charges the Fund for certain costs involved with
the daily valuation of investment securities and is reimbursed for out-of-pocket
expenses. The Administrator charges a minimum annual fee of $41,000 for all of
its fees taken in the aggregate, analyzed monthly.
The Administrator performs the following services for the Fund: (1) coordinates
with the Custodian and monitors the services it provides to the Fund; (2)
coordinates with and monitors any other third parties furnishing services to the
Fund; (3) provides the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervises the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepares or supervises the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepares and, after approval by the Trust, files and
arranges for the distribution of proxy materials and periodic reports to
shareholders of the Fund as required by applicable law; (7) prepares and, after
approval by the Trust, arranges for the filing of such registration statements
and other documents with the Securities and Exchange Commission and other
federal and state regulatory authorities as may be required by applicable law;
(8) reviews and submits to the officers of the Trust for their approval invoices
or other requests for payment of Fund expenses and instruct the Custodian to
issue checks in payment thereof; and (9) takes such other action with respect to
the Fund as may be necessary in the opinion of the Administrator to perform its
duties under the agreement. The Administrator will also provide certain
accounting and pricing services for the Fund.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, 107 North Washington Street, Post
Office Box 4365, Rocky Mount, North Carolina 27803-0365, to serve as transfer,
dividend paying, and shareholder servicing agent for the Fund. The Transfer
Agent is compensated based upon a $15.00 fee per shareholder per year, subject
to a minimum fee of $750 per month. For the fiscal year ended May 31, 1999, the
Transfer Agent received $8,894 for its services. For the fiscal period ended May
31, 1998 the Transfer Agent received $7,606 for its services.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
the Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement with the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60-days' prior
written notice to the other party.
Custodian. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for the Fund's assets. The Custodian acts as the depository for the Fund,
safekeeps its portfolio securities, collects all income and other payments with
respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from the Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. Deloitte & Touche LLP, 2500 One PPG Place, Pittsburgh,
Pennsylvania 15222-5401, serves as independent auditors for the Fund, and audits
the annual financial statements of the Fund, prepares the Fund's federal and
state tax returns, and consults with the Fund on matters of accounting and
federal and state income taxation. A copy of the most recent annual report of
the Fund will accompany this SAI whenever it is requested by a shareholder or
prospective investor.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the New
Providence Investment Trust and the Fund.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans, and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum) which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $2,500 or
more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Fund to redeem the necessary number of shares periodically (each
month, or quarterly in the months of March, June, September, and December) in
order to make the payments requested. The Fund has the capability of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or are available by calling the Fund.
If the shareholder prefers to receive his systematic withdrawal proceeds in
cash, or if such proceeds are less than the $5,000 minimum for a bank wire,
checks will be made payable to the designated recipient and mailed within seven
days of the valuation date. If the designated recipient is other than the
registered shareholder, the signature of each shareholder must be guaranteed on
the application (see "Signature Guarantees" in the Prospectus). A corporation
(or partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles, and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the Fund
upon 60-days' written notice or by a shareholder upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-800-773-3863 or by writing to:
New Providence Capital Growth Fund
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. The Fund may accept securities in lieu of cash in payment for
the purchase of shares in the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long-term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "Purchase and Redemption Price" in the Prospectus.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the Fund at the address shown above. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number, and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized investment dealers or directly by contacting the
Distributor or the Fund. Selling dealers have the responsibility of transmitting
orders promptly to the Fund. The public offering price of shares of the Fund
equals net asset value shares of the Fund. See "Your Investment in the Fund"
section in the Prospectus for more detailed information.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution (the "Plan")
for the Fund pursuant to Rule 12b-1 under the 1940 Act (see "The Distributor -
Distribution of the Fund's Shares" in the Prospectus). Under the Plan the Fund
may expend up to 0.25% of the Fund's average net assets annually to finance any
activity which is primarily intended to result in the sale of shares of the Fund
and the servicing of shareholder accounts, provided the Trust's Board of
Trustees has approved the category of expenses for which payment is being made.
Such expenditures paid as service fees to any person who sells shares of the
Fund may not exceed 0.25% of the average annual net asset value of such shares.
Potential benefits of the Plan to the Fund include improved shareholder
servicing, savings to the Fund in transfer agency costs, benefits to the
investment process from growth and stability of assets and maintenance of a
financially healthy management organization.
It is anticipated that a portion of the 12b-1 fees received by the Distributor
will be used to defray various costs incurred or paid by the Distributor in
connection with the printing and mailing to potential investors of Fund
prospectuses, statements of additional information, any supplements thereto, and
shareholder reports, and holding seminars and sales meetings with wholesale and
retail sales personnel designed to promote the sale of the Funds' shares. The
Distributor may also use a portion of the 12b-1 fees received to provide
compensation to financial intermediaries and third-party broker-dealers for
their services in connection with the sale of the Fund's shares.
The Plan is known as a "compensation" plan because payments are made for
services rendered to the Fund with respect to the Fund's shares regardless of
the level of expenditures made by the Distributor. The Board of Trustees of the
Trust will, however, take into account such expenditures for purposes of
reviewing operations under the Plan and concerning their annual consideration of
the Plan's renewal. The Distributor has indicated that it expects its
expenditures to include, without limitation: (a) the printing and mailing to
prospective investors of Fund prospectuses, statements of additional
information, any supplements thereto and shareholder reports with respect to the
shares of the Fund; (b) those relating to the development, preparation, printing
and mailing of advertisements, sales literature and other promotional materials
describing and/or relating to the shares of the Fund; (c) holding seminars and
sales meetings designed to promote the distribution of the Fund's shares; (d)
obtaining information and providing explanations to wholesale and retail
distributors of the Fund's investment objectives and policies and other
information about the Fund; (e) training sales personnel regarding the shares of
the Fund; and (f) financing any other activity that the Distributor determines
is primarily intended to result in the sale of the Fund's shares.
All of the distribution expenses incurred by the Distributor and others, such as
broker-dealers, in excess of the amount paid by the Fund will be borne by such
persons without any reimbursement from the Fund. Subject to seeking best
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms that receive payments under the Plan.
From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plan and the Distribution Agreement with the Distributor have been approved
by the Board of Trustees of the Trust, including a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the Plan or any related
agreements, by vote cast in person or at a meeting duly called for the purpose
of voting on the Plan and such Agreement. Continuation of the Plan and the
Distribution Agreement must be approved annually by the Board of Trustees in the
same manner as specified above.
Each year the Trustees must determine whether continuation of the Plan is in the
best interest of shareholders of the Fund and that there is a reasonable
likelihood of its providing a benefit to the Fund, and the Board of Trustees has
made such a determination for the current year of operations under the Plan. The
Plan and the Distribution Agreement may be terminated at any time without
penalty by a majority of those trustees who are not "interested persons" or by a
majority vote of the Fund's outstanding Investor Shares. Any amendment
materially increasing the maximum percentage payable under the Plan must
likewise be approved by a majority vote of the Fund's outstanding voting stock,
as well as by a majority vote of those trustees who are not "interested
persons." Also, any other material amendment to the Plan must be approved by a
majority vote of the trustees including a majority of the noninterested Trustees
of the Trust having no interest in the Plan. In addition, in order for the Plan
to remain effective, the selection and nomination of Trustees who are not
"interested persons" of the Trust must be effected by the Trustees who
themselves are not "interested persons" and who have no direct or indirect
financial interest in the Plan. Persons authorized to make payments under the
Plan must provide written reports at least quarterly to the Board of Trustees
for their review.
For the fiscal year ended May 31, 1999, the Fund incurred $54,461 for costs in
connection with the Plan under Rule 12b-1. Such costs were spent on compensation
to sales personnel for sale of the Fund's shares and servicing of shareholder
accounts and advertising costs.
Redemptions. Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Fund may also suspend or postpone
the recordation of the transfer of shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectus under "Your Investment
in the Fund," the Fund may redeem shares involuntarily to reimburse the Fund for
any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
NET ASSET VALUE
The net asset value per share of the Fund is normally determined at 4:00 p.m.,
New York time, Monday through Friday, except on business holidays when the NYSE
is closed. The NYSE recognizes the following holidays: New Year's Day, Martin
Luther King, Jr.'s Birthday, President's Day, Good Friday, Memorial Day, Fourth
of July, Labor Day, Thanksgiving Day, and Christmas Day. Any other holiday
recognized by the NYSE will be considered a business holiday on which the net
asset value of the Fund will not be calculated.
The net asset value per share of the Fund is calculated separately by adding the
value of the Fund's securities and other assets belonging to the Fund,
subtracting the liabilities charged to the Fund, and dividing the result by the
number of outstanding shares. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of shares of the Fund together with all
net investment income, realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Assets belonging to a Fund are charged with the direct
liabilities of the Fund and with a share of the general liabilities of the
Trust, which are normally allocated in proportion to the number of or the
relative net asset values of all of the Trust's series at the time of allocation
or in accordance with other allocation methods approved by the Board of
Trustees. Subject to the provisions of the Declaration of Trust, determinations
by the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets, with respect to a Fund are conclusive.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of sixty days or less are valued
at amortized costs, which approximates market value. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith under policies approved by the Trustees.
For the fiscal year ended May 31, 1999, the total expenses of the Fund were
$343,234. For the fiscal period ended May 31, 1998, the total expenses of the
Fund after fee waivers and expense reimbursements were $219,194.
ADDITIONAL TAX INFORMATION
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders. The discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
The Fund, and any other series of the Trust, will be treated as a separate
corporate entity under the Code. The Fund intends to qualify and to remain
qualified as a regulated investment company. To so qualify, the Fund must elect
to be a regulated investment company or have made such an election for a
previous year and must satisfy, in addition to the distribution requirement
described in the Prospectus, certain requirements with respect to the source of
its income for a taxable year. At least 90% of the gross income of the Fund must
be derived from dividends; interest; payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities, or foreign
currencies; and other income derived with respect to the Fund's business of
investing in such stock, securities, or currencies. Any income derived by the
Fund from a partnership or trust is treated as derived with respect to the
Fund's business of investing in stock, securities, or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies, and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
The Fund will designate any distribution of long-term capital gains as a capital
gain dividend in a written notice mailed to shareholders within 60 days after
the close of the Fund's taxable year. Shareholders should note that upon the
sale or exchange of Fund shares, if the shareholder has not held such shares for
at least six months, any loss on the sale or exchange of those shares will be
treated as long-term capital loss to the extent of the capital gain dividends
received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to distribute currently an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded to regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the Fund's
current and accumulated earnings and profits.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure to include properly on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so, or that they
are "exempt recipients."
Depending upon the extent of the Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located, or in which it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of the
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
Dividends paid by the Fund derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Fund will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of the Fund may be quoted in advertisements,
sales literature, shareholder reports, or other communications to shareholders.
The Fund computes the "average annual total return" of the Fund by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
P(1+T)^n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000 from which
the maximum sales load is deducted.
n = period covered by the computation, expressed
in terms of years.
The Fund may also compute the aggregate total return of the Fund, which is
calculated in a similar manner, except that the results are not annualized.
The calculation of average annual total return and aggregate total return assume
an initial $1,000 investment and that there is a reinvestment of all dividends
and capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
The average annual total returns for shares of the Fund for the fiscal year
ended May 31, 1999 and since the date of initial public offering (September 29,
1997) are 1.18% and 1.76%, respectively. The cumulative total return for shares
of the Fund since the date of initial public offering to May 31, 1999 is 2.96%.
These performance quotations should not be considered as representative of the
Fund's performance for any specified period in the future.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded in the United
States securities markets. The Fund may also measure its performance against the
Lipper Growth Fund Index, which ranks the performance of mutual funds that have
an objective of growth of capital. Comparative performance may also be expressed
by reference to a ranking prepared by a mutual fund monitoring service or by one
or more newspapers, newsletters, or financial periodicals. The Fund may also
occasionally cite statistics to reflect its volatility and risk. The Fund may
also compare its performance to other published reports of the performance of
unmanaged portfolios of companies. The performance of such unmanaged portfolios
generally does not reflect the effects of dividends or dividend reinvestment.
The Fund may also compare its performance to other reports of the performance of
managed accounts of the Advisor, such as the Capital Growth Account, as more
fully described in the Prospectus under "Other Information - Prior Performance
of Advisor." Of course, there can be no assurance the Fund will experience the
same results. Performance comparisons may be useful to investors who wish to
compare the Fund's past performance to that of other mutual funds and investment
products. Of course, past performance is not a guarantee of future results.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above. As indicated, from time to time the Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
o Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and to compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time, the Fund may include in advertisements and other
communications charts and illustrations relating to inflation and the effects of
inflation on the dollar, including the purchasing power of the dollar at various
rates of inflation. The Fund may also disclose from time to time information
about its portfolio allocation and holdings at a particular date (including
ratings of securities assigned by independent rating services such as S&P and
Moody's). The Fund may also depict the historical performance of the securities
in which the Fund may invest over periods reflecting a variety of market or
economic conditions either alone or in comparison with alternative investments,
performance indices of those investments, or economic indicators. The Fund may
also include in advertisements and in materials furnished to present and
prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended May 31, 1999,
including the financial highlights appearing in the Annual Report to
shareholders are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund will normally be at least 90% invested in equities. As a temporary
defensive position, however, when the Advisor determines that market conditions
warrant such investments, the Fund may invest up to 100% of its assets in
investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments ("Investment-Grade Debt Securities"). When the Fund
invests in Investment-Grade Debt Securities as a temporary defensive measure, it
is not pursuing its investment objective. Under normal circumstances, however,
the Fund may invest in money market instruments as described in the Prospectus.
The various ratings used by the nationally recognized securities rating services
are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed-income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell, or hold a
security because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Group ("S&P") for bonds that are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and to repay
principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and to repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and to repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and to repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and to repay principal for bonds in this category than for
debt in higher rated categories.
To provide more detailed indications of credit quality, the AA, A, and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC, and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and principal
in accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While such bonds may
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes and
indicates very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc., ("Moody's") for bonds that are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin, and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
or fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Debt that is rated A possesses many favorable investment attributes
and is to be considered as an upper-medium-grade obligation. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Debt which is rated Baa is considered as a medium-grade
obligation, i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt
lacks outstanding investment characteristics and, in fact, has
speculative characteristics as well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A, and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
The Advisor does not consider bonds that are rated Ba, B, Caa, Ca, or C by
Moody's to be Investment-Grade Debt Securities. Bonds rated Ba are judged to
have speculative elements because their future cannot be considered as well
assured. Uncertainty of position characterizes bonds in this class because the
protection of interest and principal payments often may be very moderate and not
well safeguarded.
Bonds that are rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the security over any long period for time may be small. Bonds that are rated
Caa are of poor standing. Such securities may be in default, or there may be
present elements of danger with respect to principal or interest. Bonds that are
rated Ca represent obligations that are speculative in a high degree. Such
issues are often in default or have other marked shortcomings. Bonds which are
rated C are the lowest rated class of bonds, and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings' trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
The following summarizes the highest rating used by Moody's for short-term notes
and variable-rate, demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support, or demonstrated broad-based access to the market for
refinancing.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds that are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The
risk factors are more variable and greater in periods of economic
stress.
BBB - Bonds rated BBB have below-average protection factors but are
still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles.
Bonds rated BB, B, and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and to make principal payments
in accordance with the terms of the obligations. BB indicates the lowest degree
of speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1, and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc., ("Fitch") for bonds that are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and to repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and to repay
principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and to repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
to repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds and, therefore, impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A, and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category.
Bonds rated BB, B, and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and to make principal payments
in accordance with the terms of the obligations. BB indicates the lowest degree
of speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments, and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+
F-2 - Instruments assigned this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
<PAGE>
________________________________________________________________________________
NEW PROVIDENCE CAPITAL
GROWTH FUND
________________________________________________________________________________
a series of the New Providence Investment Trust
ANNUAL REPORT 1999
FOR THE YEAR ENDED MAY 31,
INVESTMENT ADVISOR
New Providence Capital Management, L.L.C.
2859 Paces Ferry Road, Suite 2125
Atlanta, Georgia 30339
NEW PROVIDENCE CAPITAL GROWTH FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
[New Providence Capital Management, L.L.C. letterhead]
Dear Investors,
The New Providence Capital Growth Fund uses a disciplined approach to investing
that attempts to identify medium sized growth companies that are developing into
tomorrow's blue chip enterprises. Our goal is to build a focused portfolio of
companies that will provide consistent earnings growth above the market average
with stock valuations below the market average. Through June, our portfolio had
met these objectives: the average expected 5 year earnings growth rate of
companies held by the fund was approximately 20.4% (above the market average);
the average price/earnings ratio of these companies was 25 times 1999 earnings
(below the market average).
FISCAL YEAR RESULTS
-------------------
The stock market in 1998 was dominated by only a few of the largest companies in
the U.S., until the 4th quarter. Because the fund concentrates its investments
in reasonably priced mid-cap growth stocks, this negatively impacted our fiscal
year results (see attached graph). The fund's performance, through the 3rd
quarter of 1998, was also negatively impacted by its focus in consumer cyclical
stocks, as fears gathered that the Asian crisis might drag the U.S. into
recession.
NEAR TERM PERFORMANCE
---------------------
Beginning in October of 1998, the market began to broaden, with small and medium
sized companies finally participating in the market rally. The same consumer
cyclical stocks that led the market down during the 3rd quarter of 1998 led the
market upward during the 4th quarter. Although our fiscal year performance
lagged the S&P 400 Mid-Cap Index, we have exceeded the benchmark since this
broadening began. From the 4th quarter of 1998 until the date of this writing
(7/2/99), the Fund returned 44.3%, versus 36.7% for the S&P 400 Mid-Cap Index
(and 36.8% for the S&P 500 Index). This performance has been achieved through
not deviating from our long-term discipline of investing in only those companies
meeting our strict quantitative and fundamental requirements. Namely, we are
looking for companies with strong business philosophies that have consistently
delivered earnings growth above expectations while selling at discounts to their
competitors and the overall market.
<PAGE>
Looking forward to the rest of 1999, we hope that the participation of medium
sized companies continues. Because these stocks, as a general rule, have
under-performed the broad market since November of 1997, New Providence believes
that they currently offer the superior relative investment value.
Thank you for the opportunity to serve you.
John Donaldson
Kyle Tomlin
Shannon Coogle
New Providence Capital Management, L.L.C.
Atlanta, Georgia
<PAGE>
NEW PROVIDENCE CAPITAL GROWTH FUND
Performance Update - $10,000 Investment
For the period from September 29, 1997 (Date of Initial Public Offering)
to May 31, 1999
--------------------------------------------------------------------
New Providence
Period Capital Growth Lipper Growth S&P 400
Ended Fund Fund Index Midcap Index
--------------------------------------------------------------------
9/29/97 $10,000 $10,000 $10,000
11/30/97 9,683 9,900 9,701
2/28/98 10,440 10,910 10,703
5/31/98 10,176 11,215 10,877
8/31/98 7,775 9,717 8,564
11/30/98 9,265 11,742 10,707
2/28/99 10,137 12,815 10,929
5/31/99 10,296 13,443 12,173
This graph depicts the performance of the New Providence Capital Growth Fund
versus the Lipper Growth Fund Index and the S&P 400 Midcap Index. It is
important to note that the New Providence Capital Growth Fund is a
professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
Average Annual Total Returns
- ----------------------------
One Year Since IPO
- ----------------------------
1.18% 1.76%
- ----------------------------
The graph assumes an initial $10,000 investment at September 29, 1997. All
dividends and distributions are reinvested.
At May 31, 1999, the New Providence Capital Growth Fund would have grown to
$10,296 - total investment return of 2.96% since September 29, 1997.
At May 31, 1999, a similar investment in the Lipper Growth Fund Index would have
grown to $13,443 - total investment return of 34.43%; and the S&P 400 Midcap
Index would have grown to $12,173 - total investment return of 21.73%, since
September 29, 1997. The S&P 400 Midcap Index replaces the S&P 500 Total Return
Index used in the prior year's annual report graph for illustrative purposes
because the Investment Advisor feels that the S&P 400 Midcap Index is a more
accurate comparison to the New Providence Capital Growth Fund's investment
strategy than the S&P 500 Total Return Index. For the fiscal year ended May 31,
1999, the investment in the New Providence Capital Growth Fund would have
increased in value by $120; the investment in the S&P 400 Midcap Index would
have increased in value by $1,296; while the investment in the S&P 500 Total
Return Index would have increased in value by $2,431.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 99.80%
Aerospace & Defense - 2.76%
(a)Gulfstream Aerospace Corporation ....................................... 10,300 $ 636,025
-----------
Apparel Manufacturing - 2.77%
(a)Tommy Hilfiger Corporation ............................................. 8,500 638,031
-----------
Beverages - 2.23%
Adolph Coors Company ................................................... 10,800 513,000
-----------
Building Materials - 2.32%
(a)Jacobs Engineering Group Inc. .......................................... 14,400 535,500
-----------
Commercial Services - 2.30%
(a)Sterling Commerce, Inc. ................................................ 13,600 528,700
-----------
Computers - 4.96%
National Computer Systems, Inc. ........................................ 15,500 484,375
(a)Sun Microsystems, Inc. ................................................. 11,000 657,250
-----------
1,141,625
-----------
Computer Software & Services - 6.27%
(a)BMC Software, Inc. ..................................................... 14,500 716,844
(a)Network Associates, Inc. ............................................... 10,200 149,812
(a)Oracle Corporation ..................................................... 23,250 576,891
-----------
1,443,547
-----------
Educational Services - 2.70%
(a)ITT Educational Services, Inc. ......................................... 26,100 621,506
-----------
Electronics - 6.03%
(a)Lexmark International Group, Inc. ...................................... 10,200 1,388,475
-----------
Entertainment - 4.31%
Carnival Corporation ................................................... 24,200 992,200
-----------
Financial Services - 7.14%
Capital One Financial Corporation ...................................... 7,200 1,084,950
Freddie Mac ............................................................ 9,600 559,800
-----------
1,644,750
-----------
Hand & Machine Tools - 5.20%
Danaher Corporation .................................................... 19,800 1,196,663
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Medical Supplies - 4.36%
Bergen Brunswig Corporation ............................................ 20,700 $ 455,400
(a)Genzyme Corporation .................................................... 13,500 547,594
-----------
1,002,994
-----------
Medical - Biotechnology - 6.90%
(a)Amgen Inc. ............................................................. 8,500 537,625
(a)Roberts Pharmaceutical Corporation ..................................... 55,300 1,050,700
-----------
1,588,325
-----------
Medical - Hospital Management & Services - 2.58%
(a)Wellpoint Health Networks Inc. ......................................... 7,200 593,550
-----------
Restaurants & Food Service - 5.57%
(a)Outback Steakhouse, Inc. ............................................... 35,750 1,282,531
-----------
Retail - Apparel - 6.01%
(a)Just For Feet, Inc. .................................................... 32,000 244,000
Intimate Brands, Inc. .................................................. 11,800 611,387
The TJX Companies, Inc. ................................................ 17,600 528,000
-----------
1,383,387
-----------
Retail - Department Stores - 2.22%
Dayton Hudson Corporation .............................................. 8,100 510,300
-----------
Retail - Grocery - 2.02%
(a)Safeway Inc. ........................................................... 10,000 465,000
-----------
Retail - Specialty Line - 6.49%
(a)Office Depot, Inc. ..................................................... 44,250 923,719
Tiffany & Co. .......................................................... 6,900 571,838
-----------
1,495,557
-----------
Scientific & Technical Instrument - 5.44%
(a)Waters Corporation ..................................................... 12,700 1,252,537
-----------
Telecommunications - 2.07%
CenturyTel, Inc. ....................................................... 12,450 476,991
-----------
Telecommunications Equipment - 3.08%
(a)ADC Telecommunications, Inc. ........................................... 14,500 708,687
-----------
Textiles - 1.81%
(a)Shaw Industries, Inc. .................................................. 24,700 416,813
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Transportation - Miscellaneous - 2.26%
(a)Swift Transportation Co., Inc. ......................................... 28,500 $ 521,017
-----------
Total Common Stocks (Cost $21,146,262) ...................................... 22,977,711
-----------
INVESTMENT COMPANY - 0.19%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares
(Cost $44,229) ......................................................... 44,229 44,229
-----------
Total Value of Investments (Cost $21,190,491 (b)) .................................. 99.99% $23,021,940
Other Assets Less Liabilities ...................................................... 0.01% 1,765
------ -----------
Net Assets .................................................................. 100.00% $23,023,705
====== ===========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation ................................................................... $ 3,306,031
Unrealized depreciation ................................................................... (1,474,582)
-----------
Net unrealized appreciation ............................................... $ 1,831,449
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999
ASSETS
Investments, at value (cost $21,190,491) ......................................................... $23,021,940
Cash ............................................................................................. 389
Income receivable ................................................................................ 7,315
Deferred organization expenses, net (note 4) ..................................................... 22,305
-----------
Total assets ................................................................................ 23,051,949
-----------
LIABILITIES
Accrued expenses ................................................................................. 28,244
-----------
NET ASSETS
(applicable to 1,972,232 shares outstanding; unlimited
shares of $0.01 par value beneficial interest authorized) ....................................... $23,023,705
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($23,023,705 / 1,972,232 shares) ................................................................. $11.67
===========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $21,047,643
Undistributed net realized gain on investments ................................................... 144,613
Net unrealized appreciation on investments ....................................................... 1,831,449
-----------
$23,023,705
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
STATEMENT OF OPERATIONS
Year ended May 31, 1999
INVESTMENT LOSS
Income
Dividends ..................................................................................... $ 62,025
---------
Expenses
Investment advisory fees (note 2) ............................................................. 163,383
Fund administration fees (note 2) ............................................................. 27,230
Distribution fees (note 3) .................................................................... 54,461
Custody fees .................................................................................. 3,410
Registration and filing administration fees (note 2) .......................................... 4,328
Fund accounting fees (note 2) ................................................................. 27,000
Audit fees .................................................................................... 10,000
Legal fees .................................................................................... 9,749
Securities pricing fees ....................................................................... 2,424
Shareholder recordkeeping fees ................................................................ 8,894
Shareholder servicing expenses ................................................................ 2,925
Registration and filing expenses .............................................................. 13,055
Printing expenses ............................................................................. 4,000
Amortization of deferred organization expenses (note 4) ....................................... 5,417
Trustee fees and meeting expenses ............................................................. 3,500
Other operating expenses ...................................................................... 3,458
---------
Total expenses .......................................................................... 343,234
---------
Net investment loss ................................................................ (281,209)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 144,609
Increase in unrealized appreciation on investments ................................................. 395,630
---------
Net realized and unrealized gain on investments ............................................... 540,239
---------
Net increase in net assets resulting from operations .................................... $ 259,030
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Period ended
May 31, May 31,
1999 1998 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss ........................................................... $ (281,209) $ (156,113)
Net realized gain from investment transactions ................................ 144,609 209,061
Increase in unrealized appreciation on investments ............................ 395,630 1,435,819
------------ ------------
Net increase in net assets resulting from operations ................... 259,030 1,488,767
------------ ------------
Distributions to shareholders from
Net realized gain from investment transactions ................................ (52,944) 0
------------ ------------
Capital share transactions
(Decrease) increase in net assets resulting from capital share transactions (b) (346,158) 21,675,010
------------ ------------
Total (decrease) increase in net assets ............................ (140,072) 23,163,777
NET ASSETS
Beginning of period ................................................................... 23,163,777 0
------------ ------------
End of period ......................................................................... $ 23,023,705 $ 23,163,777
============ ============
(b) A summary of capital share activity follows:
-------------------------------------------------------------------------
Year ended Period ended
May 31, 1999 May 31, 1998 (a)
Shares Value Shares Value
-------------------------------------------------------------------------
Shares sold ........................................... 9,828 $ 108,932 2,002,953 $ 21,687,588
Shares issued for reinvestment
of distributions ................................ 4,492 52,468 0 0
------------ ------------ ------------ ------------
14,320 161,400 2,002,953 $ 21,687,588
Shares redeemed ....................................... (43,923) (507,558) (1,118) (12,578)
------------ ------------ ------------ ------------
Net (decrease) increase ......................... (29,603) $ (346,158) 2,001,835 $ 21,675,010
============ ============ ============ ============
(a) For the period from July 11, 1998 (commencement of operations) to May 31, 1998.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NEW PROVIDENCE CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Period ended
May 31, May 31,
1999 1998 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................................. $11.57 $11.37 (b)
Income (loss) from investment operations
Net investment loss ....................................... (0.14) (0.08)
Net realized and unrealized gain on investments ........... 0.27 0.28
----------- -----------
Total from investment operations .................... 0.13 0.20
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions ............ (0.03) 0.00
----------- -----------
Net asset value, end of period ........................................ $11.67 $11.57
=========== ===========
Total return .......................................................... 1.18 % 1.76 %
=========== ===========
Ratios/supplemental data
Net assets, end of period ...................................... $23,023,705 $23,163,777
=========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...................... 1.58 % 1.79 % (c)
After expense reimbursements and waived fees ....................... 1.58 % 1.62 % (c)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...................... (1.29)% (1.41)% (c)
After expense reimbursements and waived fees ....................... (1.29)% (1.24)% (c)
Portfolio turnover rate ................................................. 148.37 % 57.27 %
(a) For the period from September 29, 1997 (date of initial public offering) to May 31, 1998.
(b) Includes undistributed net investment loss of $0.02 per share and undistributed net realized and unrealized gains of $1.39
per share, both of which were earned from July 11, 1997 (commencement of operations) through September 29, 1997.
(c) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
NEW PROVIDENCE CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The New Providence Capital Growth Fund (the "Fund") is a diversified
series of shares of beneficial interest of The New Providence
Investment Trust (the "Trust"). The Trust, an open-ended investment
company, was organized on July 9, 1997 as a Massachusetts Business
Trust and is registered under the Investment Company Act of 1940, as
amended. The investment objective of the Fund is to provide
shareholders with long-term capital growth, consisting of both realized
and unrealized capital gains. Current income is of secondary
importance. The Fund will seek to achieve this objective by investing
primarily in a portfolio of equity securities traded on domestic U.S.
exchanges or on over-the-counter markets. The Fund began operations on
July 11, 1997. As of May 31, 1999, one shareholder of record owned
93.96% of the outstanding shares of the Fund. The following is a
summary of significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted on a
national market system are valued at the last sales price as of
4:00 p.m. New York time on the day of valuation. Other securities
traded in the over-the-counter market and listed securities for
which no sale was reported on that date are valued at the most
recent bid price. Securities for which market quotations are not
readily available, if any, are valued by using an independent
pricing service or by following procedures approved by the Board
of Trustees. Short-term investments are valued at cost which
approximates value.
B. Federal Income Taxes - The Fund is considered a personal holding
company as defined under Section 542 of the Internal Revenue Code
since 50% of the value of the Fund's shares were owned directly
or indirectly by five or fewer individuals at certain times
during the last half of the year. As a personal holding company,
the Fund is subject to federal income taxes on undistributed
personal holding company income at the maximum individual income
tax rate. No provision has been made for federal income taxes
since substantially all taxable income has been distributed to
shareholders. It is the policy of the Fund to comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies and to make sufficient distributions of
taxable income to relieve it from all federal income taxes.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and income tax purposes primarily
because of losses incurred subsequent to October 31, which are
deferred for income tax purposes. The character of distributions
made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains were
recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded on
the trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is recorded
on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September and December, on a
date selected by the Trust's Trustees. In addition, distributions
may be made annually in December out of net realized gains
through October 31 of that year. Distributions to shareholders
are recorded on the ex-dividend date. The Fund may make a
supplemental distribution subsequent to the end of its fiscal
year ending May 31.
(Continued)
<PAGE>
NEW PROVIDENCE CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets, liabilities, expenses and revenues reported in
the financial statements. Actual results could differ from those
estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, New Providence Capital
Management, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the portfolio,
and furnishes advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities. As
compensation for its services, the Advisor receives a fee at the annual
rate of 0.75% of the Fund's average daily net assets.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.125% of the Fund's first $50 million of average daily
net assets, 0.10% of the next $50 million of average daily net assets,
and 0.075% of average daily net assets over $100 million. The
Administrator also receives a monthly fee of $2,250 for accounting and
recordkeeping services. The contract with the Administrator provides
that the aggregate fees for the aforementioned administration,
accounting and recordkeeping services shall not be less than $50,000
per year. The Administrator also charges the Fund for certain expenses
involved with the daily valuation of portfolio securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company
Act of 1940 (the "Act"), adopted a distribution plan pursuant to Rule
12b-1 of the Act (the "Plan"). The Act regulates the manner in which a
regulated investment company may assume expenses of distributing and
promoting the sales of its shares and servicing of its shareholder
accounts.
(Continued)
<PAGE>
NEW PROVIDENCE CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
The Plan provides that the Fund may incur certain expenses, which may
not exceed 0.25% per annum of the Fund's average daily net assets for
each year elapsed subsequent to adoption of the Plan, for payment to
the Distributor and others for items such as advertising expenses,
selling expenses, commissions, travel or other expenses reasonably
intended to result in sales of shares of the Fund or support servicing
of shareholder accounts. Expenditures incurred as service fees may not
exceed 0.25% per annum of the Fund's average daily net assets.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $32,084,763 and $32,078,021, respectively, for the year
ended May 31, 1999.
NOTE 6 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report distributions
from net realized gain from investment transactions that represent
short-term capital gain to its shareholders. The total amount of $.03
per share distributions for the year ended May 31, 1999, was classified
as short-term gain. Shareholders should consult a tax advisor on how to
report distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The New Providence Investment Trust and Shareholders
of New Providence Capital Growth Fund:
We have audited the accompanying statement of assets and liabilities of New
Providence Capital Growth Fund (the "Fund"), including the schedule of
investments, as of May 31, 1999, and the related statements of operations for
the year then ended, the statements of changes in net assets, and the financial
highlights for each of the periods presented. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
May 31, 1999, 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 New
Providence Capital Growth Fund as of May 31, 1999, the results of its operations
for the year then ended, the changes in its net assets, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
June 18, 1999
