Cusip Number 095848107
________________________________________________________________________________
BLUE RIDGE TOTAL RETURN FUND
A series of the
Blue Ridge Funds Trust
NL SHARES
________________________________________________________________________________
PROSPECTUS
April 1, 1999
The Blue Ridge Total Return Fund seeks total return from a combination of
capital appreciation and current income.
Manager
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Colonial Asset Management, Inc.
359 South Pine Street
Spartanburg, South Carolina 29302
1-800-773-3863
The Securities and Exchange Commission has not approved the securities being
offered by this prospectus or determined whether this prospectus is accurate and
complete. It is unlawful for anyone to make any representation to the contrary.
<PAGE>
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
Fees And Expenses Of The Fund............................................4
MANAGEMENT OF THE FUND.........................................................6
- ----------------------
The Investment Manager...................................................6
The Administrator........................................................7
The Transfer Agent.......................................................7
The Distributor..........................................................7
INVESTING IN THE FUND..........................................................8
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Minimum Investment.......................................................8
Purchase And Redemption Price............................................8
Purchasing Shares........................................................8
Redeeming Your Shares...................................................10
OTHER IMPORTANT INVESTMENT INFORMATION........................................12
- --------------------------------------
Dividends, Distributions And Taxes......................................12
Year 2000...............................................................13
Financial Highlights....................................................13
Additional Information..........................................Back Cover
<PAGE>
THE FUND
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INVESTMENT OBJECTIVE
The Blue Ridge Total Return Fund (the "Fund") seeks total return from a
combination of capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
In seeking to achieve its objective, the Fund, which is a diversified separate
investment portfolio of the Blue Ridge Funds Trust, may at times emphasize
investments that produce the following:
o capital appreciation
o income
o both capital appreciation and income
The Fund's investments are not limited to any specific type of security and the
Fund's Manager does not allocate Fund assets according to any formula or fixed
ratio. The Manager will vary the percentage of the Fund's assets allocated to
each of the above based on the Manager's judgement of market and economic
conditions, and based on the Manager's view of which of the above can best
achieve the Fund's objectives.
Capital Appreciation
The Manager uses a growth investment approach in selecting common stocks for
capital appreciation purposes. In general, when seeking capital appreciation,
the Fund emphasizes common stocks of medium to large capitalization companies
(i.e., companies having a minimum market capitalization of at least $1 billion
at the time of purchase).
Income
When seeking income, the Fund may purchase a variety of convertible securities,
preferred stocks, dividend paying common stocks, and investment-grade debt
securities. For the purpose of determining whether a security is
investment-grade, the Manager will only purchase securities that are rated at
least BBB by Moody's Investor Services, Inc., or Baa by Standard & Poor's Rating
Services, a division of the McGraw-Hill Companies, Inc. or are unrated
securities of similar investment quality. The Fund does not have a maturity
limitation policy regarding the investment grade securities it selects.
The Fund may also hold short-term investments including high quality commercial
paper, short-term corporate bonds, short-term securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and other cash
equivalents for a variety of purposes, including to provide liquidity, as a
temporary investment pending the purchase of other securities, or when the
Manger believes that the market is unfavorable for other types of investments.
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
The Fund is designed for investors seeking total return over the long term.
There can be no assurance that the Fund will be successful in meeting its
objective.
The Fund may invest in both equity and debt securities and, therefore, has some
exposure to the risks of both equity securities and fixed income instruments.
Equity Securities
Investments in equity securities (i.e., common stocks and preferred stocks) are
particularly subject to the risk of changing economic, stock market, industry
and company conditions which can adversely affect the value of the Fund's equity
holdings.
Fixed Income Instruments
The value of the Fund's debt holdings (i.e., investment-grade debt securities)
is subject to a number of risks as well:
o Interest Rate Risk: Generally, when interest rates fall, the value of the
Fund's debt holdings rises, and when interest rates rise, the value of the
Fund's debt holdings declines.
o Credit Risk: Another risk such as changes in the perceived creditworthiness
of certain issuers can also affect the value of the Fund's debt holdings.
Investment-grade debt securities, while normally exhibiting adequate
protection parameters, may have speculative characteristics, and,
consequently, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of such issuers to make
principal and interest payments than is the case for higher-grade debt
securities. Like debt securities, the value of convertible securities
fluctuates in relation to changes in interest rates. However, the value of
convertible securities also fluctuates in relation to the underlying common
stock.
o Maturity Risk: Maturity risk is another factor which can effect the value
of the Fund's debt holdings. The Fund does not have a limitation policy
regarding the length of maturity of its debt holdings. In general, the
longer the maturity of a debt obligation, the higher its yield and the
greater its sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price
stability.
<PAGE>
Additional Risks
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 will tend to rise during
periods of economic turbulence and decline during periods of stable growth.
It is expected that under normal market conditions, the annual portfolio
turnover rate for the Fund will not exceed 100%. High rates of portfolio
turnover may result in greater Fund trading costs. High rates of portfolio
turnover may also result in the realization of short-term capital gains.
Any distributions resulting from such gains will be considered ordinary
income for federal income tax purposes.
o Liquid or Short-Term Investments. Under normal market conditions, the Fund
expects to be fully invested in the securities described directly above.
For short-term holdings, the Fund may invest a substantial portion of its
assets in cash and money market instruments consisting of securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations having net assets of at least $500
million as stated on their most recently published financial statements;
commercial paper rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization; repurchase
agreements involving such securities; and, to the extent permitted by
applicable law and the Fund's investment restrictions, shares of other
investment companies investing solely in money market securities. 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.
<PAGE>
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 For NL Shares
(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 For NL Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees...............................................0.75%
Distribution and/or Service (12b-1) Fees......................None
Other Expenses................................................0.98%*
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Total Annual Fund Operating Expenses...........................1.73%
Fee Waiver and/or Expense Reimbursement.......................(0.28%)
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Net Expenses...................................................1.45%
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* The expense information in the table above reflects the Fund's
current expense structure as provided for in the Fund's
agreements with the Manager and the Fund's other service
providers. The Manager has entered into a contractual agreement
with the Fund under which it has agreed to waive or reduce its
fees and to assume other expenses of the Fund, if necessary, in
an amount that limits Total Fund Operating Expenses (exclusive of
interest, taxes, brokerage fees and commissions, extraordinary
expenses, and payments, if any, under a Rule 12b-1 Plan) to not
more than 1.45% of the NL Shares average daily net assets for the
fiscal year ending November 30, 1999. See "Expense Limitation
Agreement" for more detailed information.
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 $148 $459 $792 $1,735
- ------------------------- ------------ ------------- ------------- -------------
Performance: Because the Fund changed managers on April 1, 1999, there is no
performance history for the Fund under the current Manager.
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT MANAGER
On April 1, 1999, Colonial Asset Management, Inc. (the "Manager") became the
investment manager of the Fund pursuant to a new investment management agreement
approved by the shareholders of the Fund at a meeting held on March 30, 1999.
Under the new investment management agreement, the Manager receives a smaller
management fee than the previous investment manager. However, the Manger no
longer pays for all other services to the Funds, such as custodial, transfer
agency, or administrative services. The new management agreement has an initial
two-year period which begins on April 1, 1999, and will be in effect until April
1, 2001. Thereafter, the contract may be renewed on an annual basis subject to
an appropriate review by the Trustees.
Colonial Asset Management, Inc., 359 South Pine Street, Spartanburg, South
Carolina, 29302, is a corporation organized under the laws of South Carolina and
solely owned by Colonial Group, Inc. Colonial Asset Management was formed as the
result of a restructuring of Colonial Trust Company.
The Fund will be primarily managed by an investment team consisting of H. Walter
Barre and Barry D. Wynn, Chairman and President, respectively, of the Manager.
Messieurs Barre and Wynn have been with the Manager since inception. Prior to
1996, Messieurs Barre and Wynn served as Chairman and President, respectively,
for Colonial Trust Company.
The Manager has not previously served as an investment manager to any other
registered investment company. However, the executives and members of the
investment advisory staff of the Manager have extensive experience in other
capacities in managing investments for clients including trusts, corporations,
foundations, charitable organizations, retirement plans, and individuals.
The Manager's Compensation. For its services, the Manager is entitled to a fee,
which is calculated daily and paid monthly, as an annual rate of 0.750% of the
Fund's average daily net assets up to and including $20 million, 0.625% of the
Fund's average daily net assets on the next $30 million, and 0.500% of the
Fund's average daily net assets over $50 million.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
the Manager has entered into an expense limitation agreement with the Trust,
with respect to the Fund ("Expense Limitation Agreement"), pursuant to which the
Manager has agreed to waive or limit its fees and to assume other expenses so
that the total annual operating expenses of the Fund (other than interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable pursuant to a Rule 12b-1 Plan) are limited to 1.45% of
the average daily assets of the Fund.
<PAGE>
The Fund may at a later date reimburse the Manager the fees waived or limited
and other expenses assumed and paid by the Manager pursuant to the Expense
Limitation Agreement during any of the previous five (5) fiscal years, provided
the Fund has reached a sufficient asset size to permit such reimbursement to be
made without causing the total annual expense ratio of the Fund to exceed the
percentage limits stated above. Consequently, no reimbursement by the Fund will
be made unless: (i) the Fund's assets exceed $10 million; (ii) the Fund's total
annual expense ratio is less than the percentage stated above; and (iii) the
payment of such reimbursement has been approved by the Trust's Board of Trustees
on a quarterly basis.
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") serves as the administrator
and fund accounting agent for the Fund. The Administrator assists 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 Trust pursuant to a Fund
Accounting and Compliance Administration Agreement
THE TRANSFER AGENT
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Fund's
transfer, dividend paying, and shareholder servicing agent. 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 Trust pursuant to a Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. (the "Distributor") serves as the distributor of
the Fund's shares. The Distributor may sell Fund shares to or through qualified
securities dealers or others. With respect to the Class NL shares, the
Distributor receives no compensation from the Fund with respect to the sales of
such shares.
Other Expenses. In addition to the management fees, the Fund pays all expenses
not assumed by the Fund's Manager, 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.
<PAGE>
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
NL Shares are sold and redeemed at net asset value. The Fund has a minimum
initial investment of $5,000 for regular accounts and $2,000 for Individual
Retirement Accounts ("IRAs") and other tax-deferred retirement plans. The Fund
may, in the Manager's sole discretion, accept certain accounts with less than
the minimum investment.
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. Good form includes providing 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.
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 "Blue Ridge
Total Return Fund," to:
Blue Ridge Total Return Fund
NL Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
<PAGE>
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 Blue Ridge Total Return Fund - NL Shares
Acct. # 2000001067846
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 public offering price. The minimum
additional investment is $500. 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.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
<PAGE>
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. Investors who establish an Automatic Investment Plan may open an
account with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
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.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption requests should be addressed
to:
Blue Ridge Total Return Fund
NL Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests 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.
<PAGE>
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 (FAX# 252-972-1908). The confirmation instructions must include:
1) Fund name,
2) Shareholder name 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 ($1,000 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.
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.
<PAGE>
Small Accounts. All shares are purchased and redeemed in accordance with the
Fund's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $2,000 (due to redemptions, exchanges, or transfers,
and not due to market action) upon 60-days' written notice. If the shareholder
brings his account net asset value up to at least $2,000 during the notice
period, the account will not be redeemed. Redemptions from retirement plans may
be subject to federal income tax withholding.
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.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 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 an application form.
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund plans to qualify as a regulated investment company ("RIC") under
Subchapter M of the Code. As a RIC, the Fund will not be subject to federal tax
on its net investment income and net realized capital gains to the extent such
income and gains are distributed timely to its shareholders. Accordingly, the
Fund intends to distribute all of its net investment income and net realized
capital gains to its shareholders. Unless otherwise instructed by shareholders,
all dividend distributions will be reinvested in full and fractional shares of
the Fund to which they relate.
Although the Fund intends that it will be operated so that there will be no
federal income or excise tax liability, if any such liability is incurred as a
result of failing to qualify as a RIC, the investment performance will be
adversely affected by the tax liability incurred and paid.
Certain additional tax information appears in the Statement of Additional
Information.
<PAGE>
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 Trust'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 Trust and each of its
funds.
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the Fund. The financial data for the fiscal year ended
November 30, 1998 has been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such periods is incorporated into 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 incorporated into 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.
<PAGE>
(For a Share Outstanding Throughout the Period)
- ------------------------------------------------------ -------------------------
Period from
December 15, 1997
(commencement of
operations) to
November 30, 1998
- ------------------------------------------------------ -------------------------
Net Asset Value, Beginning of Period $10.00
- ------------------------------------------------------ -------------------------
Income from investment operations (a)
Net investment gain (loss) 0.02
Net realized and unrealized gain
(loss) on investments (c) 0.47
----
Total from investment operations 0.49
----
- ------------------------------------------------------ -------------------------
Distributions to shareholders from
Net investment income (0.02)
----
- ------------------------------------------------------ -------------------------
Net Asset Value, End of Period $10.47
======
- ------------------------------------------------------ -------------------------
Total return 4.86%
====
- ------------------------------------------------------ -------------------------
Ratios/supplemental data
- ------------------------------------------------------ -------------------------
Net Assets, End of Period $1,632,407
==========
- ------------------------------------------------------ -------------------------
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.65% (b)
After expense reimbursements and waived fees 1.58% (b)
- ------------------------------------------------------ -------------------------
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees 0.03% (b)
After expense reimbursements and waived fees 0.10% (b)
- ------------------------------------------------------ -------------------------
Portfolio turnover rate 116.16%
- ------------------------------------------------------ -------------------------
(a) Includes undistributed net investment income of $0.00 per share and
undistributed net realized gains and unrealized gains of $0.00 per share,
from December 1, 1997 (initial seed date) through December 15, 1997
(commencement of operations).
(b) Annualized.
(c) The amount shown in this caption for a share outstanding does not
correspond with the aggregate net realized and unrealized gain (loss) on
security transactions for the period ended November 30, 1998 due to the
timing of sales and repurchases of fund shares in relation to fluctuating
market values of the investments of the fund. Net realized and unrealized
loss of investments includes gains of $0.82 per share due to market
appreciation during the period and losses of $0.35 due to market
depreciation during the period.
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
BLUE RIDGE TOTAL RETURN FUND
NL SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These 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: Blue Ridge Total Return Fund
NL Shares
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.ncfunds.com
---------------
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet sit 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 SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-08391
<PAGE>
Statement of Additional Information
BLUE RIDGE TOTAL RETURN FUND
April 1, 1999
A series of the
BLUE RIDGE FUNDS TRUST
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone: (800) 773-3863
TABLE OF CONTENTS
Page
----
THE TRUST......................................................................1
DESCRIPTION OF PERMITTED INVESTMENTS...........................................1
INVESTMENT LIMITATIONS.........................................................3
THE MANAGER....................................................................5
THE ADMINISTRATOR..............................................................6
THE TRANSFER AGENT.............................................................7
THE DISTRIBUTOR................................................................7
THE CUSTODIAN..................................................................7
THE INDEPENDENT AUDITORS.......................................................7
TRUSTEES AND OFFICERS OF THE TRUST.............................................8
CALCULATION OF TOTAL RETURN...................................................10
PURCHASE AND REDEMPTION OF SHARES.............................................11
DETERMINATION OF NET ASSET VALUE..............................................12
TAXES .....................................................................13
PORTFOLIO TRANSACTIONS........................................................14
DESCRIPTION OF SHARES.........................................................16
FINANCIAL STATEMENTS..........................................................16
This Statement of Additional Information (the "Additional Statement") is meant
to be read in conjunction with the Prospectus dated April 1, 1999, for The Blue
Ridge Total Return Fund (the "Fund"), and is incorporated by reference in its
entirety into the Prospectus. Because this Statement of Additional Information
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 the Prospectus.
<PAGE>
THE TRUST
The Trust is a Delaware business trust registered with the Securities and
Exchange Commission ("SEC") as an open-end diversified management investment
company, commonly known as a "mutual fund." It is organized as a series company
and currently consists of one series, the Blue Ridge Total Return Fund, which
has one class of shares: Class NL shares. In the future, the Trust may establish
additional series and classes of shares. Colonial Asset Management, Inc. (the
"Manager") serves as the investment manager to the Fund and directs the Fund's
day-to-day operations. Capitalized terms not defined herein are defined in the
Fund's Prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
The primary investment strategies and risks of the Fund are described in the
Prospectus. In addition to the principal investment strategies discussed in the
Fund's Prospectus, the Fund may also employ the use of the financial instruments
described below in order to achieve its objective. The strategies set forth
below are not principal strategies of the Fund.
Money Market Instruments
The Fund may invest in money market instruments which 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 Group ("S&P"), Fitch Investors Service, Inc. ("Fitch"), or Duff &
Phelps ("D&P"), or if not rated, of equivalent quality in the Manager'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 Manager 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.
<PAGE>
Investment Company Shares
The Fund may invest in shares of money market mutual funds, to the extent set
forth under "Investment Limitations" below. Since such funds pay management fees
and other expenses, shareholders of the Fund would indirectly pay both the
Fund's expenses and the expenses of underlying funds with respect to the Fund's
assets invested therein. Applicable regulations prohibit the Fund from acquiring
the securities of other investment companies that are not "part of the same
group of investment companies" if, as a result of such acquisition, the Fund
owns more than 3% of the total voting stock of the company, more than 5% of the
Fund's total assets are invested in securities of any one investment company; or
more than 10% of the total assets of the Fund are invested in securities (other
than treasury stock) issued by all investment companies.
Non-Publicly Traded And Illiquid Securities
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("1933 Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the 1933 Act are referred to as private placements or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
Repurchase Agreements
Under a repurchase agreement, underlying debt instruments are acquired for a
relatively short period (usually not more than one week and never more than a
year) subject to an obligation of the seller to repurchase and the Fund to
resell the instrument at a fixed price and time, thereby determining the yield
during the Fund's holding period. This results in a fixed rate of return
insulated from market fluctuation during that holding period.
<PAGE>
Repurchase agreements may have the characteristics of loans by the Fund. During
the term of the repurchase agreement, the Fund retains the security subject to
the repurchase agreement as collateral securing the seller's repurchase
obligation, continually monitors on a daily basis the market value of the
security subject to the agreement and requires the seller to deposit with the
Fund collateral equal to any amount by which the market value of the security
subject to the repurchase agreements falls below the resale amount provided
under the repurchase agreement. The Fund will enter into repurchase agreements
(with respect to U.S. Government obligations, certificates of deposit, or
bankers' acceptances) with registered brokers-dealers, U.S. Government
securities dealers or domestic banks whose creditworthiness is determined to be
satisfactory by the Manager, pursuant to guidelines adopted by the Board of
Trustees. Generally, the Fund does not invest in repurchase agreements maturing
in more than seven days. The staff of the SEC currently takes the position that
repurchase agreements maturing in more than seven days are illiquid securities.
If a seller under a repurchase agreement were to default on the agreement and be
unable to repurchase the security subject to the repurchase agreement, the Fund
would look to the collateral underlying the seller's repurchase agreement,
including the security subject to the repurchase agreement, for satisfaction of
the seller's obligation to the Fund. In the event a repurchase agreement is
considered a loan and the seller defaults, the Fund might incur a loss if the
value of the collateral declines and may incur disposition costs in liquidating
the collateral. In addition, if bankruptcy proceedings are commenced with
respect to the seller, realization of the collateral may be delayed or limited
and a loss may be incurred.
INVESTMENT LIMITATIONS
Fundamental Policies
The Fund has adopted certain investment restrictions which, in addition to those
restrictions in the Prospectus, are fundamental and may not be changed without
approval by a majority vote of the Fund's shareholders. Such majority is defined
in the Investment Company Act of 1940, as amended ("1940 Act") as the lesser of
(i) 67% or more of the voting securities of the Fund present in person or by
proxy at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of the Fund.
The Fund:
1. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the 1940 Act which may
involve a borrowing, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other
than borrowings), except that the Fund may borrow up to an additional
5% of its total assets (not including the amount borrowed) from a bank
for temporary or emergency purposes (but not for leverage or the
purchase of investments).
2. May not issue senior securities, except as permitted under the 1940
Act.
<PAGE>
3. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and sale of
portfolio securities.
4. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
5. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
6. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the securities
of issuers, the principal business activities of which are in the same
industry.
7. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
8. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and restrictions as the
Fund.
Non-Fundamental Policies
The following are the Fund's non-fundamental operating policies, which may be
changed by the Board of Trustees of the Fund without shareholder approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the SEC or its staff, and provided that transactions
in options, futures contracts, options on futures contracts, or other
derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities, or
such other amounts as may be permitted under the 1940 Act. This
percentage restriction is with respect to the Fund's current holdings
of illiquid securities.
<PAGE>
4. Purchase securities of other investment companies except in compliance
with the 1940 Act.
5. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use futures or options on
futures transactions solely for bona fide hedging transactions (within
the meaning of the Commodity Exchange Act); provided, however, that the
Fund may, in addition to bona fide hedging transactions, use futures
and options on futures transactions if the aggregate initial margin and
premiums required to establish non-hedging positions, less the amount
by which any such options positions are in the money (within the
meaning of the Commodity Exchange Act), do not exceed 5% of the
liquidation value of the Fund's total assets.
6. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities
when bank borrowing exceed 5% of its total assets.
7. Make any loans other than loans of portfolio securities, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
Except for the fundamental investment limitations listed above and the Fund's
investment objective, all other investment policies, limitations and
restrictions described in the Prospectus and this Statement of Additional
Information are not fundamental and may be changed with approval of the Fund's
Board of Trustees. Unless noted otherwise, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from a change in the Fund's assets (i.e., due to cash inflows or
redemptions) or in market value of the investment or the Fund's assets will not
constitute a violation of that restriction.
THE MANAGER
Blue Ridge Advisors, Inc., 84 Villa Road, B37, Greenville, South Carolina 29615,
served as the Manager to the Fund pursuant to an investment management agreement
with the Trust (the "Management Agreement") from commencement of operations
(December 12, 1997) to March 31, 1999. For its services, the Manager was paid
$19,148 after waivers of $820 of the Management fees for the fiscal year ended
November 30, 1998.
On April 1, 1999, Colonial Asset Management, Inc. (the "Manager") became the
investment manager of the Fund pursuant to a new investment management agreement
approved by the shareholders of the Fund. Subject to the new investment
management agreement and the authority of the Trustees, the Manager provides
guidance and policy direction in connection with its daily management of the
Fund's assets. The Manager coordinates the investment and reinvestment of the
Fund's assets. The Manager 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.
<PAGE>
The new investment management agreement will be in effect for an initial term
ending April 1, 2001. For its services, the Manager is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of .750% of the Fund's
average daily net assets up to and including $20 million, 0.625% of the Fund's
average daily net assets on the next $30 million, and 0.500% of the Fund's
average daily net assets over $50 million.
Under the investment management agreement, the Manager is not liable for any
error of judgment or mistake of law or for any loss suffered by the Funds 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 Manager in the performance of its duties or from
its reckless disregard of its duties and obligations under the Agreement.
THE ADMINISTRATOR
The Trust has entered into a Fund Accounting and Compliance Administration
Agreement with The Nottingham Company, Inc. (the "Administrator"), a North
Carolina corporation, whose address is 105 North Washington Street, Post Office
Drawer 69, Rocky Mount, North Carolina 27802-0069.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange 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) review
and submit 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) take 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.
Compensation of the Administrator, based upon the average daily net assets of
the Fund, is at the following annual rates: 0.125% of the Fund's first $50
million of average daily net assets, 0.100% on the next $50 million, and 0.075%
on average daily net assets over $100 million. In addition, the Administrator
currently receives a monthly fee of $2,250 for accounting and record-keeping
services. The Administrator also charges the Trust for certain costs involved
with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses.
<PAGE>
THE 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, to serve as transfer, dividend paying, and
shareholder servicing agent for the Fund. The address of the Transfer Agent is
107 North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. As compensation for its services, the Transfer Agent receives a
shareholder record-keeping fee of $15.00 per shareholder per year with a minimum
total fee of $750 per month.
THE DISTRIBUTOR
Capital Investment Group, Inc. (the "Distributor"), Post Office Box 32249,
Raleigh, North Carolina 27622, acts as an underwriter and distributor of each
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 (the "Distribution Agreement") approved by the Board
of Trustees of 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
each 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.
THE CUSTODIAN
First Union National Bank of North Carolina (the "Custodian"), Two First Union
Center, Charlotte, North Carolina 28288-1151, serves as custodian for each
Fund's assets. The Custodian acts as the depository for each 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 each Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
THE INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP, 2500 One PPG Place, Pittsburgh, Pennsylvania
15222-5401, serves as independent auditors for the Fund. Deloitte & Touche LLP
is responsible for auditing the annual financial statements of the Fund.
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the State of Delaware. The name, address, and age of each Trustee and
officer is given below as well as their position(s) with the Trust and/or Fund
and principal occupations for the last five years. Each may have held other
positions with the named companies during that period. Those Trustees who are
"interested persons" (as defined in the 1940 Act) by virtue of their affiliation
with either the Trust or the Advisor are indicated by an asterisk (*).
<TABLE>
<S> <C> <C>
- --------------------------------- ------------------ ---------------------------------------------------
Position(s)
With Principal Occupation(s) During
Name, Address, and Age Fund/Trust Past 5 Years
- --------------------------------- ------------------ ---------------------------------------------------
H. Walter Barre, 50 President Chairman, Colonial Trust Company and CEO
359 South Pine Street of Colonial Asset Management.
Spartanburg, SC 29302
- --------------------------------- ------------------ ---------------------------------------------------
William Brewer Bradshaw, 36 Trustee Chairman, Capital Consulting Group, Inc.,
2004 Rolling Pines Drive (insurance and investment management
Columbia, SC 29206 consulting service) and Trustee, Baptist
Foundation of South Carolina.
- --------------------------------- ------------------ ---------------------------------------------------
Robert Inglis, 39 Trustee Attorney-Partner, Leatherwood, Walker, Todd
461 River Road & Mann (law firm) and Member, U.S. House
Travelers Rest, SC 29690 of Representatives (SC-4).
- --------------------------------- ------------------ ---------------------------------------------------
Geoffrey M. Salkow, 33 Trustee President, Colonial Capital Management,
200 Cuddy Court LLC, (registered investment advisor).^1
Naples, FL 34103
- --------------------------------- ------------------ ---------------------------------------------------
Johnnie M. Walters, 79 Trustee* Executive V.P./General Counsel, Colonial Trust
1804 N. Main Street Company, since 1996; previously, Partner with
Greenville, SC 29609-4729 Leatherwood, Walker, Todd & Mann (law firm).
- --------------------------------- ------------------ ---------------------------------------------------
C. Frank Watson, III, 28 Secretary Chief Operating Officer, The Nottingham
105 N. Washington Street Company, Inc. (administrator to the Fund).
Rocky Mount, NC 27802
- --------------------------------- ------------------ ---------------------------------------------------
Julian G. Winters, 30 Treasurer Legal and Compliance Director, The
105 N. Washington Street Nottingham Company, Inc. (administrator to
Rocky Mount, NC 27802 the Fund), since 1996; previously, Manager,
Tar Heel Medical, Inc.(pharmacy supplier).
- --------------------------------- ------------------ ---------------------------------------------------
Barry D. Wynn , 53 Vice-President President, Colonial Trust Company.
104 Plantation Drive
Spartanburg, SC 29302
- --------------------------------- ------------------ ---------------------------------------------------
1. Colonial Capital Management, LLC is not an "affiliate" of CAM, as defined in
the 1940 Act.
</TABLE>
<PAGE>
Compensation. Officers and Trustees 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. Each current Trustee of the Trust who is
not an "interested person" of the Trust is expected to receive the following
compensation during the fiscal year ending November 30, 1999:
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------- -------------------- -------------------- ------------------- --------------------
Pension or
Retirement
Benefits Total
Aggregate Accrued Estimated Compensation
Compensation As Part Annual from the
Name of Person, from the of Trust Benefits Upon Trust Paid to
Position Fund Expenses Retirement Trustees
- ----------------------------------- -------------------- -------------------- ------------------- --------------------
William Brewer Bradshaw $2,000 None None $2,000
- ----------------------------------- -------------------- -------------------- ------------------- --------------------
Robert Inglis $2,000 None None $2,000
- ----------------------------------- -------------------- -------------------- ------------------- --------------------
Geoffrey M. Salkow $2,000 None None $2,000
- ----------------------------------- -------------------- -------------------- ------------------- --------------------
</TABLE>
Principal Holders of Voting Securities. As of January 20, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) 30.410% of the then outstanding Shares 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 January 20, 1999.
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------ --------------------------------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
- ------------------------------------------ ------------------------------------ --------------------------------------
First Union Nation Bank, NC 73,749.287 shares 47.273%*
FBO Marion Gillespie IRA R/O
108 Carter Oaks Drive
Anderson, SC 29621
- ------------------------------------------ ------------------------------------ --------------------------------------
Janed Enterprises PSPT 30,688.005 shares 19.671%
DTD 12-31-94
P.O. Box 220
Taylors, SC 29687
- ------------------------------------------ ------------------------------------ --------------------------------------
Allen R. Gillespie 21,301.355 shares 13.654%
119 Oregon Street
Greenville, SC 29605
- ------------------------------------------ ------------------------------------ --------------------------------------
Blue Ridge Advisors, Inc. 10,015.069 shares 6.420%
P.O. Box 220
Taylors, SC 29687
- ------------------------------------------ ------------------------------------ --------------------------------------
* Deemed a "control person" of the Fund as defined by applicable SEC regulations.
</TABLE>
<PAGE>
CALCULATION OF TOTAL RETURN
The Fund may advertise its total return. The total return of the Fund refers to
the average compounded rate of return to a hypothetical investment for
designated time periods (including but not limited to, the period from which the
Fund commenced operations through the specified date), assuming that the entire
investment is redeemed at the end of each period. In particular, total return
will be calculated according to the following formula: P (1 + T)n = ERV, where P
= a hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations.
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 Total Return Index. 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. Of
course, there can be no assurance that any fund will experience the same
results. Performance comparisons may be useful to investors who wish to compare
a 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.
<PAGE>
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 a 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 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 information, charts, and illustrations relating to inflation and
the reflects 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.
PURCHASE AND REDEMPTION OF SHARES
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. 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. Currently, the following holidays are observed by the Trust:
New Year's Day, Martin Luther King's Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Shares of the Fund are offered on a continuous basis.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of the Fund for any period during
which the New York Stock Exchange, the Manager or any of the Trust's third party
service providers are not open for business.
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DETERMINATION OF NET ASSET VALUE
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 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 Board of
Trustees.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation.
o Equity securities are valued at the last sale price on the
principal exchange or market where they are traded.
o Securities which have not traded on the date of valuation, or
securities for which sales prices are not generally reported, are
valued at the mean between the current bid and asked prices.
o Securities listed on a non-U.S. exchange are valued at the last
quoted sale price available before the time when net assets are
valued.
o Bond and other fixed income securities (other than short-term
obligations) are valued on the basis of valuations furnished by a
pricing service, use of which has been approved by the Board of
Trustees. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance
upon quoted prices or exchange or over-the-counter prices, since
such valuations are believed to reflect more accurately the fair
value of such securities.
o Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which constitutes fair value as determined by the
Board of Trustees.
o Future contracts are normally valued at the settlement price on
the exchange on which they are traded.
o Securities for which there are no such valuations are valued at
fair value as determined in good faith by or at the direction of
the Board of Trustees.
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Trading in securities on most non-U.S. exchanges and over-the-counter markets is
normally completed before the close of regular trading on the New York Stock
Exchange and may also take place on days on which the New York Stock Exchange is
closed. If events materially affecting the value of non-U.S. securities occur
between the time when the exchange on which they are traded closes and the time
when the Fund's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees.
Interest income on long-term obligations held for the Fund is determined on the
basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued less amortization of any premium.
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. The securities so distributed would be valued at the same
amount at that assigned to them in calculation the net asset value of the shares
being sold. If a holder of shares received a distribution in kind, that holder
could incur brokerage or other charges in converting the securities to cash.
TAXES
The following is only a summary of certain income tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
income tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences of the Internal
Revenue Code of 1986, as amended ("Code"), and the regulations issued thereunder
as in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
The Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, the Fund intends to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, the Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of anyone issuer or of two or more
issuers which are engaged in the same, similar or related trades or businesses
if the Fund owns at least 20% of the voting power of such issuers.
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Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Fund will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income (the excess of short- and
long-term capital gains over short- and long-term capital losses) for the
one-year period ending on October 31 of that calendar year, plus certain other
amounts.
In certain cases, the Fund will be required to withhold, and remit to the U.S.
Treasury, 31% of any distributions paid to a shareholder who (1) has failed to
provide a correct taxpayer identification number, (2) is subject to backup
withholding by the Internal Revenue Service, or (3) has not certified to the
Fund that such shareholder is not subject to backup withholding.
If the Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates on its net investment income and net capital gain
without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of the Fund's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
State Taxes
Distributions by the Fund to shareholders and the ownership of shares maybe
subject to state and local taxes.
PORTFOLIO TRANSACTIONS
The Manager is authorized to select brokers and dealers to effect securities
transactions for the Fund. The Manager will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Manager generally seek reasonably competitive
commissions, the Trust will not necessarily be paying the lowest spread or
commission available. The Manager seeks to select brokers or dealers that offer
the Fund best price and execution or other services which are of benefit to the
Fund. Certain brokers or dealers assist their clients in the purchase of shares
and charge a fee for this service in addition to the Fund's public offering
price. In the case of securities traded in the over-the-counter market, the
Manager expects normally to seek to select primary market makers.
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The Manager may, consistent with the interests of the Fund, select brokers on
the basis of the research services they provide to the Manager. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Manager will be in addition to and not in lieu of the services required to
be performed by the Manager under the Management Agreement. If, in the judgment
of the Manager, the Fund or other accounts managed by the Manager will be
benefited by supplemental research services, the Manager is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining Fund strategy; providing
computer software used in security analyses; and providing Fund performance
evaluation and technical market analyses. The expenses of the Manager will not
necessarily be reduced as a result of the receipt of such information, and such
services may not be used exclusively, or at all, with respect to the Fund or
account generating the brokerage, and there can be no guarantee that the Manager
will find all of such services of value in advising the Fund.
It is expected that the Fund may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting Fund transactions for the Fund on
an exchange if a written contract is in effect between the Distributor and the
Fund expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the Fund for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking best execution and such other policies as
the Board of Trustees may determine, the Manager may consider sales of the
Fund's shares as a factor in the selection of broker-dealers to execute Fund
transactions for the Fund.
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The Board of Trustees has adopted a Code of Ethics governing personal trading by
persons who manage, or who have access to trading activity by the Fund. The Code
of Ethics allows trades to be made in securities that may be held by the Fund,
however, it prohibits a person from taking advantage of Fund trades or from
acting on inside information.
For the fiscal year ended November 30, 1998, the total dollar amount of
brokerage commissions paid by the Fund was $9,050.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company - a type of company
commonly known as a "mutual fund." It is registered as such under the 1940 Act.
The Trust, organized as a Delaware business trust, currently offers one class of
shares on behalf of the Total Return Fund.
Under Delaware law, annual election of Trustees is not required, and, in the
normal course, the Trust does not expect to hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Pursuant to the procedures set forth in Section 16(c) of the 1940 Act,
shareholders of record of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee by a vote cast in person or by proxy at a meeting
called for that purpose.
Except as set forth above, the Trustees will continue to hold office and may
appoint successor Trustees. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Trustees can,
if they choose to do so, elect all the Trustees of the Trust, in which event the
holders of the remaining shares will be unable to elect any person as a Trustee.
The Declaration of Trust of the Trust requires the affirmative vote of a
majority of the outstanding shares of the Trust.
The shares of the Fund, when issued, will be fully paid and non-assessable and
will have no preference, preemptive, conversion, exchange or similar rights.
FINANCIAL STATEMENTS
The audited financial statements for the period ended November 30, 1998,
including the financial highlights, appearing in the Trust's Annual Report to
Shareholders are incorporated by reference and made a part of this document.
