PROSPECTUS
December 31, 1999
REGIONAL OPPORTUNITY FUND:
OHIO, INDIANA, KENTUCKY
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The investment objective of the REGIONAL OPPORTUNITY FUND: OHIO, INDIANA,
KENTUCKY is to provide long-term capital growth by investing primarily in common
stocks and other equity securities of publicly-traded companies headquartered in
Greater Cincinnati and the Cincinnati tri-state region, and those companies
having a significant presence in the region. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this Prospectus.
The Regional Opportunity Fund: Ohio, Indiana, Kentucky (the "Fund") is a
non-diversified, open-end series of Dunhill Investment Trust, a registered
management investment company.
This Prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records. Although these securities
have been registered with the Securities and Exchange Commission, the Commission
has not approved or disapproved them for investment merit and has not passed on
the accuracy or adequacy of the information in this Prospectus. Anyone who
informs you otherwise is committing a criminal offense.
Regional
[LOGO] Opportunity
Fund
-----------------------
Ohio, Indiana, Kentucky
For information or assistance in opening an account, please call Toll-Free
1-877-624-6465.
TABLE OF CONTENTS
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Risk/Return Summary.................................................. 2
Synopsis of Costs and Expenses....................................... 3
Investment Objective, Investment Policies
and Risk Considerations............................................ 4
Pricing Alternatives................................................. 6
How to Purchase Shares............................................... 8
How to Redeem Shares................................................. 9
How Shares are Valued................................................ 11
Management of the Fund............................................... 11
Distributor and Distribution Plan.................................... 12
Dividends, Distributions and Taxes................................... 13
Financial Highlights................................................. 14
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RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
capital growth. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this Prospectus.
PRINCIPAL INVESTMENT STRATEGIES. In seeking to achieve the Fund's investment
objective, the Fund will invest primarily in common stocks and other equity
securities of publicly-traded companies headquartered in the Cincinnati
tri-state region, and those companies having a significant presence in the
tri-state region. Realization of current income is not a significant investment
consideration and any income realized will be incidental to the Fund's
objective.
The Fund's investment advisor will generally focus on large companies that have
exhibited a history of ten years or more of increased earnings and/or dividend
distributions per share. The investment advisor intends to limit portfolio
turnover in the Fund, believing that a long-term rather than a short-term
selection of investments is preferable.
PRINCIPAL RISKS OF INVESTING IN THE FUND. Stock market movements will affect the
Fund's share price on a daily basis. Declines are possible both in the overall
stock market and in the types of securities held by the Fund. The market value
common stocks and other equity securities can fluctuate significantly,
reflecting such things as the business performance of the issuing company,
investors' perceptions of the company or the overall stock market and general
economic or financial markets. As a result, there is a risk that you could lose
money by investing in the Fund. The portfolio manager's skill in choosing
appropriate investments for the Fund will determine in large part the Fund's
ability to achieve its investment objective. Shares of the Fund are not deposits
or obligations of, or guaranteed or endorsed by, any financial institution, and
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency.
The Fund's concentration in companies headquartered in or having a significant
presence in the Cincinnati tri-state regional generally will tie the performance
of the Fund to the economic environment of Cincinnati and the surrounding area.
There is no assurance that the demographic and economic characteristics and
other factors that the Advisor believes favor companies in the Cincinnati
tri-state region will continue in the future. The Fund is a non-diversified fund
and therefore may invest more than 5% of its total assets in the securities of
one or more issuers. Because a relatively high percentage of the assets of the
Fund may be invested in a limited number of issuers concentrated in a small
geographic area, the value of shares of the Fund may be more sensitive to any
single economic, business, political or regulatory occurrence that the value of
shares of a diversified investment company which does not invest primarily in a
single geographic area.
PERFORMANCE SUMMARY. The bar chart and performance table shown below provide an
indication of the risks of investing in the Fund from year to year since the
Fund's inception and by showing how the average annual returns of the Fund
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 will
perform in the future. Returns in the chart are provided for Class B shares
only. Sales loads are not reflected in the bar chart, and if sales loads were
reflected, returns would be less than those shown.
During the period shown in the bar chart, the
23.42% 54.83% highest return for a quarter was 34.46% during the
quarter ended December 31, 1998 and the lowest
(bar chart) return for a quarter was -3.03% during the quarter
ended September 30, 1998. The Fund's 1999
1997 1998 year-to-date Return as of September 30th was
4.10%.
Average Annual Total Returns for Periods Ended December 31, 1998:
Since Inception
One Year (July 24, 1996)
-------- ---------------
Regional Opportunity Fund (Class B) 50.83% 32.15%
Standard & Poor's 500 Index 28.58% 34.11%
*The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
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SYNOPSIS OF COSTS AND EXPENSES
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This table describes the fees and expenses that you will pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class B Class C
------- -------
Sales Charge Imposed on Purchases None None
Maximum Contingent Deferred Sales Charge
(As a percentage of original purchase price
or redemption prodeeds, whichever is lower) 5.00% 1.00%
Sales Charge Imposed on Reinvested Dividends None None
Redemption Fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Class B Class C
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Management Fees(1) 1.20% 1.20%
Distribution (12b-1) Fees 1.00% 1.00%
Other Expenses 1.44% 1.44%
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Total Annual Fund Operating Expenses(2) 3.64% 3.64%
(1) After waivers of management fees, such fees were .26% for the fiscal year
ended February 28, 1999.
(2) After waivers of management fees, total Fund operating expenses were 2.70%
for the fiscal year ended February 28, 1999. Waivers of management fees are
expected to continue indefinitely to the extent necessary to limit total
annual operating expenses to 2.70% of the Fund's average daily net assets.
However, management fee waivers may be terminated at any time and there is
no assurance that these waivers will continue in the current or future
fiscal years.
EXAMPLE:
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
Class B Class C
------- -------
1 Year $ 766 $ 366
3 Years 1,314 1,114
5 Years 1,883 1,883
10 Years 3,897 3,897
You would pay the following expenses if you did not redeem your shares:
Class B Class C
------- -------
1 Year $ 366 $ 366
3 Years 1,114 1,114
5 Years 1,883 1,883
10 Years 3,897 3,897
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INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
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The investment objective of the Fund is to provide long-term capital growth by
investing primarily in common stocks and other equity securities of
publicly-traded companies headquartered in Greater Cincinnati and the Cincinnati
tri-state region, and those companies having a significant presence in the
Cincinnati tri-state region ("Tri-State Regional Securities"). Realization of
current income will not be a significant investment consideration, and any such
income realized should be considered incidental to the Fund's objective. Any
investment involves risk, and there can be no assurance that the Fund will
achieve its investment objective. The investment objective and fundamental
investment limitations of the Fund may not be altered without the prior approval
of a majority, as defined by the Investment Company Act of 1940 (the "1940 Act")
of the Fund's shares.
INVESTMENT SELECTION. Through fundamental analysis the Advisor will attempt to
identify securities and groups of securities with potential for capital
appreciation. Under normal market conditions, not less than 65% of the Fund's
total assets will be invested in Tri-State Regional Securities. The Advisor will
generally focus on common stocks and other equity securities of large companies
headquartered or having a significant presence in the Cincinnati tri-state
region that have exhibited a history of ten years or more of increased earnings
and/or dividend distribution per share. The Fund will generally remain fully
invested at all times. The Advisor intends to limit portfolio turnover in the
Fund, believing that a long-term rather than a short-term selection of
investments is preferable.
The Advisor believes that the demographic and economic characteristics of
Greater Cincinnati and the Cincinnati tri-state region, including population,
employment, retail sales, personal income, bank loans, bank deposits and
residential construction are such that many companies headquartered in the
Cincinnati tri-state region, or having a significant presence in the region by
virtue of having a significant portion of their corporate earnings generated
from operations in the region, have a greater than average potential for capital
appreciation. For these purposes, the Advisor defines the Cincinnati tri-state
region to be Greater Cincinnati and its surrounding area, including all of Ohio,
Kentucky and Indiana. If a company is not headquartered in the Cincinnati
tri-state region, the Advisor will consider such company as having a
"significant presence" in the Cincinnati tri-state region if 50% or more of its
profits are generated from operations (including plants, offices or a sales
force) based in the region and/or the company employs 500 or more in its
operations within the region.
Under normal market conditions, at least 90% of the Fund's total assets will be
invested in equity securities (with at least 65% of the Fund's total assets
invested in Tri-State Regional Securities). The equity securities in which the
Fund may invest include common stocks, convertible preferred stocks, straight
preferred stocks and investment grade convertible bonds. The Fund may also
invest up to 5% of its net assets in warrants or rights to acquire equity
securities other than those acquired in units or attached to other securities.
As a temporary defensive measure, however, the Fund may invest up to 100% of its
total assets in investment grade bonds, U.S. Government Securities or money
market instruments. When the Fund invests its assets in investment grade bonds,
U.S. Government Securities or money market instruments as a temporary defensive
measure, it is not pursuing its stated investment objective.
RISK CONSIDERATIONS. The Fund's concentration in companies headquartered in or
having a significant presence in the Cincinnati tri-state region generally will
tie the performance of the Fund to the economic environment of Cincinnati and
the surrounding area. There is no assurance that the demographic and economic
characteristics and other factors that the Advisor believes favor companies in
the Cincinnati tri-state region will continue in the future. Moreover, the
Fund's portfolio may include securities of smaller companies and companies that
are not nationally recognized. The prices of stocks of such companies generally
are more volatile than those of larger or more mature companies, their
securities are generally less liquid, and they are more likely to be negatively
affected by adverse economic or market conditions. Moreover, because of its
concentration, the Fund's portfolio may be invested in a smaller number of
companies than a general equity mutual fund. This may result in imbalances
relative to diversification by industry sector. These limitations may also
restrict the Advisor from using certain traditional analytical measures employed
to select investments and also exclude some strategies that could offer superior
performance or reduce fluctuations in the values of such assets.
U.S. GOVERNMENT SECURITIES. The Fund may invest a portion of its assets in U.S.
Government Securities. "U.S. Government Securities" include 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 as well as
obligations of U.S. Government authorities, agencies and instrumentalities such
as Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, Federal Farm Credit Bank, Federal Home Loan Bank, Resolution
Funding Corporation, Financing Corporation, Tennessee Valley Authority and
Student Loan Marketing Association. U.S. Government Securities may be acquired
subject to repurchase agreements. While obligations of some U.S. Government
sponsored entities are supported by
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the full faith and credit of the U.S. Government, several are supported by the
right of the issuer to borrow from the U.S. Government, and still others are
supported only by the credit of the issuer itself. The guarantee of the U.S.
Government does not extend to the yield or value of the U.S. Government
Securities held by the Fund or to the Fund's shares.
MONEY MARKET INSTRUMENTS. Money market instruments may be purchased for
temporary defensive purposes when the Advisor believes that unusually volatile
or unstable economic and market conditions exist. When the Fund assumes a
temporary defensive posture, it may invest up to 100% of its net assets in money
market instruments. Under normal circumstances, money market instruments will
typically represent a portion of the Fund's portfolio, as funds awaiting
investment, to accumulate cash for anticipated purchases of portfolio securities
and to provide for shareholder redemptions and operational expenses of the Fund.
Money market instruments mature in thirteen months or less from the date of
purchase and include U.S. Government Securities (defined above) and corporate
debt securities (including those subject to repurchase agreements), bankers'
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes). At the time of
purchase, money market instruments will have a short-term rating in one of the
two highest categories by any nationally recognized statistical rating
organization ("NRSRO") or, if not rated, of equivalent quality in the Advisor's
opinion. See the Statement of Additional Information for a further description
of money market instruments.
REPURCHASE AGREEMENTS. The Fund may acquire U.S. Government Securities or other
high-grade debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
which reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in effect.
Delivery pursuant to the resale typically will occur within one to five days of
the purchase. For purposes of the 1940 Act, a repurchase agreement is considered
to be a loan collateralized by the securities subject to the repurchase
agreement. The Fund will not enter into a repurchase agreement which will cause
more than 10% of its assets to be invested in repurchase agreements which extend
beyond seven days and other illiquid securities.
INVESTMENT COMPANIES. In order to achieve its investment objective, the Fund may
invest in the securities of open-end investment companies which are generally
authorized to invest in securities eligible for purchase by the Fund. To the
extent the Fund does so, Fund shareholders 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.
Indirectly, then, shareholders may pay higher operational costs than if they
owned the underlying investment companies directly. The Fund will only invest in
other investment companies by purchase of such securities on the open market
where no commission or profit to a sponsor or dealer results from the purchase
other than the customary broker's commissions or when the purchase is part of a
plan of merger, consolidation, reorganization or acquisition. The Advisor will
waive its advisory fee for that portion of the Fund's assets invested in other
investment companies, except when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. In addition, the Fund will not invest more than 5% of its
total assets in securities of any single investment company, nor will it
purchase more than 3% of the outstanding voting securities of any investment
company.
FACTORS TO CONSIDER. The Fund is not intended to be a complete investment
program and there can be no assurance that the Fund will achieve its investment
objective. To the extent that a major portion of the Fund's portfolio consists
of common stocks and other equity securities, it may be expected that its net
asset value will be subject to greater fluctuation than a portfolio containing
mostly fixed-income securities. The Fund is a non-diversified fund and therefore
may invest more than 5% of its total assets in the securities of one or more
issuers. Because a relatively high percentage of the assets of the Fund may be
invested in the securities of a limited number of issuers, the value of shares
of the Fund may be more sensitive to any single economic, business, political or
regulatory occurrence than the value of shares of a diversified investment
company. The Fund may borrow only under certain limited conditions (including to
meet redemption requests), but not to purchase securities. Borrowing, if done,
would tend to exaggerate the effects of market fluctuations in the Fund's net
asset value until repaid. (See "Borrowing").
PORTFOLIO TURNOVER. The Fund sells portfolio securities without regard to the
length of time they have been held in order to take advantage of new investment
opportunities. The Fund's annual portfolio turnover generally is not expected to
exceed 100%. Market conditions may dictate, however, a higher rate of portfolio
turnover in a particular year. The degree of portfolio activity affects the
brokerage costs of the Fund and may have an impact on the amount of taxable
distributions to shareholders.
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<PAGE>
BORROWING. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary purposes and may increase the limit to 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 portfolio net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund would 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 such borrowing. The Fund will not make any
additional investments while its outstanding borrowings exceed 5% of the current
value 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. 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. Included within the category of illiquid securities are restricted
securities, which cannot be resold to the public without registration under the
federal securities laws. Unless registered for sale, these securities can only
be sold in privately negotiated transactions or pursuant to an exemption from
registration.
PRICING ALTERNATIVES
================================================================================
The Fund offers two separate share classes, Class B and Class C. Each share
class represents an ownership interest in the same investment portfolio, but
each class has its own sales charge and expense structure. Whether you purchase
Class B or Class C shares, you will invest the full amount of your purchase
price. You may, however, be subject to a contingent deferred sales charge when
you sell Class B or Class C shares.
Generally, Class C shares are only eligible for purchase by clients of
broker-dealers, investment advisers, third-party administrators or consultants
that have entered into an arrangement with the Manager providing for the use of
Fund shares in investment products or services made available to their clients.
Absent such an arrangement, your investment will be made in Class B shares.
CLASS B SHARES - DEFERRED SALES CHARGE
Shares of the Fund are sold at net asset value and are subject to a contingent
deferred sales charge ("CDSC") at the rates set forth in the chart below if they
are redeemed within five years of their date of purchase. Shares are sold
without a front-end sales charge so that the Fund will receive the full amount
of the investor's purchase payment. Dealers, however, will receive commissions
from the Manager in connection with sales of Fund shares. These commissions will
be paid from the Manager's own funds.
The Manager currently expects to pay sales commissions to dealers at the time of
sale of up to 4.5% of the purchase price of the Class B shares sold by such
dealer. An additional 0.5% of the purchase price of such shares will be paid by
the Manager to the Distributor. The Manager will use its own funds or funds
facilitated by the Manager (which may be borrowed or otherwise financed) to pay
such sales commission.
Proceeds from the CDSC and the distribution fees payable under the Fund's
Distribution Plan (up to 1% of the Fund's average net assets) will be paid to
the Manager and are used in whole or in part by the Manager to defray the
expenses of dealers and sales personnel related to providing
distribution-related expenses to the Fund in connection with the sale of Fund
shares, such as the payment of commissions to dealers and sales personnel for
selling shares. The combination of the CDSC and the ongoing distribution fees
facilitates the ability of the Fund to sell Fund shares without a front-end
sales charge.
A CDSC applies if a redemption of Fund shares is made during the five years
since the purchase of such shares. The charge declines from 5% to zero over a
five year period. The CDSC will be deducted from the redemption proceeds and
will reduce the amount paid to the redeeming investor. A CDSC will be applied to
the lesser of the original purchase price or the current value of the shares
being redeemed. Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC will be imposed on
shares issued through reinvested dividends or capital gains distributions.
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<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years from
the time of initial purchase of Fund shares until the time the shares are
redeemed in accordance with the following schedule.
Contingent Deferred Sales
Charge as a Percentage of
Years Since Purchase Payment Made Dollar Amount
--------------------------------- -------------
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and Thereafter None
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest applicable rate
being charged. Therefore, it will be assumed that the redemption is first of
shares held for over five years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the five-year
period. The charge will not be applied to dollar amounts representing an
increase in net asset value since the time of purchase.
To provide an example, assume an investor purchased 100 shares at $10 per share
(at a cost of $1,000) and in the third year after purchase, the net asset value
per share is $12 and, during such time, the investor has acquired 10 additional
shares upon dividend reinvestment. If at such time the investor makes his first
redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the
deferred sales charge because of dividend reinvestment. With respect to the
remaining 40 shares, the deferred sales charge is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate
of 3% (the applicable rate in the third year after purchase).
The Fund offers the following waiver policies, which are designed to eliminate
the CDSC when a shareholder's state of affairs unexpectedly changes or under the
other limited circumstances described below. For the waiver to become effective,
the shareholder or shareholder's estate must meet all the conditions of the
waiver policy. Please note that additional documentation may be required
depending on the policy requirements.
1. DEATH. The CDSC is waived when death occurs on an individual account if the
beneficiary redeems all or part of the investment within one year of death. A
letter of instruction to redeem from the estate administrator must accompany a
certified certificate of death and a copy of the instrument appointing the
administrator. Shares transferred to a beneficiary's account retain the same
CDSC status as the original account. Death of fewer than all shareholders in a
joint account will not qualify a share redemption for the waiver at any time
during the period in which the CDSC applies. The remaining shareholder(s) retain
the same CDSC status had the death not occurred.
2. DISABILITY. The CDSC is waived when an individual becomes disabled at any
age. Disability is defined using the definition contained in the Internal
Revenue Code. A person is generally considered disabled if he cannot do any
substantial gainful activity (comparable to what he engaged in prior his
disability) because of any physical or mental impairment. A physician must
determine that the impairment is expected to continue for a long and indefinite
period or to result in death. Qualifying shares must be redeemed within one year
of the initial disability. Subsequent disabling events may extend the one year
redemption period if the disability is separate and distinct from the initial
qualifying disability. The following documentation is required: A letter of
instruction to redeem must accompany a copy of Social Security Administration
Schedule R or a notarized letter from the shareholder's physician describing the
nature of the disability, the date of onset, and a statement that the disability
is semi-permanent or expected to result in death.
3. MINIMUM REQUIRED DISTRIBUTIONS. The CDSC is waived in connection with
distributions from IRA, 403(b)(7), and qualified employee benefit plan accounts
due to the shareholders reaching age 70 1/2.
4. INVOLUNTARY REDEMPTIONS. The CDSC is waived in connection with involuntary
redemptions of Fund shares in accounts with low balances as described in "How to
Redeem Shares" below.
5. SYSTEMATIC WITHDRAWAL. The CDSC is waived when a shareholder chooses to
systematically redeem Fund shares. See "Systematic Withdrawal Plan" below. The
waiver will apply only to accounts valued at greater than $10,000, and the total
annual redemption may not exceed 15% of the initial value of the Fund shares
when the Plan is established. Future distributions must be reinvested. A letter
of instruction or Systematic Withdrawal Plan must be sent to the Manager.
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<PAGE>
CLASS C SHARES - LEVEL SALES CHARGE
If you purchase Class C shares, you do not pay an initial sales load at the time
of purchase. However, if you redeem your Class C shares within one year after
purchase, you will be charged a deferred sales charge of 1.00%. The charge will
apply to the lesser of the original cost of the shares being redeemed or the
proceeds of your redemption. You will not be charged a deferred sales charge
when you redeem shares that you acquire through reinvestment of Fund dividends
or distributions. The deferred sales charge relating to Class C shares will be
waived in the same circumstances as described for Class B shares above.
Although Class C shares are sold without an initial sales charge, the Manager
normally pays a sales commission of up to 1.00% of the purchase price of Class C
shares to the dealer from its own resources at the time of sale. The Manager
uses the money it receives from the deferred sales loads and the distribution
(12b-1) fees to cover the costs of marketing, advertising, and compensating the
securities dealer who assists you in purchasing Fund shares.
HOW TO PURCHASE SHARES
================================================================================
Assistance in opening accounts may be obtained from the Manager by calling Toll
Free 1-877-624-6465 or by writing to the Fund at the address shown below for
regular mail orders. Assistance is also available through any broker-dealer
authorized to sell shares of the Fund. Such broker-dealer may charge you a fee
for its services. Payment for shares purchased for your account may be made
through the broker-dealer processing your application and order to purchase.
Your investment will purchase shares at the net asset value next determined
after your order is received by the Fund in proper form as indicated herein. The
minimum initial investment in the Fund is $1,000 ($250 for IRAs). The Fund may,
in the Manager's sole discretion, accept certain accounts with less than the
stated minimum initial investment.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. All orders received by the Manager, whether by mail, bank wire or
facsimile order, prior to 4:00 p.m., Eastern time, will purchase shares at the
next determined public offering price on that business day. If your order is not
received by 4:00 p.m., Eastern time, your order will purchase shares at the
public offering price determined on the next business day. Broker-dealers are
responsible for transmitting properly completed orders so that they will be
received by 4:00 p.m., Eastern time.
REGULAR MAIL ORDERS. Please complete and sign the Account Application form
accompanying this Prospectus and send it with your check, made payable to the
Regional Opportunity Fund, and mail it to:
REGIONAL OPPORTUNITY FUND
C/O SHAREHOLDER SERVICES
700 W. PETE ROSE WAY, SUITE 127
CINCINNATI, OHIO 45203
BANK WIRE ORDERS. Investments can be made directly by bank wire. To establish a
new account or add to an existing account by wire, please call the Fund, at TOLL
FREE 1-877-624-6465 before wiring funds, to advise the Fund of the investment,
the dollar amount and the account registration. This will ensure prompt and
accurate handling of your investment. Please have your bank use the following
wiring instructions to purchase by wire:
THE FIFTH THIRD BANK
ABA# 042000314
FOR DUNHILL INVESTMENT TRUST #729-36705
FOR THE REGIONAL OPPORTUNITY FUND
(SHAREHOLDER NAME AND ACCOUNT NUMBER)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. Once your wire is
sent you should, as soon as possible thereafter, complete and mail your Account
Application to the Fund as described under "Regular Mail Orders," above.
Investors should be aware that some banks may impose a wire service fee.
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<PAGE>
ADDITIONAL INVESTMENTS. You may add to your account by mail or wire at any time
by purchasing shares at the then current net asset value or public offering
price as aforementioned. Before making additional investments by bank wire,
please call the Fund, at TOLL FREE 1-877-624-6465 to alert the Fund that your
wire is to be sent. Follow the wire instructions above to send your wire. When
calling for any reason, please have your account number ready, if known. Mail
orders should include, when possible, the "Invest by Mail" stub which is
attached to your Fund confirmation statement. Otherwise, be sure to identify
your account in your letter.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or bimonthly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Manager will automatically charge the checking account for the
amount specified ($50 minimum), which will be automatically invested in shares
at net asset value or the public offering price, whichever is applicable, on or
about the fifteenth day and/or the last business day of the month. Shareholders
may change the amount of the investment or discontinue the plan at any time by
writing to the Manager.
STOCK CERTIFICATES. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
which will show the number of shares owned.
OTHER PURCHASE INFORMATION. Under certain circumstances, the Advisor, in its
sole discretion, may allow payment in kind for Fund shares purchased by
accepting securities in lieu of cash. Any securities so accepted would be valued
on the date received and included in the calculation of the net asset value of
the Fund. See the Statement of Additional Information for more information on
purchases in kind.
Due to Internal Revenue Service ("IRS") regulations, the Fund is required to,
and will, withhold taxes on all distributions and redemption proceeds without
social security or tax identification numbers, if the number is not delivered to
the Fund within 60 days. If, however, you have already applied for a social
security or tax identification number at the time of completing your account
application, the application should so indicate. Investors should be aware that
the Fund's account application contains provisions in favor of the Fund, the
Manager and certain of their affiliates, excluding entities from certain
liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services made available to
investors.
Should an order to purchase shares be cancelled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Fund or the Manager in the transaction.
HOW TO REDEEM SHARES
================================================================================
Shares of the Fund may be redeemed on each day that the Fund is open for
business. The Fund is open for business on each day the New York Stock Exchange
(the "Exchange") is open for business. Any redemption may be for more or less
than the purchase price of your shares depending on the market value of the
Fund's portfolio securities. All redemption orders received in proper form, as
indicated herein, by the Manager prior to 4:00 p.m., Eastern time, will redeem
shares at the net asset value determined as of that business day's close of
trading, less any applicable contingent deferred sales charge. Otherwise, your
order will redeem shares on the next business day. There is no charge for
redemptions from the Fund other than the contingent deferred sales charge
imposed on certain redemptions of Fund shares. You may also redeem your shares
through a broker-dealer or other institution which may charge you a fee for its
services.
The Board of Trustees reserves the right to involuntarily redeem any account
having an account value of less than $1,000 (due to redemptions, exchanges or
transfers, but not due to market action) upon 30 days' written notice. If the
shareholder brings his account value up to $1,000 or more during the notice
period, the account will not be redeemed. Redemptions from retirement plans may
be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at Toll Free 1-877-624-6465 or write to the address shown below.
-9-
<PAGE>
REGULAR MAIL REDEMPTIONS. Your request should be addressed to the Regional
Opportunity Fund, 700 W. Pete Rose Way, Suite 127, Cincinnati, Ohio 45203. Your
request for redemption must include:
1) your letter of instruction specifying the account number and the
number of shares or 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"); 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 will be mailed to you within three business 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) may
be reduced or avoided if the purchase is made by wire transfer. In such cases,
the net asset value next determined after receipt of the request for redemption
will be used in processing the redemption and your redemption proceeds will be
mailed to you upon clearance of your check to purchase shares. The Fund may
suspend redemption privileges or postpone the date of payment (i) during any
period that the Exchange is closed, or trading on the Exchange is restricted as
determined by the Securities and Exchange Commission (the "Commission"), (ii)
during any period when an emergency exists as defined by the rules of the
Commission as a result of which it is not reasonably practicable for the Fund to
dispose of securities owned by it, or to fairly determine the value of its
assets, and (iii) for such other periods as the Commission may permit.
TELEPHONE AND BANK WIRE REDEMPTIONS. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. You may redeem
shares, subject to the procedures outlined below, by calling the Fund at Toll
Free, 1-877-624-6465. The Fund will redeem shares when requested by telephone
if, and only if, the shareholder confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX # 513-345-4841). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder;
4) Shareholder signature as it appears on the application then on file
with the Fund; and
5) Any required signature guarantees (see "Signature Guarantees").
In such cases, the net asset value used in processing the redemption will be the
net asset value next determined after the telephone request is received.
Proceeds from the redemption of Fund shares will be reduced by the amount of any
applicable contingent deferred sales charge imposed on such shares. Redemption
proceeds will not be remitted until written confirmation of the redemption
request is received. 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. Redemption proceeds will only be sent to the bank account or person
named in your Account Application currently on file with the Fund. You can
change your redemption instructions anytime you wish by filing a letter with the
Fund including your new redemption instructions. (See "Signature Guarantees.")
The Fund reserves the right to restrict or cancel telephone redemption
privileges for any or all shareholders, without notice, if the Trustees believe
it to be in the best interest of the shareholders to do so. During drastic
economic and market changes, telephone redemption privileges may be difficult to
implement.
Neither the Trust, the Manager, nor their respective affiliates will be liable
for complying with telephone instructions they reasonably believe to be genuine
or for any loss, damage, cost or expense in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or the Manager, or both, will employ reasonable procedures to determine
that telephone instructions are genuine. If the Trust and/or the Manager do not
employ such procedures, they may be liable for losses due to unauthorized or
fraudulent instructions. These procedures may include, among others, requiring
forms of personal identification prior to acting upon telephone instructions,
providing written confirmation of the transactions and/or tape recording
telephone instructions.
There is currently no charge by the Manager for wire redemptions. However, the
Manager reserves the right, upon thirty days' written notice, to make reasonable
charges for wire redemptions. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In
-10-
<PAGE>
the event that wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
SYSTEMATIC WITHDRAWAL PLAN. A shareholder who owns shares of the Fund valued at
$5,000 or more at the current net asset value may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount of
not less than $50. 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 or paid in cash. Systematic withdrawals may be
deposited directly to the shareholder's bank account by completing the
applicable section on the Account Application form accompanying this Prospectus,
or by calling or writing the Fund. See the Statement of Additional Information
for further details.
The amount of regular periodic payments specified by shareholders pursuant to a
Systematic Withdrawal Plan will be reduced by any applicable contingent deferred
sales charge. Because of the effects of this deferred sales charge, the
maintenance of a Systematic Withdrawal Plan may be disadvantageous for
shareholders.
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, and (2)
requests to establish or change redemption services other than through your
initial account application, and (3) requests for redemptions in excess of
$25,000. Signature guarantees are acceptable from a member bank of the Federal
Reserve System, a savings and loan institution, credit union, registered
broker-dealer or a member firm of a U.S. Stock Exchange, and must appear on the
written request for redemption or change of registration.
HOW SHARES ARE VALUED
================================================================================
The net asset value of shares of the Fund is determined on each business day
that the Exchange is open for trading, as of the close of the Exchange
(currently 4:00 p.m., Eastern time). Net asset value per share is determined by
dividing the total value of all Fund securities (valued at market value) and
other assets, less liabilities, by the total number of shares then outstanding.
Net asset value includes interest on fixed-income securities, which is accrued
daily. The net asset value per share will be affected by the expenses accrued
and payable by the Fund. The price at which a purchase or redemption of Fund
shares is effected is based on the next calculation of net asset value after the
order is placed.
Securities which are traded over-the-counter are priced at the last sale price,
if available, otherwise, at the last quoted bid price. Securities traded on a
securities exchange are valued based upon the closing price on the valuation
date on the principal exchange where the security is traded. Securities that are
listed on an exchange and which are not traded on the valuation date are valued
at the bid price. Securities in which market quotations are not readily
available may be valued on the basis of prices provided by an independent
pricing service, when such prices are believed to reflect the fair market value
of such securities. Securities and other assets for which no quotations are
readily available will be valued in good faith at fair value using methods
determined by the Board of Trustees.
MANAGEMENT OF THE FUND
================================================================================
The Fund is a non-diversified series of Dunhill Investment Trust (the "Trust"),
an investment company organized as an Ohio business trust. The Board of Trustees
has overall responsibility for management of the Fund under the laws of Ohio
governing the responsibilities of Trustees of business trusts. The Statement of
Additional Information identifies the Trustees and officers of the Trust and
provides information about them.
MANAGER. The Trust retains Dunhill Investment Advisors, Limited, 700 W. Pete
Rose Way, Cincinnati, Ohio 45203 (the "Manager"), to provide general investment
supervisory services to the Fund. The controlling shareholders of the Manager
are Jasen M. Snelling, Jerry A. Smith, Bryan E. Pifer and William C. Riffle. The
Fund pays the Manager a fee equal to the annual rate of 1.20% of the average
value of its daily net assets.
The Manager currently intends to waive its management fees and reimburse the
Fund for expenses to the extent necessary to limit total operating expenses
(exclusive of interest, taxes, brokerage commissions, sales charges and
extraordinary expenses) to 2.70% per annum of the Fund's average daily net
assets. However, there is no assurance that any voluntary fee waivers or expense
reimbursements will continue in the current or future fiscal years, and expenses
may therefore exceed 2.70% of the Fund's average daily net assets.
-11-
<PAGE>
INVESTMENT ADVISOR. CityFund Advisory, Inc. (the "Advisor") has been retained by
the Manager to provide the Fund with a continuous program of supervision of the
Fund's assets, including the composition of its portfolio, and furnishes advice
and recommendations with respect to investments, investment policies and the
purchase and sale of securities, pursuant to an Investment Advisory Agreement
with the Trust. The Advisor is also responsible for the selection of
broker-dealers through which the Fund executes portfolio transactions, subject
to brokerage policies established by the Trustees. The Advisor's address is 700
W. Pete Rose Way, Suite 127, Cincinnati, Ohio 45203. The controlling
shareholders of the Advisor are Jasen M. Snelling and Jerry A. Smith.
The Advisor is an affiliate of the Manager. Jill H. Travis is primarily
responsible for the day-to-day management of the Fund's portfolio and has
managed the Fund since November 1995. Ms. Travis formerly served as portfolio
manager of the Amelia Earhart: Eagle Equity Fund, another investment company,
from 1993 to 1998. Since 1991, Ms. Travis has been a self-employed certified
financial planner and business consultant.
Under the Investment Advisory Agreement with the Fund, the Advisor receives from
the Manager (not the Fund) a monthly management fee equal to an annual rate of
.50% of the average daily net assets of the Fund.
OTHER EXPENSES. The Fund is responsible for the payment of all of its operating
expenses. These include the fees payable to the Manager, the fees and expenses
of the Fund's administrator, custodian and transfer agent, the fees and expenses
of Trustees, outside auditing and legal expenses, all taxes and corporate fees
payable by the Fund, registration fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, costs of shareholder reports and shareholder
meetings, and any extraordinary expenses. The Fund also pays for brokerage
commissions and transfer taxes (if any) in connection with the purchase and sale
of portfolio securities.
BROKERAGE. In selecting broker-dealers through which to execute brokerage
transactions for the Fund, the Advisor attempts to obtain the best execution for
all such transactions. If it is believed that more than one broker is able to
provide the best execution, the Advisor will consider the receipt of quotations
and other market services, receipt of research, statistical and other data and
the sale of shares of the Fund in selecting a broker. 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 Statement
of Additional Information contains more information about the management and
brokerage practices of the Fund.
DISTRIBUTOR AND DISTRIBUTION PLAN
================================================================================
Unified Management Corporation, 431 North Pennsylvania Street, Indianapolis,
Indiana 46204 (the "Distributor"), is the national distributor for the Fund
under an Underwriting Agreement with the Trust. The Distributor may sell Fund
shares to or through qualified securities dealers or others.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse any expenditures to
finance any activity primarily intended to result in the sale of Fund shares or
the servicing of shareholder accounts, including, but not limited to the
following: (i) payments to the Manager, securities dealers and others for the
sale of Fund shares or the servicing of shareholder accounts, including payments
used to pay for or finance sales commissions and other fees payable to dealers
and others who may sell Fund shares or service accounts of shareholders; (ii)
payment of compensation to and expenses of personnel who engage in or support
distribution of shares or who render shareholder support services not otherwise
provided by the Manager or Custodian; and (iii) formulation and implementation
of marketing and promotional activities. Expenditures by the Fund pursuant to
the Plan are accrued based on average daily net assets and may not exceed 1% of
its average net assets for each year elapsed subsequent to the adoption of the
Plan. Such expenditures paid as service fees to any person who sells shares of
the Fund may not exceed .25% of the Fund's average daily net assets; such
expenditures paid as distribution fees for distribution-related activities as an
asset-based sales charge under the Plan may not exceed .75% of the Fund's
average daily net assets.
The distribution fees payable under the Plan are designed to permit an investor
to purchase Fund shares through dealers without the assessment of a front-end
sales charge and at the same time to permit the dealer to compensate its
personnel in connection with the sale of the shares. In this regard, the purpose
and function of the ongoing distribution fees and the deferred sales charge are
to provide for the financing of the distribution of Fund shares.
In addition to the payments by the Fund pursuant to the Plan for distribution
fees, dealers and other service organizations may charge their clients
additional fees for account services. Customers who are beneficial owners of
shares of the Fund
-12-
<PAGE>
should read this Prospectus in light of the terms and fees governing their
accounts with dealers or other service organizations.
The National Association of Securities Dealers, in its Rules of Fair Practice,
places certain limitations on asset-based sales charges of mutual funds. These
Rules require fund-level accounting in which all sales charges - front-end
charge, 12b-1 fees or contingent deferred charge - terminate when a percentage
of gross sales is reached. Expenditures paid as shareholder servicing fees under
the Plan which are limited to .25% of average daily net assets are not included
in the limit. If in any month the Distributor expends more monies than are
immediately payable under the Plan because of the percentage limitations
described above (or, due to any expense limitation imposed on the Fund, monies
otherwise payable by the Fund to the Distributor under the Plan are rendered
uncollectible), the unpaid expenditures may be "carried forward" from month to
month until such time, if ever, as they may be paid. In addition, payments to
service organizations (which may include the Distributor, the Manager, and their
affiliates) are not tied directly to the organizations' own out-of-pocket
expenses and therefore may be used as they elect (including, for example, to
defray their overhead expenses).
Amounts accrued under the Plan in one year but which are not actually paid in
that year, may be paid in subsequent years. Amounts not accrued by each class
under the Plan during a year may not be carried forward to subsequent years. The
Plan may not be amended to increase materially the amount to be spent under the
Plan without shareholder approval. The continuation of the Plan must be approved
annually by the Board of Trustees. At least quarterly the Board of Trustees will
review a written report of amounts expended pursuant to the Plan and the
purposes for which such expenditures were made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
================================================================================
The Statement of Additional Information contains additional information about
the federal income tax implications of an investment in the Fund in general and,
particularly, with respect to dividends and distributions and other matters. The
discussion herein of the federal income tax consequences of an investment in the
Fund is not exhaustive on the subject. Consequently, investors should seek
qualified tax advice.
The Fund has qualified in all prior years and intends to continue to qualify as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986 and will distribute all of its net income and realized capital gains to
shareholders. Shareholders are liable for taxes on distributions of net income
and realized capital gains of the Fund but, of course, shareholders who are not
subject to tax on their income will not be required to pay taxes on amounts
distributed to them. The Fund intends to declare dividends, if any, annually and
will distribute any net capital gains derived from the sale of securities at the
end of its fiscal year. In addition, the Fund may make a supplemental
distribution of capital gains annually in December. Capital gains distributions
may be taxable at different rates depending on the length of time the Fund holds
its assets. The nature and amount of all dividends and distributions will be
identified separately when tax information is distributed by the Fund at the end
of each year. Redemptions of shares of the Fund are taxable events on which
shareholders may realize a gain or loss.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. All dividends and capital
gains distributions are reinvested in additional shares of the Fund unless the
shareholder requests in writing to receive dividends and/or capital gains
distributions in cash. That request must be received by the Fund prior to the
record date to be effective as to the next dividend. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
if received in additional shares of the Fund.
-13-
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
The financial highlights table is intended to help you understand the financial
performance of the Fund's Class B shares since the Fund's inception. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for the fiscal year ended February 28, 1999 has
been audited by Berge & Company Ltd., whose report, along with the Fund's
financial statements, is included in the Statement of Additional Information,
which is available upon request. The information for periods ended prior to
February 28, 1999 was audited by other independent accountants.
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1997 (2)
------------ ------------ ------------
PER SHARE DATA
<S> <C> <C> <C>
Net asset value at beginning of period $ 15.41 $ 11.33 $ 10.46
Income from investment operations:
Net investment loss (0.32) (0.13) (0.02)
Net realized and unrealized gain 7.07 4.21 1.30
------------ ------------ ------------
Total from investment operations 6.75 4.08 1.28
------------ ------------ ------------
Less distributions:
In excess of net realized gains -- -- (0.41)
------------ ------------ ------------
Total distributions -- -- (0.41)
------------ ------------ ------------
Net asset value at end of period $ 22.16 $ 15.41 $ 11.33
============ ============ ============
TOTAL RETURN (1) 43.80% 36.01% 12.25%
============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period $ 10,115,682 $ 4,965,434 $ 646,067
============ ============ ============
Ratio of expenses to average net assets:
Before expense reimbursement and waived fees 3.64% 5.81% 12.14%(3)
After expense reimbursement and waived fees 2.70% 2.69% 2.66%(3)
Ratio of net investment loss to average net assets (1.87)% (1.69)% (1.04)%(3)
Portfolio turnover rate 26% 21% 39%(3)
</TABLE>
(1) Calculated without sales charge.
(2) Represents the period from the first public offering to shareholders (July
24, 1996) through February 28, 1997.
(3) Annualized
-14-
<PAGE>
REGIONAL OPPORTUNITY FUND:
OHIO, INDIANA, KENTUCKY
INVESTMENT MANAGER
Dunhill Investment Advisors, Limited
700 W. Pete Rose Way
Longworth Hall, Ste. #127
Cincinnati, OH 45203
INVESTMENT ADVISOR
CityFund Advisory, Inc.
700 W. Pete Rose Way
Longworth Hall, Ste 127
Cincinnati, OH 45203
INDEPENDENT AUDITORS
Berge & Company Ltd.
20 W. Ninth Street
Cincinnati, OH 45202
CUSTODIAN
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45263
COUNSEL
Law Offices of Jack A. Donenfeld
A Legal Professional Association
119 East Court Street
Cincinnati, OH 45202-1203
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
Toll Free 1-877-624-6465.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained 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.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by writing to the Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009.
File No. 811-8719
-15-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
REGIONAL OPPORTUNITY FUND:
OHIO INDIANA KENTUCKY
December 31, 1999
A Series of
DUNHILL INVESTMENT TRUST
700 W. Pete Rose Way, Ste. 127
Cincinnati, Ohio 45203
Telephone: 1-877-624-6465
TABLE OF CONTENTS
-----------------
DESCRIPTION OF THE TRUST.......................................................2
INVESTMENT OBJECTIVE AND POLICIES..............................................3
INVESTMENT LIMITATIONS.........................................................8
TRUSTEES AND OFFICERS.........................................................11
INVESTMENT MANAGER............................................................12
INVESTMENT ADVISOR............................................................13
TRANSFER AGENT AND ADMINISTRATOR..............................................14
DISTRIBUTOR...................................................................15
OTHER SERVICES................................................................15
BROKERAGE.....................................................................16
DISTRIBUTION PLANS UNDER RULE 12b-1...........................................18
SPECIAL SHAREHOLDER SERVICES..................................................20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................22
HOW SHARE PRICE IS DETERMINED.................................................23
ADDITIONAL TAX INFORMATION....................................................23
CALCULATION OF PERFORMANCE DATA...............................................25
DESCRIPTION OF RATINGS........................................................28
FINANCIAL STATEMENTS AND REPORTS..............................................34
This Statement of Additional Information ("SAI") is not a prospectus and should
be read in conjunction with the Prospectus dated December 31, 1999 for the
Regional Opportunity Fund: Ohio Indiana Kentucky (the "Fund"). Copies of the
Fund's Prospectus may be obtained at no charge from the Fund, at the address and
phone number shown above.
1
<PAGE>
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Ohio law on March
31, 1998. 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. The Fund is comprised of two different classes of shares - Class B
and Class C. Pursuant to an Agreement and Plan of Reorganization, the Fund, on
June 29, 1998, succeeded to the assets and liabilities of another mutual fund of
the same name (the "Predecessor Fund"), which was an investment series of
Maplewood Investment Trust. The investment objective, policies and restrictions
of the Fund and the Predecessor Fund are substantially identical and the
financial data and information in this Statement of Additional Information for
periods prior to June 29, 1998 relates to the Predecessor Fund.
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 any
assets, income, earnings, proceeds, funds or payments are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more series as they, in their sole discretion, deem fair
and equitable.
Shares of the Fund, when issued, are fully paid and non-assessable. Shares have
no subscription, preemptive or conversion rights. Shares do not have cumulative
voting rights. Shareholders are entitled to one vote for each full share held
and a fractional vote for each fractional share held. Shareholders of all series
of the Trust, including the Fund, will vote together and not separately, 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. 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 affected by the matter. A series is
affected by a matter unless it is clear that the interests of each series in the
matter are substantially identical or that the matter does not affect any
interest of the series. Under Rule 18f-2 of the 1940 Act, the approval of an
2
<PAGE>
investment advisory agreement, a material change to a Rule 12b-1 Plan or any
change in a fundamental investment policy would be effectively acted upon with
respect to a series or class only if approved by a majority of the outstanding
shares of such series or class. 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.
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.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus. Supplemental information about these policies is set forth below.
Certain capitalized terms used but not defined have the same meaning as in the
Prospectus. A description of the various ratings used by the nationally
recognized statistical rating organizations ("NRSROs") for securities in which
the Fund may invest is included in this SAI as Appendix A.
REPURCHASE AGREEMENTS. The Fund may acquire U.S. Government Securities 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 System 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. Such
securities, including any securities so substituted, are referred to as the
"Repurchase Securities." 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.
The majority of these transactions run day to day and the delivery pursuant to
the resale typically will occur within one to five days of the purchase. The
Fund's risk is limited to the
3
<PAGE>
ability of the vendor to pay the agreed upon sum upon the delivery date; in the
event of bankruptcy or other default by the vendor, there may be possible delays
and expenses in liquidating the instrument purchased, decline in its value and
loss of interest. These risks are minimized when the Fund holds a perfected
security interest in the Repurchase Securities and can therefore sell the
instrument promptly. Under guidelines issued by the Trustees, the Advisor will
carefully consider the creditworthiness during the term of the repurchase
agreement. Repurchase agreements are considered as loans collateralized by the
Repurchase Securities, such agreements being defined as "loans" under the
Investment Company Act of 1940 (the "1940 Act"). The return on such "collateral"
may be more or less than that from the repurchase agreement. The market value of
the resold securities will be monitored so that the value of the "collateral" is
at all times as least equal to the value of the loan, including the accrued
interest earned thereon. All Repurchase Securities will be held by the Fund's
custodian either directly or through a securities depository.
DESCRIPTION OF MONEY MARKET INSTRUMENTS. Money market instruments may include
U.S. Government Securities or corporate debt securities (including those subject
to repurchase agreements) as described herein, 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 Bankers'
Acceptances and Certificates of Deposit of domestic branches of U.S. banks,
Commercial Paper and Variable Amount Demand Master Notes ("Master Notes").
BANKERS' ACCEPTANCES are time drafts drawn on and "accepted" by a bank, are the
customary means of effecting payment for merchandise sold in import-export
transactions and are a source of financing used extensively in international
trade. When a bank "accepts" such a time draft, it assumes liability for its
payment. When the Fund acquires a Bankers' Acceptance, the bank which "accepted"
the time draft is liable for payment of interest and principal when due. The
Bankers' Acceptance, therefore, 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 two highest rating categories
by any NRSRO or, if not rated, is 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
4
<PAGE>
rates of interest. Master Notes are acquired by the Fund only through the Master
Note program of the Fund's custodian, 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.
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
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, which 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.
ILLIQUID INVESTMENTS. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of the Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. 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). Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days and restricted securities. 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.
RESTRICTED SECURITIES. Within its limitation on investments in illiquid
securities, the Fund may purchase restricted securities
5
<PAGE>
that generally can be sold in privately negotiated transactions, pursuant to an
exemption from registration under the federal securities laws, or in a
registered public offering. Where registration is required, the Fund may be
obligated to pay all or part of the registration expense and a considerable
period may elapse between the time it decides to seek registration and the time
the Fund may be permitted to sell a security under an effective registration
statement. If during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when it decided to
seek registration of the security.
REAL ESTATE SECURITIES. The Fund may not invest in real estate (including
limited partnership interests), but may invest in readily marketable securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interest therein. The Fund may also invest in readily
marketable interests in real estate investment trusts ("REITs"). A REIT is a
pooled investment vehicle which invests primarily in income producing real
estate or real estate related loans or interests. REITs are generally classified
as equity REITs, mortgage REITs or hybrid REITs. Investments in shares of REITs
will subject the Fund to the risks associated with the ownership of real estate.
These risks include, among others: possible declines in the value of real
estate; risks related to general and local economic conditions; possible lack of
availability of mortgage funds; overbuilding; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of and liability to third parties
for damages resulting from, environmental problems; casualty or condemnation
losses; uninsured damages from floods, earthquakes or other natural disasters;
limitations on and variations in rents; and changes in interest rates.
Investing in REITs involves certain risks in addition to those risks associates
with investing in the real estate industry in general. REITs are dependent upon
management skills, often have limited diversification, and are subject to the
risks of financing projects. REITs subject to heavy cash flow dependency,
default by borrowers, self-liquidation, and the possibilities of failing to
maintain their exemptions from the Investment Company Act of 1940. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs. Mortgage REITs may be affected by the quality of any credit extended and
interest rate risks. Hybrid REITs will be affected by risks inherent in both
equity and mortgage REITs.
Certain REITs have relatively small market capitalizations, which may result in
less market liquidity and greater price volatility of their securities.
Historically, however, the significant
6
<PAGE>
amount of dividend income provided by REITs has tended to soften the impact of
this volatility. When a shareholder invests in real estate indirectly through
the Fund, the shareholder's return will be reduced not only by his or her
proportionate share of the expenses of the Fund, but also indirectly, by similar
expenses of the REITs in which the Fund invests. Although the Fund is not
limited in the amount of REITs it may acquire, the Fund does not presently
intend to invest more than 5% of its net assets in REITs.
WRITING COVERED CALL OPTIONS. When the Advisor believes that individual
portfolio securities are approaching the top of the Advisor's growth and price
expectations, covered call options (calls) may be written (sold) against such
securities in a disciplined approach to selling portfolio securities. The Fund
writes options only for hedging purposes and not for speculation. If the Advisor
is incorrect in its expectations and the market price of a stock subject to a
call option rises above the exercise price of the option, the Fund will lose the
opportunity for further appreciation of that security.
When the Fund writes a call, it receives a premium and agrees to sell the
underlying securities to a purchaser of a corresponding call at any time during
the call period (usually not more than 9 months) at a fixed exercise or "strike"
price (which may, and often does, differ from the market price of the underlying
securities at the time of writing the call). The strike price remains the same
throughout the option period, regardless of market price changes. To terminate
its obligation on a call the Fund has written, it may purchase a corresponding
call in a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the price of the closing purchase transaction is more or
less than the premium (net of transaction costs) previously received on the call
written. The Fund may also realize a profit if the call it has written lapses
unexercised, in which case the Fund keeps the premium and retains the underlying
securities as well. If a call written by the Fund is exercised the Fund forgoes
any possible profit from an increase in the market price of the underlying
security over the exercise price plus the premium received.
Utilizing the facilities of the Options Clearing Corporation ("OCC"), the Fund's
Custodian or a securities depository acting for the Custodian will, as the
Fund's escrow agent, hold the securities underlying calls written by the Fund,
so that no margin will be required for such transactions. OCC will release the
securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction. Call writing affects the Fund's portfolio turnover
rate and the brokerage commissions it pays. Commissions for options, which are
normally
7
<PAGE>
higher than for general securities transactions, are payable when writing calls
and when purchasing closing purchase transactions. The writing of call options
by the Fund is subject to limitations established by each of the exchanges
governing the maximum number of options which may be written or held by a single
investor or group of investors acting in concert, regardless of whether the
options were written or purchased on the same or different exchanges or are held
in one or more accounts or through one or more different exchanges or through
one or more brokers. Therefore the number of calls the Fund may write (or
purchase in closing transactions) may be affected by options written or held by
other entities, including other clients of the Advisor. An exchange may order
the liquidation of positions found to be in violation of these limits and may
impose certain other sanctions.
Profits on closing purchase transactions and premiums on lapsed calls written
are considered capital gains for financial reporting purposes and are short-term
gains for federal income tax purposes. When short-term gains are distributed to
shareholders, they are taxed as ordinary income. If the Fund desires to enter
into a closing purchase transaction, but there is no market when it desires to
do so, it would have to hold the securities underlying the call until the call
lapses or until the call is exercised.
INVESTMENT LIMITATIONS
For the purpose of limiting the Fund's exposure to risk, the Fund has adopted
the following fundamental investment limitations, which cannot be changed
without approval of the holders of a majority of the outstanding voting shares
of the Fund. 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 Fund) 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 Fund). 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)
in order to meet redemption requests in amounts not exceeding 15% of its
total assets. The Fund will not make any further investments if borrowing
exceeds 5% of its total assets until such time as total borrowing
represents less than 5% of Fund assets.
8
<PAGE>
(2) Invest for the purpose of exercising control or management of another
issuer;
(3) Purchase or sell commodities or commodities contracts, real estate
(including limited partnership interests, but excluding readily marketable
securities secured by real estate or interests therein, readily marketable
interests in real estate investment trusts, 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).
(4) 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 underwriter under the
federal securities laws.
(5) Invest in warrants, valued at the lower of cost or market, exceeding more
than 5% of the value of the Fund's net assets. Included within this amount,
but not to exceed 2% of the value of the Fund's net assets, may be warrants
which are not listed on the New York or American Stock Exchange; warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value;
(6) Participate on a joint or joint and several basis in any trading account in
securities;
(7) Purchase foreign securities;
(8) Invest more than 10% of its total assets in the securities of one or more
investment companies;
(9) Invest more than 25% of its total assets in the securities of issuers
within a single industry; or
(10) Make loans of money or securities, except that the Fund may
(i) invest in repurchase agreements and commercial paper;
(ii) purchase a portion of an issue of publicly distributed bonds,
debentures or other debt securities; and
(iii) acquire private issues of debt securities subject to the limitations
on investments in illiquid securities.
9
<PAGE>
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) Write, purchase, or sell puts, calls, straddles, spreads, or combinations
thereof or futures contracts or related options (but the Fund may write
covered call options);
(5) 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);
(6) Purchase any securities on margin except in connection with such short-term
credits as may be necessary for the clearance of transactions.
Whenever any fundamental investment policy or investment restriction states a
maximum percentage of assets, it is intended that if the percentage limitation
is met at the time the investment is made, a later change in percentage
resulting from changing total or net asset values will not be considered a
violation of such policy. 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.
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<PAGE>
TRUSTEES AND OFFICERS
Following are the Trustees and executive officers of the Trust, their present
position with the Trust, age, principal occupations during the past 5 years and
their estimated annual compensation from the Trust:
<TABLE>
<CAPTION>
Annual Estimated
Name, Position, Principal Occupation(s) Compensation
Age and Address During Past 5 Years From the Trust
- ------------------ ------------------- --------------
<S> <C> <C>
*Jasen M. Snelling (age 36) President of Dunhill None
Trustee and President Investment Advisors, Ltd.
7448 Indian Creek Road and CityFund Advisory, Inc.;
Cincinnati, Ohio previously, Registered Representative
of PNC Securities Corp.
and of Provident Securities
Investment Co., Cincinnati, Ohio
James L. Saner (age 48) President and Chief Executive $900
Trustee Officer of Indiana United Bancorp
105 S. Mulberry Street
Batesville, Indiana
Christopher J. Smith (age 33) President and Chief Executive $900
Trustee and Chairman Officer of Object Tiger, Inc.;
867 Thorntree Court previously, Corporate Counsel to
Bloomfield Hills, Michigan Seligman & Associates and Director
of Amelia Earhart Capital Management,
Inc., Southfield, Michigan
Jerry A. Smith (age 37) President of Smith None
Secretary and Treasurer Insurance and
18 West 10th Street Financial Services
Brookville, Indiana
</TABLE>
*Indicates that Trustee is an "interested person" for purposes of the 1940 Act.
The officers of the Trust do not receive compensation from the Trust for
performing the duties of their office. All Trustees who are not "interested
persons" of the Trust are paid a fee of $250 per Board meeting attended in
person (or $200 in the case of telephone meetings), and are reimbursed for any
out-of-pocket expenses incurred in connection with their attendance at Board
meetings.
11
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of October 31, 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, no person owned of record and according to information available
to the Trust, no person owned beneficially, 5% or more of the then outstanding
shares of the Fund.
INVESTMENT MANAGER
Dunhill Investment Advisors, Limited (the "Manager") performs management,
statistical, portfolio adviser selection and other services for the Fund. The
controlling shareholders of the Manager are Jasen M. Snelling, Jerry A. Smith,
William C. Riffle and Bryan E. Pifer.
Under the terms of the Management Agreement between the Trust and the Manager,
the Fund pays the Manager a fee computed and accrued daily and paid monthly at
an annual rate of 1.20% of its average daily net assets. For the fiscal year
ended February 28, 1999, the Fund paid management fees of $22,030 which was net
of voluntary fee waivers of $66,530.
The Fund is responsible for the payment of all expenses incurred in connection
with the organization, registration of shares and operations of the Fund,
including such extraordinary or non-recurring expenses as may arise, such as
litigation to which the Trust may be a party. The Fund may have an obligation to
indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in connection with the
distribution of the Fund's shares to the extent that (see below). The
compensation and expenses of any officer, Trustee or employee of the Trust who
is an officer, director, employee or stockholder of the Manager are paid by the
Manager.
By its terms, the Fund's Management Agreement will remain in force until June
29, 2000 and from year to year thereafter, subject to annual approval by (a) the
Board of Trustees or (b) a vote of the majority of the fund's outstanding voting
securities; provided that in either event interested persons of the Trust, by a
vote cast in person at a meeting called for that purpose of voting such
approval. The Fund's Management Agreement may be terminated at any time, on
sixty days written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of the Fund's outstanding voting securities,
of by the manager, the Management Agreement automatically terminates in the
event of assignment, as defined by the Investment Company Act
12
<PAGE>
of 1940 and the rules thereunder. Under the Management Agreement, the Manager is
not responsible for any error of judgement or mistake of law or for any loss
suffered by the Fund in connection with the performance of the 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 the reckless disregard of its duties and obligations under the
Agreement.
INVESTMENT ADVISOR
CityFund Advisory, Inc. (the "Advisor") supervises the Fund's investments
pursuant to an Investment Advisory Agreement (the "Advisory Agreement")
described in the Prospectus. The Advisory Agreement will be renewed for one year
periods 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 "interested persons" of the Trust or the
Advisor by vote cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement is terminable without penalty on sixty
days notice by the Board of Trustees of the Trust or by the Advisor. The
Advisory Agreement provides that it will terminate automatically in the event of
its assignment.
Compensation of the Advisor is at the annual rate of .50% of the Fund's average
daily net assets. For the fiscal year ended February 28, 1998, the Advisor
waived its entire advisory fee of $34,737 and reimbursed the Predecessor Fund
$52,011 of expenses in order to voluntarily reduce the operating expenses of the
Predecessor Fund. For the fiscal year ended February 28, 1997, the Advisor
waived its entire advisory fee of $11,179 and reimbursed the Fund $73,594 of
expenses in order to voluntarily reduce the operating expenses of the
Predecessor Fund.
The Advisor is controlled by Jasen M. Snelling and Jerry A. Smith, and is an
affiliate of the Manager.
The Advisor provides a continuous investment program for the Fund, including
investment research and management with respect to all securities, investments,
cash and cash equivalents of the Fund. The Advisor determines what securities
and other investments will be purchased, retained or sold by the Fund, and does
so in accordance with the investment objective and policies of the Fund as
described herein and in the Prospectus. The Advisor places all securities orders
for the Fund, determining with which broker, dealer, or issuer to place the
orders.
13
<PAGE>
The Advisor also provides, at its own expense, certain Executive Officers to the
Trust.
The Advisor must adhere to the brokerage policies of the Fund in placing all
orders, the substance of which policies are that the Advisor attempts to obtain
the best execution for all securities brokerage transactions.
Under the Advisory Agreement, the Advisor is not responsible for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the 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 the reckless
disregard of its duties and obligations under the Agreement.
TRANSFER AGENT AND ADMINISTRATOR
The Manager maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemption's of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. The Manager receives for
its services as transfer agent a fee payable monthly at an annual rate of $17
per account, provided, however, that the minimum fee is $1,000 per month. In
addition, the Fund pays out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
In addition, the Manager has been retained to provide administrative services to
the Fund. In this capacity, the Manager supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. The Manager supervises the preparation of
tax returns, reports to shareholders of the Fund, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees. For the performance of these
administrative services, the Fund pays the Manager a fee at the annual rate of
.15% of the average value of its daily net assets up to $50,000,000, .125% of
such assets from $50,000,000 to $100,000,000 and .1% of such assets in excess of
$100,000,000. For the fiscal year ended February 28, 1999, the Fund paid
administrative fees of $9,418.
Prior to June 29, 1998, the transfer agent and administrator to the Predecessor
Fund was Countrywide Fund Services, Inc.,
14
<PAGE>
Cincinnati, Ohio. For the fiscal year ended February 28, 1998, Countrywide Fund
Services, Inc. received from the Predecessor Fund transfer agent fees of
$20,000, accounting and pricing fees of $24,000, and administrative fees of
$12,000. For the fiscal year ended February 28, 1997, Countrywide Fund Services,
Inc. received from the Fund transfer agent fees of $12,750, accounting and
pricing fees of $15,000 and administrative fees of $7,500. Prior to June 1,
1996, the administrator to the Predecessor Fund was The Nottingham Company,
Rocky Mount, North Carolina. For the fiscal year ended February 28, 1997, The
Nottingham Company received from the Predecessor Fund fees of $7,450.
DISTRIBUTOR
Unified Management Corporation (the "Distributor"), 431 North Pennsylvania
Street, Indianapolis, Indiana 46204, is the principal underwriter of the Fund
and, as such, the exclusive agent for distribution of shares of the Fund. The
Distributor is obligated to sell the shares on a best efforts basis only against
purchase orders for the shares. Shares of the Fund are offered to the public on
a continuous basis.
The Fund may compensate dealers, including the Distributor and its affiliates,
based on the average balance of all accounts in the Fund for which the dealer is
designated as the party responsible for the account. See "Distribution Plan
Under Rule 12b-1" below.
OTHER SERVICES
AUDITORS. The firm of Berge & Company Ltd., 20 W. Ninth Street, Cincinnati, Ohio
45202, has been retained by the Board of Trustees to perform an independent
audit of the financial statements of the Fund.
CUSTODIAN. The Custodian of the Fund's assets is The Fifth Third Bank, 38
Fountain Square Plaza, Cincinnati, Ohio 45263. The Custodian holds all cash and
securities of the Fund (either in its possession or in its favor through "book
entry systems" authorized by the Trustees in accordance with the 1940 Act),
collects all income and effects all securities transactions on behalf of the
Fund. For its services as Custodian, the Custodian receives an annual fee from
the Fund based on the average net assets of the Fund held by the Custodian. The
Custodian also provides accounting and pricing services to the Fund. The
Custodian receives $2,000 per month from the Fund for calculating daily net
asset value per share and maintaining such books and records as are necessary
for the Custodian to perform its duties.
15
<PAGE>
BROKERAGE
It is the Fund's practice to seek to obtain the best overall terms available in
executing Fund transactions and selecting brokers or dealers. Subject to the
general supervision of the 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.
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. In addition,
the Advisor may 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 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 may 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 economy and the stock, bond and
government securities markets.
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 received by the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
accounts for which investment discretion is exercised by the Advisor.
Conversely, the Fund may be the primary beneficiary of the research or other
services received as a result of securities transactions effected for such other
accounts.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution from such firm. The Fund
will not execute portfolio transactions through, acquire securities issued by,
make savings deposits in or enter into repurchase agreements with the Advisor
16
<PAGE>
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.
The Fund purchases money market instruments from dealers, underwriters and
issuers. The Fund does not expect to incur any brokerage commissions on such
purchases 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's fixed-income portfolio transactions will normally be principal
transactions executed in the over-the-counter market and will be executed on a
net basis, which may include a dealer markup. With respect to securities traded
only in the over-the-counter market, orders will be executed on a principal
basis with primary market makers in such securities except where better prices
or executions may be obtained on an agency basis or by dealing with other than a
primary market maker.
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. Investment
decisions for the Fund will be made independently from any other accounts
advised or managed by the Advisor. Such other
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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 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 other accounts, the
transaction will be averaged as to price and available investments allocated as
to amount, in the manner which the Advisor believes to be equitable to the Fund
and such other accounts. 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 years ended February 28, 1999, 1998, and 1997, the total amounts
of brokerage commissions paid by the Fund were $7,041, $5,117 and $1,539
respectively.
DISTRIBUTION PLAN UNDER RULE 12B-1
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. The Plan permits the Fund to pay for expenses incurred in
the distribution and promotion of the Fund's shares.
Under the Plan, each class of shares of the Fund may expend in any fiscal year
up to 1% of the average daily net assets allocable to such shares to finance any
activity which is primarily intended to result in the sale of its shares and the
servicing of shareholder accounts, provided the Board of Trustees has approved
the category of expenses for which payment is being made. Expenditures under the
Plan as service fees to any person who sells shares may not exceed an annual
rate of .25% of the average net assets of such shares. Expenditures under the
Plan for distribution activities as an asset-based sales charge may not exceed
an annual rate of .75% of the Fund's average net assets.
Dealers and other service organizations receive commissions from the Advisor for
selling Fund shares, which are paid at the time of sale. The expenditures
payable under the Plan for distribution activities (at an annual rate of .75% of
net assets) are intended to cover the expense to the Advisor of paying such
up-front commissions, and the contingent deferred sales charge is calculated to
charge the investor with any shortfall that would occur if shares are redeemed
prior to the expiration of the five year CDSC period. To provide funds for the
payment of up-front sales commissions, the Advisor has arranged a line of credit
with an unaffiliated third party lender, which provides funds for the payment of
commissions and other fees payable to dealers and other service organizations
which sell Fund shares. Under the
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<PAGE>
terms of the financing, the Advisor may assign to the lender the distribution
fees that may be payable from time to time to the Advisor under the Plan and the
contingent deferred sales charges payable to the Advisor.
During the fiscal years ended February 28, 1999, the Fund incurred $70,848 in
distribution expenses, which was paid to the Advisor to reimburse it for
interest and other borrowing costs incurred and for payments to broker-dealers
and others for the retention of assets.
Jasen M. Snelling, a controlling shareholder of the Advisor, may be deemed to
have a financial interest in the operation of the Plan and the Implementation
Agreements.
Potential benefits to the Fund from the Plan include improved shareholder
servicing, savings in transfer agency costs, benefits to the investment process
from growth and stability of assets and maintenance of a financially healthy
management organization. Subject to its practice of seeking to obtain best
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plan. The Plan, the
Underwriting Agreement with the Distributor and the form of Dealer Agreement
with broker-dealers have all 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
Agreements. Continuation of the Plan, the Underwriting Agreement and the form of
Dealer Agreement must be approved annually by the Board of Trustees in the same
manner as specified above. Each year the Trustees must determine that
continuation of the Plan is in the best interests of shareholders of the Fund
and there is a reasonable likelihood that the Plan will benefit the Fund. The
Board of Trustees has made such a determination for the current year of
operations under the Plan. The Plan, the Underwriting Agreement and the Dealer
Agreements may be terminated with respect to a particular class at any time
without penalty by a majority of those trustees who are not "interested persons"
or by a majority of the outstanding shares of such class. Any amendment
materially increasing the maximum percentage payable under the Plan must
likewise be approved by a majority of the outstanding shares of the applicable
class as well as a majority of the Trustees who are not "interested persons" and
have no direct or indirect financial interest in the Plan (the "Independent
Trustees"). In order for the Plan to remain effective, the selection and
nomination of those Trustees who are not interested persons of the Trust must be
effected by the
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Independent Trustees during such period. All amounts spent by the Fund pursuant
to the Plan must be reported quarterly in a written report to the Trustees for
their review.
SPECIAL SHAREHOLDER SERVICES
As noted in the Prospectus, 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.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables investors to
make regular monthly or bi-monthly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Manager will automatically charge the checking account for the
amount specified ($50 minimum) which will be automatically invested in shares at
the public offering price on or about the fifteenth and/or the last business day
of the month. The shareholder may change the amount of the investment or
discontinue the plan at any time by writing to the Manager.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders owning shares with a value of $5,000 or
more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $50 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).
Payments may be made directly to an investor's account with a commercial bank or
other depository institution via an Automated Clearing House ("ACH")
transaction.
Instructions for establishing this service are included in the Application
contained in the Prospectus or are available by calling the Fund. Payment may
also be made by check made payable to the designated recipient and mailed within
7 days of the valuation date. If the designated recipient is other than the
registered shareholder, the signature of each shareholder must be
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<PAGE>
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 except for potential deferred sales
charges. The Prospectus contains additional information and limitations relating
to the use of a Systematic Withdrawal Plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Investors 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 sixty days' written notice or by an investor upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-877-624-6465, or by writing to:
Regional Opportunity Fund
Shareholder Services
700 W. Pete Rose Way, #127
Cincinnati, Ohio 45203
PURCHASES IN KIND. The Fund may accept securities in lieu of cash in payment for
the purchase of shares of 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 "How Shares are Valued" in the Prospectus. Transactions involving
the issuance of shares in the Fund for securities in lieu of cash will be
limited to acquisitions of securities (except for municipal debt securities
issued by state political subdivisions or their agencies or instrumentalities)
which: (a) meet the investment objective and policies of the Fund; (b) are
acquired for investment and not for resale; (c) are liquid securities which are
not restricted as to transfer either by law or liquidity of market; and (d) have
a value which is readily ascertainable (and not established only by evaluation
procedures) as evidenced by a listing on the American Stock Exchange, the New
York Stock Exchange or NASDAQ.
REDEMPTION 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,
21
<PAGE>
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 such securities would incur brokerage
costs when the securities are sold. An irrevocable election has been filed under
Rule 18f-1 of the 1940 Act, wherein the Fund is committed 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 assets at the beginning of such period.
TRANSFER OF REGISTRATION. To transfer shares to another owner, send a written
request to the Manager at the address shown herein. 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 Manager.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
PURCHASES. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized dealers or directly by contacting the
Distributor or the Manager. Selling dealers have the responsibility of
transmitting orders promptly to the Fund's Manager. Fund shares may be subject
to a contingent deferred sales charge upon redemption. The Advisor may
compensate dealers up-front from its own funds for distribution-related
activities in connection with the sale of Fund shares, for which the Advisor
will receive the contingent deferred sales charge and a distribution fee under
the Plan as described in "Distribution Plan Under Rule 12b-1." The current
schedule of sales charges is set forth in the Prospectus. See "How to Purchase
Shares" in the Prospectus.
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.
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<PAGE>
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 "How to Redeem
Shares," the Fund may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of an investor to make full payment for
shares purchased by the investor or to collect any charge relating to a
transaction effected for the benefit of an investor which is applicable to Fund
shares as provided in the Prospectus from time to time.
HOW SHARE PRICE IS DETERMINED
Under the 1940 Act, the Trustees are responsible for determining in good faith
the fair value of the securities and other assets of the Fund and they have
adopted procedures to do so as follows: The net asset value of shares of the
Fund is determined as of 4:00 p.m. Eastern time, Monday through Friday, except
on business holidays when the New York Stock Exchange is closed. The New York
Stock Exchange recognizes the following holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Fourth of July, Labor
Day, Thanksgiving Day and Christmas Day. Any other holiday recognized by the New
York Stock Exchange will be considered a business holiday on which the Fund's
share price will not be determined.
The net asset value per share of the Fund is calculated separately by adding the
value of the 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 of the Fund. 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 any
general assets of the Fund.
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, and 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,
23
<PAGE>
judicial or administrative action. Investors are advised to consult their tax
advisors with specific reference to their own tax situations.
The Fund intends to qualify or remain qualified as a regulated investment
company. In order 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 derived with respect to the Fund's business of investing in such 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. The Fund 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 that 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 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 a long term capital loss to the extent of the capital gain dividends
with respect to the shares. A 4% nondeductible excise tax is imposed on
regulated investment companies that fail to currently distribute an amount equal
to specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital
24
<PAGE>
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 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, and would be eligible for the
dividends received deduction for corporations.
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 properly include on their tax 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.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, the Fund may, from time to time, advertise
certain total return and yield information. The average annual total return of
the Fund for a period is computed by subtracting the net asset value per share
at the beginning of the period from the net asset value per share at the end of
the period (after adjusting for the reinvestment of any income dividends and
capital gain distributions), and dividing the result by the net asset value per
share at the beginning of the period. In particular, the average annual total
return of the Fund ("T") is computed by using the redeemable value at the end of
a specified period of time ("ERV") of a hypothetical initial
25
<PAGE>
investment of $1,000 ("P") over a period of time ("n") according to the formula
P(l+T)n=ERV. The calculation of average annual total return assumes the
reinvestment of all dividends and distributions and the deduction of the current
maximum sales load from the initial $1,000 payment. The average annual total
returns of the Fund for the one year period ended February 28, 1999 and for the
period since inception (July 24, 1996) to February 28, 1999 are 39.80% and
32.89%, respectively.
In addition, the Fund may advertise other total return performance data
("Nonstandardized Return"). Nonstandardized Return shows as a percentage rate of
return encompassing all elements of return (i.e., income and capital
appreciation or depreciation); it assumes reinvestment of all dividends and
capital gain distributions. This computation does not include the effect of the
applicable sales load which, if included, would reduce total return.
Nonstandardized Return may consist of a cumulative percentage of return, actual
year-by-year rates or any combination thereof. The cumulative total return of
the Fund computed without the applicable sales load) for the period since
inception (July 24, 1996) to February 28, 1999 is 116.49%. The average annual
Nonstandardized Returns of the Fund (computed without the applicable sales load)
for the one year period ended February 28, 1999 and for the period since
inception (July 24, 1996) to February 28, 1999 are 43.80% and 33.61%,
respectively. A nonstandardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
The Fund's total return performance data will combine the performance of the
Fund with the performance of the Predecessor Fund prior to the reorganization of
the Predecessor Fund into the Fund on June 29, 1998. The investment objective,
policies and restrictions of the Predecessor Fund were substantially identical
to those of the Fund.
From time to time, the Fund may advertise its yield. A yield quotation is based
on a 30-day (or one month) period and is computed by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:
6
Yield = 2[(a-b/cd + 1) - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
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<PAGE>
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest).
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. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. 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 published reports of the performance of unmanaged companies
located in the Cincinnati tri-state area. 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 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
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<PAGE>
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 compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on nonstandardized 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 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.
DESCRIPTION OF RATINGS
Under normal market conditions, at least 90% of the Fund's net assets will be
invested in equities. As a temporary defensive
28
<PAGE>
position, however, 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 or repurchase agreement instruments as described in
the Prospectus.
The various ratings used by the NRSROs are described below. A rating by an NRSRO
represents the organization'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 NRSRO, each
rating is evaluated independently. Ratings are based on current information
furnished by the issuer or obtained by the NRSROs 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS:
The following summarizes the four highest ratings used by Moody's Investors
Service, Inc. ("Moody's") for bonds which are deemed by the Advisor to be
Investment-Grade Debt Securities.
Aaa: Bonds 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
edged." 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 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
29
<PAGE>
make the long term risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered as medium grade obligations, i.e., they
are 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 bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Moody's applies numerical modifiers (1,2 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.
Bonds which are rated Ba, B, Caa, Ca or C by Moody's are not considered
Investment-Grade Debt Securities by the Advisor. 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 which 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 of time may be
small. Bonds which 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 which are rated Ca represent obligations which 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 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
30
<PAGE>
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 appropriated 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-1; VMIG-1 - 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S RATINGS:
The following summarizes the four highest ratings used by Standard & Poor's
Ratings Group ("S&P") for bonds which are deemed by the Advisor to be
Investment-Grade Debt Securities.
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category. 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 predominately
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
31
<PAGE>
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 give a plus
(+) designation.
DESCRIPTION OF FITCH INVESTORS SERVICE INC.'S RATINGS:
The following summarizes the four highest ratings used by Fitch Investors
Service, Inc. ("Fitch") for bonds which are deemed by the Advisor to be
Investment-Grade Debt Securities.
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
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 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 are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and 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 are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and 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
32
<PAGE>
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
predominately speculative with respect to the issuer's ability to pay interest
and 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 satisfactory q 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.
DESCRIPTION OF DUFF & PHELPS' CREDIT RATING CO.'S RATINGS:
The following summarizes the four highest ratings used by Duff & Phelps Credit
Rating Co. ("D&P") for bonds which are deemed by the Advisor to be
Investment-Grade Debt Securities.
AAA: This is the highest rating credit quality. The risk factors are
considered to be negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA: Bonds rated AA are considered to be 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. However 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
33
<PAGE>
predominately speculative with respect to the issuer's ability to pay interest
and 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 1 is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff 1+, Duff 1 and
Duff 1- within the highest rating category. Duff 1+ 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.
FINANCIAL STATEMENTS AND REPORTS
The Financial Statements of the Fund will be audited at least once each year by
independent public accountants. Shareholders will receive annual audited and
semiannual (unaudited) reports when published, and will receive written
confirmation of all confirmable transactions in their account. A copy of the
Annual Report will accompany the Statement of Additional Information whenever
the Statement of Additional Information is requested by a shareholder or
prospective investor. The Financial Statements of the Fund as of February 28,
1999, together with the report of the independent accountants thereon, are
included on the following pages.
34
<PAGE>
================================================================================
DUNHILL INVESTMENT TRUST
REGIONAL OPPORTUNITY FUND:
OHIO, INDIANA, KENTUCKY
FINANCIAL STATEMENTS
AND
ANNUAL REPORT
FEBRUARY 28, 1999
================================================================================
<PAGE>
Regional
[LOGO] Opportunity
Fund
- --------------------------------------------------------------------------------
Ohio, Indiana, Kentucky
April 29, 1999
Fellow Shareholders:
It is my pleasure to present to you this Annual Report of the Regional
Opportunity Fund, Ohio, Indiana, Kentucky Series. Although a mutual fund's
performance can be calculated by a simple mathmatical formula, to say that the
stock markets last year were simple would not be correct.
In review we saw a strong 1st quarter with growth of most of the major economic
indicators showing a stable economy. Earnings for companies remained strong and
going toward the end of June enabling the Fund to have grown just over 17%.
Many different factors in selecting stocks and managing the portfolio are
closely monitored during a strong run up as we had during the first half of the
year. July brought on the summer jitters and many investors began to taking
profits as companies began to warn against analyst setting such high
expectations. This caused a 3 month sell off of stocks, erasing and in some
cases giving stocks and stock funds negative returns. During this period we
closely monitored the Funds holdings and remained positive of the long-term
outlook of our selections and did not do any major selling. On the other hand we
did not try and hunt out bargains and chase stocks trying to find the bottom, a
theory that seldom works during such an irrational market.
As the correction came to an end and Nasdaq stocks began to gain momentum the
rest of the markets followed. With this reversal a technology stock driven
buying frenzy took the markets to all time highs and brought the Fund's year-end
closing price to $21.46. The momentum carried over into 1999, giving the Fund a
fiscal year total return of 43.80%. In comparison to the major indices, the Dow
Jones Industrial Average for the same period gained 8.8%, and the S&P 500 index
gained 18.30%.
Looking forward we are adjusting the portfolio as needed. We have taken
advantage of the recent highs to take profits on stocks that we feel have had
tremendous growth and are purchasing stocks that we feel are poised for
excellent growth this year. I am proud to present you with this report and as
always feel free to call me directly if you have any questions.
Sincerely,
/s/ Jasen M. Snelling
Jasen M. Snelling
President
JMS/ddb
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholder Sevices: Fund Advisor:
Dunhill Fund Management 877-624-6465 CityFund Advisory, Inc.
700 West Pete Rose Way, Suite 127 Shareholder Services, Fund Advisor P.O. Box 54944
Cincinnati, Ohio 45203 and 24-hour NAV updates Cincinnati, Ohio 45245-0944
</TABLE>
<PAGE>
REGIONAL OPPORTUNITY FUND
OHIO, INDIANA, KENTUCKY SERIES CLASS B
Performance Update - $10,000 Investment
For the period from July 26, 1996 (commencement of operations) to
February 28, 1999
- --------------------------------------------------------------------------------
[GRAPH OMITTED]
02/28/99
--------
Regional Opportunity Fund - Class B $20,571.04
S&P 500 Index $19,178.93
- --------------------------------------------------------------------------------
This graph depicts the performance of the Class B Shares of the Regional
Opportunity Fund versus the S&P 500 Index. It is important to note that the
Regional Opportunity Fund is a professionally managed mutual fund while the
index is not available for investment and is unmanaged. The comparison is shown
for illustrative purposes only.
--------------------------------------------------
Commencement One Year ended
of operations 2/28/99
through 2-28-99
--------------------------------------------------
Maximum 5% 113.49% 40.80%
Sales Load
--------------------------------------------------
No Sales Load 116.49% 43.80%
--------------------------------------------------
The graph assumes an initial $10,000 investment at July 26, 1996. All dividends
and distributions are reinvested.
At February 28, 1999, the Class B shares would have grown to $20,571.04 - total
investment return of 113.49% since July 26, 1996. Without the deduction of the
3% contingent deferred sales charge (cdsc) the Class B of the Fund would have
grown to $20,871.04 - total investment return of 116.49% since July 26, 1996.
The sales load may be eliminated for purchases over $250,000.
At February 28, 1999, a similar investment in the S&P 500 Index (after cdsc of
3%) would have grown to $19,178.93 - total investment return of 91.79% since
July 26, 1996.
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>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1999
Market
Shares Value
------ -----
COMMON STOCK - 96.3 %
AIRLINES - 1.4 %
3,855 Comair Holdings, Inc. $ 145,044
------------
AUTOMOBILE PARTS - 0.6%
1,500 Dana Corp. 56,625
------------
BEVERAGES - WINE/SPIRITS - 0.7%
1,000 Bown-Forman Corp. Class B 65,937
------------
COMMUNICATIONS - 1.0%
6,874 Brightpoint, Inc. (a) 102,251
------------
COMPUTERS & INFORMATION - 14.3%
7,000 Dell Computer Corp. (a) 560,875
5,000 EMC Corp. (a) 511,875
3,000 Lexmark International, Inc. Class A (a) 309,563
3,000 Miami Computer Supply Company (a) 65,625
------------
1,447,938
------------
CONGLOMERATES - 2.0%
2,000 General Electric Co. 200,625
------------
CONTAINERS - METAL/GLASS - 0.8%
2,000 Ball Corp. 83,750
------------
DIVERSIFIED MANUFACTURING - 1.5%
2,000 Tyco International, Inc. 148,875
------------
FOOD - 0.7%
1,600 Papa John's International, Inc. (a) 69,200
------------
FOOD RETAILERS - 2.9%
4,500 Kroger Company (a) 291,093
------------
HEALTH CARE PROVIDERS - 1.8%
7,750 Res-Care, Inc. (a) 184,062
------------
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1999
Market
Shares Value
------ -----
HOUSEHOLD PRODUCTS, NONDURABLE - 0.8%
860 The Procter & Gamble, Co. $ 76,970
------------
INDUSTRIAL & COMMERCIAL SERVICES - 3.0%
3,500 Cintas Corp. 247,625
3,000 Convergys Corp. (a) 51,938
------------
299,563
------------
INSURANCE, LIFE - 0.6%
2,000 Conseco, Inc. 59,875
------------
MEDICAL SUPPLIES - 9.6%
7,000 Biomet, Inc. 256,813
3,000 Gliatech Inc. (a) 81,000
10,600 Guidant Corp. 604,200
1,000 Steris Corp. (a) 32,875
------------
974,888
------------
PHARMACEUTICALS - 12.2%
4,000 Bindley Western Industries, Inc. 105,250
1,000 Biogen, Inc. (a) 96,125
5,700 Eli Lilly & Co. 539,719
2,800 Johnson & Johnson 239,050
1,344 Priority Healthcare, Class B (a) 52,332
1,600 Pfizer, Inc. 211,100
------------
1,243,576
------------
REGIONAL BANKS - 6.1%
1,100 Bank One Corp. 59,125
3,375 Fifth Third Bancorp 222,961
3,955 Firstar Corp. 331,231
------------
613,317
------------
RETAILERS, APPAREL - 6.2%
3,000 Abercrombie & Fitch (a) 228,000
5,500 Gap, Inc. 355,781
1,000 Intimate Brands, Inc., Class A 39,314
------------
623,095
------------
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1999
Market
Shares Value
------ -----
RETAILERS, DRUG-BASED - 0.4%
500 Cardinal Health, Inc. 36,094
------------
SECURITY SERVICES - 0.6%
2,000 Kroll-O'Gara Company (a) 61,750
------------
SEMICONDUCTOR & RELATED - 1.1%
1,000 Intel Corp. 119,937
------------
SOFTWARE & PROCESSING - 27.4%
18,800 America Online, Inc. (a) 1,672,025
4,275 Cisco Systems, Inc. (a) 418,148
6,500 Compuware Corp. (a) 363,594
2,000 Microsoft Corp. (a) 300,250
1,000 Symix Systems, Inc. (a) 20,625
------------
2,774,642
------------
TELEPHONE SYSTEMS - 0.6%
3,000 Cincinnati Bell, Inc. 59,250
------------
TOTAL INVESTMENTS IN COMMON STOCKS
(COST $5,541,458) $ 9,738,357
------------
Face Amount
-----------
REPURCHASE AGREEMENTS (B) - 3.1%
$ 315,890 Fifth Third Bank, 4.18%, dated 2/26/1999,
due 3/1/1999, repurchase proceeds $316,000
(Cost $315,890) 315,890
------------
TOTAL INVESTMENTS IN COMMON STOCKS AND
REPURCHASE AGREEMENTS AT VALUE - 99.4% 10,054,247
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.6% 61,435
------------
NET ASSETS - 100.0% $ 10,115,682
============
(a) Non-income producing security
(b) Repurchase agreement is fully collateralized by $313,000 par value FNMA
Pool #313140, 7.50%, due 9/1/2011.
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
ASSETS
Investments in common stocks, at value $ 9,738,357
Investment in repurchase agreements 315,890
Cash 23,860
Dividends and interest receivable 4,048
Receivable from fund manager 33,885
Organization costs, net 5,642
------------
Total assets 10,121,682
------------
LIABILITIES
Accrued expenses 6,000
------------
Total liabilities 6,000
------------
NET ASSETS $ 10,115,682
============
Net Assets consist of:
Paid in capital $ 5,998,316
Accumulated net realized loss from security transactions (79,533)
Net unrealized appreciation of securities 4,196,899
------------
$ 10,115,682
============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 456,422
============
Net asset value and offering price per share $ 22.16
============
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1999
INVESTMENT INCOME:
Dividends $ 30,587
Interest 28,172
-----------
Total investment income 58,759
EXPENSES:
Investment advisory fees 85,018
Distribution fees 70,848
Administration fees 9,418
Shareholder services and transfer agent fees 13,000
Reports and notices to stockholders 16,292
Professional fees 14,365
Trustees' fees and expenses 1,700
Custodian fees 2,819
Fund accounting fees 22,459
Registration and filing fees 2,706
Amortization of organization expenses 9,672
Insurance expense 2,817
Miscellaneous 3,163
-----------
Total expenses 254,277
Less fees waived by the Manager (62,988)
-----------
Net expenses 191,289
-----------
NET INVESTMENT LOSS (132,530)
-----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses from security transactions (7,832)
Unrealized appreciation of investments:
Beginning of year $ 1,074,668
End of year 4,196,899
-----------
Net change in unrealized appreciation of investments 3,122,231
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 3,114,399
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,981,869
===========
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
OPERATIONS:
<S> <C> <C>
Net investment loss $ (132,530) $ (40,721)
Net realized losses from security transactions (7,832) (20,541)
Net change in unrealized appreciation of investments 3,122,231 946,951
------------ ------------
Net increase in net assets from operations 2,981,869 885,689
FUND SHARE TRANSACTIONS:
Proceeds from shares sold 2,869,376 3,086,528
Payments for shares redeemed (700,997) (154,966)
------------ ------------
Net increase in net assets from capital share transaction 2,168,379 2,931,562
TOTAL INCREASE IN NET ASSETS 5,150,248 3,817,251
------------ ------------
NETASSETS:
Beginning of year 4,965,434 1,148,183
------------ ------------
End of year $ 10,115,682 $ 4,965,434
============ ============
SUMMARY OF FUND SHARE ACTIVITY:
Shares sold 177,719 270,297
Shares redeemed (43,511) (5,124)
------------ ------------
Net increase in shares outstanding 134,208 265,173
Shares outstanding, beginning of year 322,214 57,041
------------ ------------
Shares outstanding, end of year 456,422 322,214
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
February 28, February 28, February 28,
1999 1998 1997 (2)
------------ ------------ ------------
PER SHARE DATA
<S> <C> <C> <C>
Net asset value at beginning of period $ 15.41 $ 11.33 $ 10.46
Income from investment operations:
Net investment loss (0.32) (0.13) (0.02)
Net realized and unrealized gain 7.07 4.21 1.30
------------ ------------ ------------
Total from investment operations 6.75 4.08 1.28
------------ ------------ ------------
Less distributions:
In excess of net realized gains (0.41)
------------ ------------ ------------
Total distributions -- -- (0.41)
------------ ------------ ------------
Net asset value at end of period $ 22.16 $ 15.41 $ 11.33
============ ============ ============
TOTAL RETURN (1) 43.80% 36.01% 12.25%
============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net Assets at End of Period $ 10,115,682 $ 4,965,434 $ 646,067
============ ============ ============
Ratio of expenses to average net assets:
Before expense reimbursement and
waived fees 3.64% 5.81% 12.14%(3)
After expense reimbursement and
waived fees 2.70% 2.69% 2.66%(3)
Ratio of net investment loss to average net assets (1.87)% (1.69)% (1.04)%(3)
Portfolio turnover rate 26% 21% 39%(3)
</TABLE>
(1) Calculated without sales charge.
(2) Represents the period from the first public offering to shareholders (July
24, 1996) through February 28, 1997.
(3) Annualized
See accompanying notes to financial statements.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Regional Opportunity Fund: Ohio, Indiana, Kentucky (the Fund) is a
non-diversified, open-end series of the Dunhill Investment Trust (the
Trust), a registered management investment Company under the Investment
Company Act of 1940 (the 1940 Act). The Trust was organized as an Ohio
business trust on March 31, 1998. Pursuant to an Agreement and Plan of
Reorganization dated May 1, 1998, the Fund, on June 29, 1998 was successor
of the assets and liabilities of another mutual fund of the same name which
was an investment series of Maplewood Investment Trust. 381,360 Shares and
Net Assets of $6,200,646 of the Fund were transferred to the Trust on June
29, 1998. The Financial Statements presented include the assets and
liabilities, results of operations, changes in net assets and financial
highlights of the Fund from the first public offering to shareholders (July
24, 1996) of the shares transferred from the former Trust.
The Fund's investment objective is to provide long-term capital growth by
investing primarily in common stocks and other equity securities of
publicly-traded companies headquartered in Greater Cincinnati and the
Cincinnati tri-state region, and those companies having a significant
presence in the region.
Shares of the Fund are offered at net asset value and are subject to a
maximum 5% contingent deferred sales charge and 12b-1 distribution fees up
to 1% of average daily net assets. The contingent deferred sales charge is
applicable to redemptions during the five-year period from the date of
purchase. The charge declines from 5% to 0% over the five year period.
SECURITIES VALUATION - The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(currently 4:00 p.m. Eastern time). Securities which are traded
over-the-counter are valued at the last sales price, if available,
otherwise, at the last quoted bid price. Securities traded on a national
stock exchange are valued based upon the closing price on the principal
exchange where the security is traded.
REPURCHASE AGREEMENTS - The Fund generally invests its cash reserves by
entering into repurchase agreement with its custodian bank. The repurchase
agreement, which is collateralized by U.S. Government obligations, is
valued at cost which, together with accrued interest, approximates market.
At the time the Fund enters into the repurchase agreement, the seller
agrees that the value of the underlying securities, including accrued
interest, will at times be equal to or exceed the face amount of the
repurchase agreement. In addition, the Fund actively monitors and seeks
additional collateral, as needed.
SHARE VALUATION - The net asset value per share of the Fund is calculated
daily by dividing the total value of the Fund's assets, less liabilities by
the number of shares outstanding.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT INCOME - Interest income is accrued as earned. Dividend income
is recorded on the ex-dividend date.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends arising from net investment
income, if any, are declared and paid annually to shareholders of the Fund.
Net realized short-term capital gains, if any, may be distributed
throughout the year and net realized long-term capital gains, if any, are
distributed at least once a year. Income distributions and capital gain
distributions are determined in accordance with income tax regulations.
ORGANIZATION EXPENSES - Expenses of organization have been capitalized and
are being amortized on a straight-line basis over five years. In the event
any of the initial shares of the Fund are redeemed during the amortization
period, the redemption proceeds will be reduced by a pro rata portion of
any unamortized organization expenses in the same proportion as the number
of initial shares being redeemed bears to the number of initial shares of
the Fund outstanding at the time of the redemption.
SECURITY TRANSACTIONS - Security transactions are accounted for on trade
date. Securities sold are valued on a specific identification basis.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts or revenue and expenses during the reporting period. Management
believes the estimates utilized in preparing these financial statements are
reasonable and prudent. Actual results could differ from these estimates.
FEDERAL INCOME TAX - It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes has been
made. In order to avoid imposition of the excise tax applicable to
regulated investment companies, it is also the Fund's intention to declare
as dividends in each calendar year at least 98% of its net investment
income (earned during the calendar year) and 98% of its net realized
capital gains (earned during the twelve months ended October 31) plus
undistributed amounts from prior years.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
2. INVESTMENTS
During the year ended February 28, 1999, purchases and proceeds from sales
and maturities of investment securities, other than short-term investments,
amounted to $3,690,554 and $1,774,080 respectively.
For federal income tax purposes, the cost of portfolio investments amounted
to $5,541,458 at February 28, 1999. The composition of unrealized
appreciation (the excess of value over cost) and unrealized depreciation
(the excess of tax cost over value) was as follows:
Gross unrealized appreciation $ 4,270,987
Gross unrealized depreciation (74,088)
-----------
Net unrealized appreciation $ 4,196,899
===========
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers of Dunhill Investment
Advisors, Limited (Dunhill) the manager, administrator and transfer agent
for the Fund, CityFund Advisory, Inc. (CityFund) the Advisor and
Alpha-Omega Capital Corp. (Alpha), the Distributor.
FUND MANAGER AGREEMENT
The Fund is managed by Dunhill under the terms of a management agreement.
The Fund pays Dunhill a fee equal to the annual rate of 1.20% of the
average value of its daily net assets. Dunhill currently intends to waive
its management fees and reimburse expenses of the Fund to the extent
necessary to limit the total operating expenses of the Fund to 2.70% of
average daily net assets of the Fund. Accordingly, for the year ended
February 28, 1999, the manager waived $62,988 of advisory fees.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by CityFund under the terms of an
Investment Advisory Agreement. Under the Investment Advisory Agreement, the
manager (not the Fund) pays CityFund a fee equal to an annual rate of .35%
of the average daily net assets of the Fund.
<PAGE>
REGIONAL OPPORTUNITY FUND: OHIO, INDIANA, KENTUCKY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
TRANSFER AGENT AND SHAREHOLDER SERVICING AGREEMENT
Under the terms of a Transfer Agent and Shareholder Servicing Agreement,
Dunhill maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For
these services, Dunhill receives a monthly fee from the Fund at an annual
rate of 0.15% on its average daily net assets up to $50 million; 0.125% on
the next $50 million of such net assets; and 0.10% of such net assets in
excess of $100 million. This fee is subject to a $1,000 minimum monthly
amount. In addition, the Fund pays out-of-pocket expenses, including but
not limited to, postage and supplies. During the year ended February 28,
1999, Dunhill was paid $9,000 of fees under the Agreement.
DISTRIBUTION AGREEMENT
The Fund distributes its shares under the terms of an Underwriting
Agreement with Alpha. Alpha may sell Fund shares to or through qualified
securities dealers or brokers.
4. DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund may incur certain costs
related to the distribution of Fund shares, generally not to exceed 0.25%
of the Fund's average daily net assets. During the year ended February 28,
1999, the Fund incurred and paid approximately $71,000 of distribution
expenses under the Plan.
<PAGE>
BERGE & COMPANY LTD 20 West Ninth Street
CERTIFIED PUBLIC ACCOUNTANTS Cincinnati, Ohio 45202
(513) 651-3827
INDEPENDENT AUDITORS REPORT
To the Shareholders and
Board of Trustees
Dunhill Investment Trust
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Regional Opportunity Fund: Ohio, Indiana,
Kentucky (the Fund), a series of the Dunhill Investment Trust, as of February
28, 1999, and the related statement of operations, the statement of changes in
net assets, and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended February 28, 1998 and the financial highlights
for the period from the first public offering to shareholders (July 24, 1996)
through February 28, 1997 and the year ended February 28, 1998, were audited by
other auditors whose report dated March 27, 1998, expressed an unqualified
opinion on those financial statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of February 28, 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
audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Regional Opportunity Fund: Ohio, Indiana, Kentucky as of February 28, 1999, the
results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Berge & Company LTD
Berge & Company LTD
Cincinnati, Ohio
April 28, 1999
