As filed with the Securities and Exchange Commission on September 28, 1998.
1933 Act Registration No. 002-96538
1940 Act Registration No. 811-04262
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
and/or
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 29 X
------ ---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No: 31
---- X
---
AMERICAN PENSION INVESTORS TRUST
(Exact Name of Registrant as Specified in Charter)
2303 Yorktown Avenue, Lynchburg, Virginia 24501
(Address of Principal Executive Offices)
Registrant's Telephone Number: (804) 846-1361
DAVID D. BASTEN, President
American Pension Investors Trust
2303 Yorktown Avenue
Lynchburg, Virginia 24501
(Name and Address of Agent for Service)
Copies To:
Arthur J. Brown, Esq.
R. Darrell Mounts, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to Rule 485 (b)
X on October 1, 1998 pursuant to Rule 485 (b)
___ 60 days after filing pursuant to Rule 485 (a)(1)
___ on (date) pursuant to Rule 485 (a)(1)
___ 75 days after filing pursuant to Rule 485 (a)(2)
___ on (date) pursuant to Rule 485 (a)(2)
If appropriate, check the following box:
___ This Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment
<PAGE>
American Pension Investors Trust
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Part A - Prospectus: American Pension Investors Trust: Growth Fund,
Capital Income Fund, Multiple Index Trust, Treasuries
Trust and Yorktown Classic Value Trust
Part B - Statement of Additional Information:
American Pension Investors Trust: Growth Fund,
Capital Income Fund, Multiple Index Trust, Treasuries
Trust and, Yorktown Classic Value Trust
Part C - Other Information
Signature Page
Exhibits
<PAGE>
AMERICAN PENSION INVESTORS TRUST:
GROWTH FUND
CAPITAL INCOME FUND
MULTIPLE INDEX TRUST
TREASURIES TRUST
YORKTOWN CLASSIC VALUE TRUST
FORM N-1A
CROSS REFERENCE SHEET
PART A ITEM NO.
AND CAPTION PROSPECTUS CAPTION
------------ ------------------
1. Cover Page............................ Cover Page
2. Synopsis............................... Table of Fund Expenses
3. Condensed Financial Information........ Financial Highlights;
Performance Information
4. General Description of Registrant...... Investment Objectives and
Policies; Other Investment
Policies; Risks and Other
Considerations; Fund Shares;
General Information; Appendix
A; Appendix B
5. Management of the Fund................. Management of the Funds;
Custodians, Transfer and
Dividend Disbursing Agent
5A. Management's Discussion of Fund (See Annual Report)
Performance............................
6. Capital Stock and Other Securities..... Dividends, Other Distributions
and Taxes; Fund Shares; General
Information
7. Purchase of Securities Being Offered... Purchase of Fund Shares
8. Redemption or Repurchase............... Redemption of Fund Shares
9. Pending Legal Proceedings.............. Not Applicable
<PAGE>
PART B ITEM NO. STATEMENT OF ADDITIONAL
AND CAPTION INFORMATION CAPTION
------------ -------------------
10. Cover Page............................. Cover Page
11. Table of Contents...................... Table of Contents
12. General Information and................ General
History
13. Investment Objectives and Policies..... Investment Restrictions;
Investment Policies; Portfolio
Transactions; Appendix A;
Appendix B
14. Management of Registrant............... Management of the Trust
15. Control Persons and Principal Holders of
Securities............................ Management of the Trust
16. Investment Advisory and Other Services. Management of the Trust;
Distribution of Fund Shares;
Custodians, Transfer and
Dividend Disbursing Agent;
Independent Accountants
17. Brokerage Allocations and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities..... Fund Shares
(in Prospectus)
19. Purchase, Redemption and Pricing
Securities Being Offered............... Pricing and Additional
Exchanges
20. Tax Status............................. Taxation
21. Underwriters........................... Distribution of Fund Shares
22. Calculation of Performance Data........ Performance Information
23. Financial Statements................... Financial Statements (See
Annual Report to Shareholders
of the Funds)
<PAGE>
API TRUST
GROWTH FUND
CAPITAL INCOME FUND
MULTIPLE INDEX TRUST
TREASURIES TRUST
YORKTOWN CLASSIC VALUE TRUST
P. O. Box 2529
2303 Yorktown Avenue
Lynchburg, Virginia 24501
(804) 846-1361
(800) 544-6060
This Prospectus relates to shares of the following five mutual funds, each of
which is a series of API Trust ("Trust"):
GROWTH FUND seeks growth of capital by investing in shares of open-end
and closed-end investment companies ("underlying funds");
CAPITAL INCOME FUND seeks high current income, as well as growth of
capital and income, by investing in shares of underlying funds;
MULTIPLE INDEX TRUST seeks capital growth and income by investing at
least 65% of its total assets in shares of underlying open-end funds whose
portfolios mirror those of one index or another of market securities;
TREASURIES TRUST seeks current income with limited credit risk by
investing in obligations of the U.S. Treasury that are guaranteed as to
principal and interest by the full faith and credit of the U.S. Government; and
YORKTOWN CLASSIC VALUE TRUST ("Value Trust") seeks growth of capital by
investing primarily in equity securities that Yorktown Management & Research
Company, Inc., the Trust's investment adviser (the "Adviser"), believes are
undervalued in relation to the quality of the securities and the long-term
earning power of their issuers, regardless of short-term indicators. Income is a
secondary objective. In following this strategy, Value Trust may invest in the
securities of a fewer number of issuers and borrow money for investment purposes
and, as a result, be subject to greater risks than many other investment
companies.
No assurance can be given that any Fund will achieve its investment objectives.
This Prospectus sets forth concisely the information about the Trust and the
Funds that a prospective investor should know before investing. It should be
read and retained for future reference. A Statement of Additional Information
for the Funds, dated October 1, 1998, has been filed with the Securities and
Exchange Commission and, as amended from time to time, is incorporated by
reference herein. The Statement of Additional Information is available, at no
charge, by contacting the Trust at the address or telephone numbers provided
above. It is also available, along with other related materials, on the SEC's
Web site (http://www.sec.gov). Additional information about the Funds may also
be obtained on the Web at http://www.apitrust.com.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is dated October 1, 1998.
<PAGE>
TABLE OF CONTENTS
TOPIC PAGE
- ----- ----
TABLE OF FUND EXPENSES........................................................3
FINANCIAL HIGHLIGHTS..........................................................5
INVESTMENT OBJECTIVES AND POLICIES............................................9
OTHER INVESTMENT POLICIES....................................................10
RISKS AND OTHER CONSIDERATIONS...............................................12
MANAGEMENT OF THE FUNDS......................................................15
PURCHASE OF FUND SHARES......................................................16
REDEMPTION OF FUND SHARES....................................................19
TELEPHONE TRANSACTIONS.......................................................22
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES.....................................22
PERFORMANCE INFORMATION......................................................24
FUND SHARES..................................................................24
CUSTODIANS, TRANSFER AND DIVIDEND DISBURSING AGENT...........................25
GENERAL INFORMATION..........................................................25
APPENDIX A...................................................................26
APPENDIX B...................................................................28
<PAGE>
TABLE OF FUND EXPENSES
The following tables are intended to assist investors in understanding the
expenses associated with investing in the Funds.
<TABLE>
<CAPTION>
Capital Multiple
Growth Income Index Treasuries Value
Fund Fund Trust Trust Trust
------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load imposed on purchases None None None None None
Maximum contingent deferred sales charge fees (as None None None None 2%(1)
a percentage of net asset value at time of
purchase or sale, whichever is less)
Sales load imposed on reinvested dividends None None None None None
Exchange fees None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) (2)
Management Fees (after waivers) 0.64% 0.00% 0.00% 0.00% 0.75%
12b-1 Fees 1.00% 0.50% 0.00% 0.00% 0.90%
Other Expenses (after reimbursements) 0.54% 0.97% 0.71% 0.84% 0.89%
---- ---- ---- ---- ----
Total Fund Operating Expenses (after waivers and 2.18% 1.47% 0.71% 0.84% 2.54%
reimbursements)
</TABLE>
- ---------------------------------
(1) The maximum 2% contingent deferred sales charge applies to
redemptions made in the first five years after purchase. No charge is imposed on
redemptions of shares held five years or longer. See "Redemption of Fund
Shares."
(2) "Annual Fund Operating Expenses" are based on operating expenses
incurred by each Fund for the fiscal year ended May 31, 1998. Long-term
shareholders may pay more in 12b-1 fees over time as a percentage of their
initial investment than the amount of the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. ("NASD"). Without waivers and/or reimbursements, Management Fees, Other
Expenses and Total Fund Operating Expenses would have been 1.00%, 0.55% and
2.54%, respectively, for the Growth Fund; 0.60%, 0.97% and 2.07%, respectively,
for the Capital Income Fund; 0.70%, 2.05% and 2.75%, respectively, for the
Multiple Index Trust; 0.40%, 2.59% and 2.99%, respectively, for the Treasuries
Trust; and 0.90%, 0.89% and 2.69%, respectively, for the Value Trust. See
"Management of the Funds" for additional information. An investor in the Growth
Fund, the Capital Income Fund or the Multiple Index Trust will bear not only his
or her proportionate share of the expenses of the Fund but also, indirectly,
similar expenses of the underlying funds.
3
<PAGE>
EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return; (2) redemption at the end of each period; and (3)
deduction at the time of redemption of the maximum applicable contingent
deferred sales charge, if any.
<TABLE>
<CAPTION>
Capital Multiple
Growth Income Index Treasuries Value*
Fund Fund Trust Trust Trust
------ ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
After 1 year................... $ 22 $ 15 $ 7 $ 9 $ 46
After 3 years.................. 69 47 23 27 100
After 5 years.................. 118 81 40 47 137
After 10 years................. 253 177 88 104 290
</TABLE>
* Without redemption, a shareholder would pay expenses of $26 after one year
and $80 after three years. Expenses after five years and ten years would be
the same as those shown above.
The Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under Annual Fund Operating Expenses
remain the same in the years shown. The 5% annual return assumed in the Example
is required by regulations of the Securities and Exchange Commission ("SEC") and
is not a prediction of, and does not represent, the projected or actual
performance of Fund shares. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES OF THE FUNDS MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below provide financial highlights for one share of each Fund for the
periods shown. This information is supplemented by the financial statements and
accompanying notes appearing in the Statement of Additional Information for each
Fund. The financial statements and notes have been audited by
PricewaterhouseCoopers, LLP, independent certified public accountants, whose
report thereon is also included in the Statement of Additional Information. The
financial highlights appearing below were derived from financial statements
audited by PricewaterhouseCoopers, LLP.
<TABLE>
<CAPTION>
GROWTH FUND
- -----------
FOR THE YEAR ENDED MAY 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 (1) 1990 1989
---- ---- ---- ---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING
THROUGHOUT EACH YEAR:
Net asset value, beginning of year. $13.42 $14.00 $12.48 $12.32 $11.86 $10.84 $11.19 $9.85 $11.58 $9.48
------ ------ ------ ------ ------ ------ ------ ----- ------ -----
Income from investment operations:
Net investment income (loss).... (0.08) (0.17) (0.14) (0.10) (0.21) (0.18) (0.11) 0.05 0.08
Net realized and unrealized gain
on investments............... 2.36 1.25 2.67 1.37 1.25 1.57 0.71 1.34 0.36 2.17
---- ---- ---- ---- ---- ----- ---- ---- ---- ----
Total income from
investment operations...... 2.28 1.08 2.53 1.27 1.04 1.39 0.60 1.34 0.41 2.25
---- ---- ---- ---- ----- ----- ---- ---- ---- ----
Distributions:
From net investment income...... (0.05) (0.06)
In excess of net investment
income....................... (0.03) (0.09)
From net realized gain on
security transactions........ (1.57) (1.66) (1.01) (1.11) (0.58) (0.37) (0.95) (1.10)
In excess of net realized gain on (0.96)
security transactions........ ----- ----- ----- ----- ----- ----- ----- ----- ----
Total distributions......... (1.57) (1.66) (1.01) (1.11) (0.58) (0.37) (0.95) (2.14) (0.15)
------ ------ ----- ----- ---- ---- ---- ----- ----
Net asset value, end
of year $14.13 $13.42 $14.00 $12.48 $12.32 $11.86 $10.84 $11.19 $9.85 $11.58
====== ====== ====== ====== ====== ====== ====== ====== ===== ======
Total return...................... 18.39% 8.32% 21.03% 11.28% 8.60% 13.03% 4.91% 13.56% 3.38% 23.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's omitted)............. $77,173 $68,717 $68,306 $55,191 $46,958 $44,364 $40,302 $29,925 $31,876 $31,651
Ratio of expenses to average
net assets(2)................ 2.18% 2.18% 2.24% 2.06% 2.24% 2.05% 1.97% 2.38% 2.60% 2.66%
Ratio of net investment income
(loss) to average net assets.. (0.62)% (1.31)% (1.08)% (1.50)% (1.75)% (1.56)% (1.24)% 0.02% 0.36% 0.78%
Portfolio turnover rate..... 57% 84% 63% 91% 90% 157% 99% 206% 118% 163%
</TABLE>
- ---------------------------------
(1) On February 22, 1991, the Fund adopted a strategy of using multiple
investment styles by investing primarily in the shares of other registered
investment companies.
(2) Without fees recouped or waived by the investment adviser, the ratio of
expenses to average net assets would have been 2.54%, 2.55%, 2.57%, 2.60%,
2.56%, 2.52%, 2.50%, 2.67%, 2.54% and 2.95%, respectively.
5
<PAGE>
<TABLE>
<CAPTION>
CAPITAL INCOME FUND
- -------------------
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991(1) 1990 1989
---- ---- ---- ---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING
THROUGHOUT EACH YEAR:
Net asset value, beginning of
year........................ $19.92 $17.57 $17.21 $16.34 $16.06 $14.69 $13.66 $12.78 $13.40 $13.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) 0.16 0.32 0.34 0.35 (0.01) (0.06) (0.13) 0.19 0.52 0.55
Net realized and unrealized gain
(loss) on investments..... 4.64 3.49 2.57 1.64 0.78 1.43 1.16 0.99 (0.57) 0.06
------ ---- ---- ---- ---- ---- ---- ---- ------ ----
Total income (loss) from
investment operations.... 4.80 3.81 2.91 1.99 0.77 1.37 1.03 1.18 (0.05) 0.61
------ ---- ---- ---- ---- ---- ---- ---- ------ ----
Distributions:
From net investment income.. (0.30) (0.48) (0.28) (0.36) (0.27) (0.57) (0.40)
In excess of net investment
income................... (0.03)
From net realized gain on
security transactions.... (1.46) (0.98) (2.27) (0.76) (0.49)
------ ------ ------ ------ ------ ----- ----- -----
Total distributions...... (1.76) (1.46) (2.55) (1.12) (0.49) (0.30) (0.57) (0.40)
------ ------ ------ ------ ------ ----- ----- -----
Net asset value, end of
year............... $22.96 $19.92 $17.57 $17.21 $16.34 $16.06 $14.69 $13.66 $12.78 $13.40
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return................... 25.30% 22.43% 17.65% 13.08% 4.79% 9.33% 7.51% 9.63% (0.41)% 4.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000's omitted).......... $11,592 $8,098 $4,417 $3,031 $2,964 $2,603 $1,828 $1,670 $2,584 $1,822
Ratio of expenses to average net
assets(2).................. 1.47% 1.77% 2.22% 2.05% 2.12% 2.77% 3.47% 3.83% 2.92% 3.73%
Ratio of net investment income
(loss) to average net assets.. 0.80% 1.84% 1.43% 0.75% (0.06)% (0.82)% (0.98)% 1.54% 4.46% 4.69%
Portfolio turnover rate........ 33% 67% 40% 65% 17% 29% 55% 120% 110% 68%
</TABLE>
- ---------------------------------
(1) On February 22, 1991, the Fund adopted a strategy of using multiple
investment styles by investing primarily in the shares of other registered
investment companies.
(2) Without fees waived/reimbursed by the investment adviser and distributor,
the ratio of expenses to average net assets would have been 2.07%, 2.38%,
2.82%, 2.65%, 2.72%, 3.37%, 4.07%, 4.43%, 3.53%, and 4.38%, respectively.
<PAGE>
<TABLE>
<CAPTION>
MULTIPLE INDEX TREASURIES TRUST
TRUST FOR THE PERIOD
FOR THE PERIOD ENDED MAY 31,
ENDED MAY 31, 1998(1)
1998(1)
<S> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
Net asset value, beginning of period $10.00 $10.00
------ ------
Income from investment operations:
Net investment income 0.03 0.43
Net realized and unrealized gain on investments 1.16 0.49
---- ----
Total income from investment operations 1.19 0.92
---- ----
Distributions:
From net investment income (0.03) (0.29)
From net realized gain on security transactions (0.12)
------
Total distributions (0.15) (0.29)
------ ------
NET ASSET VALUE, END OF PERIOD $11.04 $10.63
====== ======
Total return 11.99% 9.33%
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $3,080 $3,844
Ratio of expenses to average net assets 0.71%(2) 0.84%(3)
Ratio of net investment income to average net assets 0.36% 5.85%
Portfolio turnover rate 49% 3%
</TABLE>
- -----------------
(1) Commencement of operations was July 2, 1997.
(2) Without fees waived/reimbursed by the investment adviser, the ratio of
expenses to average net assets would have been 2.75%.
(3) Without fees waived/reimbursed by the investment adviser, the ratio of
expenses to average net assets would have been 2.99%.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE TRUST
- -----------
FOR THE YEAR/PERIOD ENDED MAY 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993(1)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH
YEAR/PERIOD:
Net asset value, beginning of year/period..... $14.23 $ 12.00 $ 12.98 $ 10.12 $ 10.34 $ 10.00
------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income...................... (0.47) (0.25) (0.28) (0.28) 0.06 0.02
Net realized and unrealized gain (loss) on 2.19 2.69 0.93 3.33 (0.27) 0.32
investments............................... ---- ------ ------ ------ ------ -------
Total income (loss) from investment
operations.............................. 1.72 2.44 0.65 3.05 (0.21) 0.34
---- ------ ------ ------ ------ -------
Distributions:
From net investment income................. (0.07) (0.01)
-
From net realized gain on security transactions (1.05) (0.21) (1.63) (0.12) _____
------ -------- ------- ------- ------
Total distributions..................... (1.05) (0.21) (1.63) (0.19) (0.01)
------ -------- ------- ------- -------
Net asset value, end of year/period $14.90 $ 14.23 $ 12.00 $ 12.98 $ 10.12 $ 10.34
====== ======== ======= ======= ======= =======
Total return(3)............................... 13.02% 20.59% 6.36% 30.70% (2.04)% 5.88%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year/period (000's omitted) $13,664 $13,060 $9,072 $6,490 $5,323 $3,353
Ratio of operating expenses to average net 2.54% 2.65% 2.68% 2.39% 1.99% 1.80%(2)
assets(4).....................................
Ratio of total expenses to average net assets(5) 5.52% 5.20% 6.22% 5.79% 4.49% 3.32%(2)
Ratio of net investment income (loss) to
average net (3.08%) (2.50)% (2.67)% (2.60)% 0.76% 0.42%(2)
assets.................................
Portfolio turnover rate.................... 145% 115% 145% 220% 170% 25%(2)
</TABLE>
- ----------------------------------------------------
(1) Commencement of operations was November 2, 1992.
(2) Annualized.
(3) Does not reflect contingent deferred sales charge.
(4) Without fees waived by the Adviser and Distributors, the annualized ratio
of operating expenses to average net assets would have been 2.69%, 2.80%,
2.87%, 2.95%, 2.69% and 2.76%, respectively.
(5) Without fees waived/reimbursed by the Adviser and Distributors, the
annualized ratio of total expenses to average net assets would have been
5.67%, 5.35%, 6.41%, 6.34%, 5.19% and 4.29%, respectively.
<TABLE>
<CAPTION>
DEBT OUTSTANDING
Average Daily Average Daily
Amount of Amount of Debt No. of Shares Average Amount
Debt Outstanding Outstanding Outstanding of Debt Per Share
Fiscal Year Ended at End of Period During the Period During the Period During the Period
----------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
May 31, 1998................. $3,228,550 $5,796,073 936,316 $6.19
May 31, 1997................. 5,017,490 3,371,414 786,862 4.28
May 31, 1996................. 4,497,303 3,370,113 619,171 5.44
May 31, 1995................. 2,638,565 2,346,536 499,195 4.70
May 31, 1994................. 2,357,355 2,001,443 442,797 4.52
May 31, 1993................. 897,354 550,057 203,424 2.70
</TABLE>
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of a Fund may not be changed without the affirmative
vote of a majority of the Fund's outstanding voting securities as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). Certain other
investment limitations that apply to a Fund may not be changed without
shareholder approval, as described in the Statement of Additional Information
for the Fund. All other investment policies, unless otherwise indicated, may be
changed by the Trust's Board of Trustees without shareholder approval.
GROWTH FUND
The Growth Fund's investment objective is growth of capital. The Fund seeks to
achieve its objective by investing primarily in shares of open-end and/or
closed-end investment companies ("underlying funds") that seek long-term capital
growth or appreciation by investing primarily in common stock or securities
convertible into or exchangeable for common stock (such as convertible preferred
stock, convertible debentures or warrants ("convertible securities")). The Fund
may also invest in underlying funds that invest primarily in long- or short-term
bonds and other fixed-income securities (such as securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities ("U.S. Government
securities"), commercial paper and preferred stock) whenever the Adviser
believes that these funds offer a potential for capital appreciation, such as
during periods of declining interest rates. Under normal conditions, the Fund
invests in ten to seventy-five underlying funds and invests between 25% and 75%
of its total assets in funds that are authorized to invest a substantial portion
of their assets in foreign securities. Such funds may be subject to risks due to
their investment in foreign securities. See Appendix A.
CAPITAL INCOME FUND
The Capital Income Fund's primary investment objective is high current income.
The Fund's secondary objective is growth of capital and income. The Fund seeks
to achieve its objectives by investing at least 65% of its total assets in
shares of underlying funds that seek to achieve an objective of high current
income by investing in income-producing equity securities, including
dividend-paying common stocks and convertible securities, long- or short-term
bonds and other fixed-income securities (such as U.S. Government securities,
commercial paper and preferred stock). Under normal conditions, the Fund invests
in ten to fifty underlying funds and invests between 25% and 75% of its total
assets in global funds (which invest in foreign and U.S. securities) and
international funds (which invest in foreign securities). Such funds may be
subject to risks due to their investment in foreign securities. See Appendix A
and Appendix B.
MULTIPLE INDEX TRUST
The Multiple Index Trust's investment objective is maximum total return from
capital growth and income. The Fund seeks to achieve its objective by investing
primarily in shares of underlying open-end funds whose portfolios mirror those
of one index or another of market securities, such as the Standard & Poor's 500
Composite Stock Price Index, the New York Stock Exchange Composite Index, the
Nasdaq Composite Index or the Russell 4500 Index. Such funds generally are not
managed in the traditional sense, using economic, financial and market analysis,
nor will the adverse financial situation of an issuer directly result in its
elimination from the index and consequently the Fund. Under normal conditions,
the Fund invests in 10 to 15 underlying funds.
9
<PAGE>
TREASURIES TRUST
The Treasuries Trust's investment objective is current income with limited
credit risk. Under normal conditions, the Fund invests at least 65% (and
normally 100%) of its total assets in obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) that are guaranteed as to principal and
interest by the full faith and credit of the U.S. Government. Treasury bills,
notes and bonds historically have involved little risk of loss of principal if
held to maturity. Such securities, however, are subject to variations in market
value due to interest rate fluctuations. If interest rates fall, the market
value of fixed-income securities tends to rise; if interest rates rise, the
market value of fixed-income securities tends to fall. Moreover, the longer the
remaining maturity of a fixed-income debt security, the greater the effect of
interest rate changes on the market value of the security. This market risk
affects all fixed-income securities, but U.S. Government securities are
generally subject to less market risk.
VALUE TRUST
The Value Trust's primary investment objective is growth of capital. The Fund's
secondary objective is income. The Fund seeks to achieve its objectives by
investing primarily in equity securities which the Adviser believes are
undervalued in relation to the quality of the securities and the long-term
earning power of their issuers, regardless of short-term indicators.
The Adviser believes that investing in temporarily depressed securities of
sound, well-managed companies provides a greater potential for overall
investment return than investing in securities selling at prices that reflect
anticipated favorable developments. Securities may be undervalued because of
many factors, including general market decline, earnings decline, poor economic
conditions, tax losses or actual or anticipated unfavorable developments
affecting the issuer. Any or all of these factors may provide buying
opportunities at prices that compare favorably to historical or current
price-earnings ratios, book value, return on equity, or the prospects for the
companies in question.
The Fund invests primarily in the common stock of companies listed on a national
securities exchange or whose securities are traded in the over-the-counter
market. The Fund may also invest in preferred stock, convertible preferred
stock, convertible debentures, rights, warrants and certain other instruments.
See Appendix B for more information on convertible securities, rights and
warrants.
OTHER INVESTMENT POLICIES
INVESTMENT IN UNDERLYING FUNDS (GROWTH FUND, CAPITAL INCOME FUND AND MULTIPLE
INDEX TRUST ONLY)
Each of the Growth Fund, the Capital Income Fund and the Multiple Index Trust
seeks to achieve its investment objectives by investing in shares of underlying
funds. Each Fund may invest up to 25% of its total assets in any one underlying
fund. Each Fund that invests in underlying funds may invest in shares of the
same underlying fund; however, the percentage of each Fund's assets so invested
may vary and the Funds and their affiliates may not hold more than 3% of an
underlying fund's shares. If a Fund holds more than 1% of the shares of an
open-end fund, that Fund will be obligated to redeem only 1% of those shares
during any period of less than 30 days. Any shares of an open-end fund held by a
Fund in excess of 1% of the open-end fund's outstanding shares, therefore, will
be considered not readily marketable securities that, together with other such
securities, may not exceed 10% of the Fund's net assets. Further, in accordance
with the 1940 Act, if an underlying fund submits a matter to shareholders for
vote, each Fund will either vote the shares (i) in accordance with instructions
received from Fund shareholders or (ii) in the same proportion as the vote of
all other holders of such securities. The Funds may not purchase shares of
investment companies that are not registered with the SEC. Each Fund intends
only to invest in underlying funds that intend to qualify as regulated
investment companies ("RICs") under the Internal Revenue Code of 1986, as
amended ("Code"). If an underlying fund fails to qualify as a RIC, it may be
subject to federal income tax and may adversely affect a Fund's ability to
qualify for that treatment. No assurance can be given, however, that an
underlying fund will qualify for treatment as a RIC.
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The Adviser selects underlying funds in which to invest based, in part, upon an
analysis of their past performance and their investment objectives, policies and
the investment style of their investment advisers. In selecting open-end funds
in which to invest, the Adviser also considers, among other factors, the funds'
size, cost structure, shareholder services and the reputation and stability of
their investment advisers. In selecting closed-end funds in which to invest on
behalf of the Growth Fund and the Capital Income Fund, the Adviser considers,
among other factors, the factors considered for open-end companies and the
funds' historical market discounts, portfolio characteristics, repurchase,
tender offer, and dividend reinvestment programs, provisions for converting into
an open-end fund, and quality of management. The Growth Fund and the Capital
Income Fund each may invest in the securities of closed-end funds that, at the
time of investment by the Fund, are either trading at a discount to net asset
value or at a premium to net asset value.
The underlying funds in which the Funds invest may include new funds and funds
with limited operating history. Underlying funds may, but need not, have the
same investment objectives, policies and limitations as the Funds. For example,
although a Fund will not borrow money for investment purposes, it may invest all
of its assets in underlying funds that borrow money for investment purposes
(i.e., engage in the speculative activity of leveraging) or invest up to 25% of
its total assets in any one such underlying fund.
TEMPORARY INVESTMENTS (ALL FUNDS)
Pending investment, for liquidity or when the Adviser believes market conditions
warrant a defensive position, each Fund may temporarily hold cash or invest all
or any portion of its assets in money market mutual funds or directly in money
market instruments, including repurchase agreements. A repurchase agreement is a
transaction in which a Fund purchases securities from a bank or recognized
securities dealer and simultaneously commits to resell the securities to the
bank or dealer at an agreed-upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value of the
underlying securities and delays and costs to a Fund if the other party to the
repurchase agreement becomes bankrupt, each Fund intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
the Adviser to present minimal credit risks in accordance with guidelines
established by the Trust's Board of Trustees. To the extent a Fund invests more
than $100,000 in a single bank or savings association, the investment is not
protected by federal insurance. The underlying funds also may invest under
similar circumstances in similar instruments.
BORROWING AND OTHER POLICIES
GROWTH FUND AND CAPITAL INCOME FUND. Each Fund may temporarily borrow money from
banks for extraordinary or emergency purposes, but not in excess of the lesser
of 10% of its total assets (valued at cost) or 5% of its total assets (valued at
market). Each Fund also may invest up to 10% of its net assets in securities for
which no readily available market exists and may lend securities constituting up
to 5% of its net assets.
MULTIPLE INDEX TRUST AND TREASURIES TRUST. Each Fund may borrow money for
temporary purposes from a bank and may engage in reverse repurchase agreements,
but not in excess of 10% of its total assets. Each Fund, however, will not
purchase securities while borrowings in excess of 5% of its total assets are
outstanding. Each Fund may invest up to 15% of its net assets in securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which a Fund has valued the securities and includes,
among other things, repurchase agreements maturing in more than seven days and
restricted securities. A considerable period may elapse between a Fund's
decision to sell such securities and the time when a Fund is able to sell such
securities. If, during such a period, adverse market conditions were to develop,
a Fund may obtain a less favorable price than prevailed when it decided to sell.
VALUE TRUST. The Fund may engage in leveraging by borrowing up to one-third of
the value of its net assets for investment purposes. The 1940 Act requires the
maintenance of continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
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portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. See "Risks and Other
Considerations."
RISKS AND OTHER CONSIDERATIONS
Growth Fund, Capital Income Fund and Multiple Index Trust
INVESTMENT IN OTHER INVESTMENT COMPANIES
Any investment in an open-end or closed-end investment company involves risk,
and, although each Fund invests in a number of underlying funds, this practice
does not eliminate investment risk. Investment decisions by the investment
advisers of the underlying funds are made independently of the Funds and the
Adviser. Therefore, the investment adviser of one underlying fund may be
purchasing securities of the same issuer whose securities are being sold by the
investment adviser of another underlying fund. The result of this would be an
indirect expense to the Fund without accomplishing any investment purpose.
Some of the underlying funds also could incur more risks than others. For
example, they may trade their portfolios more actively (which results in higher
brokerage costs), may engage in investment practices, including leverage, that
entail greater risks or invest in companies whose securities and other
investments are more volatile. In addition, the underlying funds in which the
Funds invest may or may not have the same investment limitations as those of the
Funds themselves. Moreover, while each of the Funds has a policy of investing no
more than 25% of its total assets in the securities of underlying funds that
invest 25% or more of their total assets in any one industry, the Funds, through
their investments in underlying funds, indirectly may invest more than 25% of
their assets in any one industry. In addition, the underlying funds in which the
Funds invest may have policies themselves that, among other things, permit them
to invest up to 100% of their assets in securities of foreign issuers and to
engage in foreign currency transactions with respect to their investments;
invest in illiquid securities; invest in warrants; lend their portfolio
securities; sell securities short; borrow money for investment purposes; invest
25% or more of their total assets in one industry; and enter into options,
futures and forward currency contracts. The risks associated with investments in
foreign securities are described in the Appendix A to this Prospectus and the
risks associated with these other investment policies are described in the
Statement of Additional Information.
Investing in the Funds also involves certain additional expenses and certain tax
consequences that would not be present in a direct investment in the underlying
funds. An investor in a Fund should recognize that he may invest directly in the
underlying funds and that, by investing in the underlying funds indirectly
through the Fund, he will bear not only his proportionate share of the expenses
of the Fund (including operating costs and investment advisory and
administrative fees) but also indirectly similar expenses of the underlying
funds.
OPEN-END FUNDS. Each of the Funds may purchase shares of open-end funds that
impose a front-end sales load ("Load Fund Shares") and shares of open-end funds
that do not impose a front-end sales load. However, the Funds may not invest in
shares of open-end funds that are sold subject to a redemption fee of more than
1%. An open-end fund is currently permitted under the rules of the NASD to
impose front-end sales loads as high as 8.5% of the public offering price (9.29%
of the net amount invested), provided that it does not also impose an
asset-based sales charge. The Adviser anticipates, however, investing
substantially all of each Fund's assets in funds that impose no front-end sales
load or impose a front-end sales load of no more than 3% of the public offering
price of the shares. Fund purchases may often qualify for so-called quantity
discounts whereby a lower front-end sales load is applied to purchases of, for
example, $50,000 or more. Additionally, where possible, the Adviser will seek to
reduce the front-end sales load imposed by purchasing shares pursuant to (i)
letters of intent, permitting it to obtain reduced front-end sales loads by
aggregating its intended purchases over time; (ii) rights of accumulation,
permitting it to obtain reduced front-end sales loads as it purchases additional
shares of an underlying fund; and (iii) rights to obtain reduced front-end sales
loads by aggregating its purchases of several funds within a family of mutual
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funds. In addition to any front-end sales load imposed by an open-end fund, the
open-end fund may be subject to annual distribution and service fees of up to
1.00% of the fund's average daily net assets.
Front-end sales loads generally are split into the dealer reallowance (which
typically comprises at least 80% of the amount of the charge) and the
underwriter's retention. Distributors generally will be designated as the dealer
entitled to receive the dealer reallowance portion of the sales charge on
purchases of Load Fund Shares by each Fund. However, Distributors will not
retain any dealer reallowance in excess of 1% of the public offering price on
any transaction, nor will it be designated as the dealer entitled to receive the
dealer reallowance portion of the sales charge where such reallowance would
exceed 1% of the public offering price. The Adviser has agreed to waive the
advisory fees it charges the Growth Fund and Capital Income Fund in an amount
equal to amounts Distributors retains as (i) dealer reallowances resulting from
each Fund's purchase of Load Fund Shares and (ii) Rule 12b-1 fees received from
underlying open-end funds.
Although open-end fund shares are redeemable by a Fund upon demand to the
issuer, under certain circumstances, an open-end fund may determine to make a
payment for redemption of its shares to the Fund wholly or partly by a
distribution in kind of securities from its portfolio, in lieu of cash, in
conformity with the rules of the SEC. In such cases, the Fund may hold
securities distributed by an open-end fund until the Adviser determines that it
is appropriate to dispose of such securities. Such disposition generally will
entail additional costs to the Fund.
CLOSED-END FUNDS (GROWTH FUND AND CAPITAL INCOME FUND ONLY). Shares of
closed-end funds are typically offered to the public in a one-time initial
public offering by a group of underwriters who retain a spread or underwriting
commission of between 4% and 6% of the initial public offering price. Such
securities are then listed for trading on the New York Stock Exchange ("NYSE"),
the American Stock Exchange or the Nasdaq Stock Market ("Nasdaq") or, in some
cases, may be traded in other over-the-counter ("OTC") markets. Because the
shares of closed-end funds cannot be redeemed upon demand to the issuer like the
shares of an open-end investment company (such as a Fund), investors seek to buy
and sell shares of closed-end funds in the secondary market.
The Growth Fund and the Capital Income Fund generally will purchase shares of
closed-end funds only in the secondary market. Each Fund will incur normal
brokerage costs on such purchases similar to the expenses the Fund would incur
for the purchase of equity securities in the secondary market. The Funds may,
however, also purchase securities of a closed-end fund in an initial public
offering when, in the opinion of the Adviser, based on a consideration of the
nature of the closed-end fund's proposed investments, the prevailing market
conditions and the level of demand for such securities, they represent an
attractive opportunity for growth of capital. The initial offering price
typically will include a dealer spread, which may be higher than the applicable
brokerage cost if the Fund purchased such securities in the secondary market.
The shares of many closed-end funds, after their initial public offering,
frequently trade at a price per share which is less than the net asset value per
share, the difference representing the "market discount" of such shares. This
market discount may be due in part to the investment objective of long-term
appreciation, which is sought by many closed-end funds, as well as to the fact
that the shares of closed-end funds are not redeemable by the holder upon demand
to the issuer at the next determined net asset value but rather are subject to
the principles of supply and demand in the secondary market. A relative lack of
secondary market purchasers of closed-end fund shares also may contribute to
such shares trading at a discount to their net asset value.
Each Fund may invest in shares of closed-end funds that are trading at a
discount to net asset value or at a premium to net asset value. There can be no
assurance that the market discount on shares of any closed-end fund purchased by
a Fund will ever decrease. In fact, it is possible that this market discount may
increase and the Fund may suffer realized or unrealized capital losses due to
further decline in the market price of the securities of such closed-end funds,
thereby adversely affecting the net asset value of the Fund's shares. Similarly,
there can be no assurance that any shares of a closed-end fund purchased by a
Fund at a premium will continue to trade at a premium or that the premium will
not decrease subsequent to a purchase of such shares by the Fund.
Closed-end funds may issue senior securities (including preferred stock and debt
obligations) or borrow money for the purpose, and with the effect, of leveraging
the closed-end fund's common shares in an attempt to enhance the current return
to such closed-end fund's common shareholders. A Fund's investment in the common
shares of closed-end funds that are financially leveraged may create an
opportunity for greater total return on its investment, but at the same time may
be expected to exhibit more volatility in market price and net asset value than
an investment in shares of investment companies without a leveraged capital
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structure. The Funds will only invest in common shares of closed-end funds and
will not invest in any senior securities issued by closed-end funds.
VALUE TRUST
NON-DIVERSIFIED STATUS
The Fund is "non-diversified," as that term is defined in the 1940 Act, but
intends to continue to qualify as a RIC for federal income tax purposes. This
means, in general, that more than 5% of the Fund's total assets may be invested
in securities of one issuer, but only if, at the close of each quarter of the
Fund's taxable year, the aggregate amount of such holdings does not exceed 50%
of the value of its total assets and no more than 25% of the value of its total
assets is invested in the securities of a single issuer. To the extent that the
Fund's portfolio at times will consist of the securities of a smaller number of
issuers than if it were "diversified" (as defined in the 1940 Act), the Fund
will at such times be subject to greater risk with respect to its portfolio
securities than an investment company that invests in a broader range and number
of securities, in that changes in the financial condition or market assessment
of a single issuer may cause greater fluctuation in the Fund's total return and
the price of the Fund's shares.
LEVERAGE
The Fund may engage in leveraging. Leveraging by the Fund may exaggerate the
effect on net asset value of any increase or decrease in the market value of the
Fund's portfolio. Money borrowed for leveraging will be subject to interest and
related costs which may or may not be recovered by appreciation of the
securities purchased. The Fund may also be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate. There can be no certainty that
the Fund will be able to borrow money when the Adviser seeks to do so or that it
will be able to do so on advantageous terms.
HEDGING STRATEGIES
The Fund may hedge its portfolio investments through the use of options, futures
contracts and options on futures contracts. The Fund may also hedge currency
risks associated with investments in foreign securities and in particular may
hedge its portfolio through the use of forward foreign currency contracts. The
objective of a hedging strategy is to protect a profit or offset a loss in a
portfolio security from future price erosion or to assure a definite price for a
security, stock index, futures contract, or currency. The Fund's ability to use
options, futures and forward foreign currency contracts may be limited by market
conditions, regulatory limits and tax considerations.
There are transactional costs connected with using hedging strategies. In
addition, the use of hedging strategies involves certain special risks,
including (1) imperfect correlation between the hedging instruments and the
securities or market sectors being hedged; (2) the possible lack of a liquid
secondary market for closing out a particular instrument; (3) the need for
additional skills and techniques beyond normal portfolio management; (4) the
possibility of losses resulting from market movements not anticipated by the
Adviser; and (5) possible impediments to effective portfolio management because
of the percentage of the Fund's assets segregated to cover its obligations.
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The Statement of Additional Information contains a more complete description of
the characteristics, risks and possible benefits of hedging transactions. New
financial products and risk management techniques continue to be developed. The
Fund may use these investments and techniques consistent with its investment
objectives and regulatory and tax considerations.
FOREIGN SECURITIES
The Fund may invest in foreign securities including common stocks, preferred
stock and common stock equivalents issued by foreign companies. The Fund may
also invest in American Depository Receipts, European Depository Receipts and
other securities convertible into securities of corporations based in foreign
countries. These securities provide a means for investing indirectly in foreign
equity or debt securities. Investments in foreign securities involve risks
relating to adverse political and economic developments abroad as well as those
that may result from the differences between the regulation to which U.S.
issuers are subject and that applicable to foreign issuers. Additionally,
because foreign securities ordinarily are denominated in currencies other than
the U.S. dollar, changes in foreign currency exchange rates will affect the
Fund's net asset value, the value of interest earned, gains and losses realized
on the sale of securities and net investment income and capital gain, if any, to
be distributed to shareholders by the Fund. See Appendix A.
FOREIGN CURRENCY TRANSACTIONS
When the Fund purchases or sells a security denominated in a foreign currency,
it may be required to settle the purchase transaction in the relevant foreign
currency or to receive the proceeds of the sale in the relevant foreign
currency. In either event, the Fund will be obligated to acquire or dispose of
the foreign currency by selling or buying an equivalent amount of U.S. dollars.
To effect the conversion of the amount of foreign currency involved in the
purchase or sale of a foreign security, the Fund may purchase or sell such
foreign currency on a "spot" (i.e., cash) basis. See Appendix A.
ALL FUNDS
YEAR 2000 ISSUE
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers do
not properly process and calculate date-related information and data after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser
is taking steps that it believes are reasonably designed to address the Year
2000 Problem with respect to the computer systems that it uses, and to obtain
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds.
MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees has overall responsibility for the operation of
the Trust. Pursuant to that responsibility, the Board has selected the Adviser
to act as investment adviser and administrator for each Fund. Services provided
by the Adviser include, but are not limited to, the provision of a continuous
investment program for each Fund and supervision of all matters relating to the
operation of each Fund. Among other things, the Adviser is responsible for
making investment decisions and placing orders to buy, sell or hold particular
securities, furnishing corporate officers and clerical staff and providing
office space, office equipment and office services.
The Adviser has acted as the investment adviser to each Fund since its
inception. The Adviser, whose address is 2303 Yorktown Avenue, Lynchburg,
Virginia 24501, was incorporated under the laws of the State of Maryland in 1984
and is controlled by David D. Basten. In addition, Mr. Basten currently serves
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as each Fund's portfolio manager and has served in that capacity since
commencement of each Fund's operations.
For its services, the Adviser receives a monthly fee from each Fund, calculated
daily. The Growth Fund pays the Adviser a monthly fee at an annual rate of 1.00%
of the first $100 million of average daily net assets of the Fund and 0.75% of
average daily net assets exceeding that amount. The Capital Income Fund pays the
Adviser a monthly fee at an annual rate of 0.60% of the average daily net assets
of the Fund. The Multiple Index Trust pays the Adviser a monthly fee at an
annual rate of 0.70% of the average daily net assets of the Fund. The Treasuries
Trust pays the Adviser a monthly fee at an annual rate of 0.40% of the average
daily net assets of the Fund. The Value Trust pays the Adviser a monthly fee at
an annual rate of 0.90% of the average daily net assets of the Fund. The
investment advisory fees paid by the Growth Fund and the Value Trust are higher
than those paid by most other investment companies to their investment advisers.
The Adviser reduces the advisory fees it charges the Growth Fund and the Capital
Income Fund on a dollar for dollar basis to the extent Distributors receives (i)
dealer reallowances on purchases by the Funds of shares of open-end funds that
are sold with a sales load and (ii) Rule 12b-1 fees received from underlying
open-end funds.
The Adviser places orders for the purchase and sale of portfolio investments for
the account of each Fund with brokers or dealers, selected by it in its
discretion, including Distributors. Factors in the selection of a broker-dealer
include the receipt of research, analysis and advice and similar services and
the sale of Fund shares by such broker-dealer. With respect to purchases of Load
Fund Shares, the Adviser will direct, to the extent possible, substantially all
of the Fund's orders to Distributors. Where Distributors acts as the dealer with
respect to the purchases of Load Fund Shares, it will retain dealer reallowances
on those purchases up to a maximum of 1% of the public offering price of the
shares. Distributors may not be designated as the dealer on any sales where such
reallowance exceeds 1% of the public offering price. If Distributors is unable
to act as dealer with respect to a particular transaction, the Adviser will
direct such order to another broker-dealer.
Distributors also may assist in the execution of a Fund's portfolio transactions
to purchase open-end fund shares for which it may receive distribution payments
from the funds or their underwriter in accordance with the distribution plans of
those funds. In providing execution assistance, Distributors receives orders
from the Adviser, places them with the fund's distributor, transfer agent or
other person as appropriate, confirms the trade, price and number of shares
purchased, assures prompt payment by the Fund and proper completion of the
order.
Each Fund's portfolio turnover rate may vary greatly from year to year and will
not be a limiting factor when the Adviser deems portfolio changes appropriate. A
high portfolio turnover rate (100% or more), whether incurred by a Fund or an
underlying fund, involves correspondingly greater transaction costs, which will
be borne directly by the Fund or the underlying fund, and increases the
potential for short-term capital gains and taxes.
PURCHASE OF FUND SHARES
DISTRIBUTION ARRANGEMENTS
Distributors, whose address is 2303 Yorktown Avenue, Lynchburg, Virginia 24501,
is the distributor of shares of the Funds. Distributors is an affiliate of the
Adviser and is controlled by David D. Basten.
GROWTH FUND, CAPITAL INCOME FUND AND VALUE TRUST. Under plans of distribution
("Plans") adopted by the Trust's Board of Trustees and approved by the
shareholders of each of the Growth Fund, the Capital Income Fund, and the Value
Trust pursuant to Rule 12b-1 under the 1940 Act, each of these Funds pays
Distributors a monthly fee as compensation for Distributors' distribution
activities and another monthly fee for Distributors' service activities with
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respect to each Fund and its shareholders. The Growth Fund pays Distributors a
distribution fee at the annual rate of 0.75% of the average daily net assets of
the Fund and a service fee at the annual rate of 0.25% of the average daily net
assets of the Fund. The Capital Income Fund pays Distributors a distribution fee
at the annual rate of 0.25% of the average daily net assets of the Fund and a
service fee at the annual rate of 0.25% of the average daily net assets of the
Fund. The Value Trust pays Distributors a distribution fee at the annual rate of
0.65% of the average daily net assets of the Fund and a service fee at the
annual rate of 0.25% of the average daily net assets of the Fund.
As distributor of Fund shares, Distributors may spend such amounts as it deems
appropriate on any activities or expenses primarily intended to result in the
sale of the Funds' shares or the servicing and maintenance of shareholder
accounts, including compensation to employees of Distributors; compensation to
and expenses, including overhead and telephone and other communication expenses,
of Distributors and selected dealers who engage in or support the distribution
of shares or who service shareholder accounts; the costs of printing and
distributing prospectuses, statements of additional information, and reports for
other than existing shareholders; the costs of preparing, printing and
distributing sales literature and advertising materials; and internal costs
incurred by Distributors and allocated by Distributors to its efforts to
distribute shares of the Funds, such as office rent, employee salaries, employee
bonuses and other overhead expenses.
During the period they are in effect, the Plans obligate the Funds to pay fees
to Distributors as compensation for its distribution and service activities, not
as reimbursement for specific expenses incurred. Thus, even if Distributors'
expenses exceed its fees, the Funds will not be obligated to pay more than those
fees and, if Distributors' expenses are less than such fees, it will retain the
full fee and realize a profit.
ALL FUNDS. Distributors also may provide additional incentives to brokers that
sell shares of the Funds. With respect to the Treasuries Trust, Distributors
pays brokers fee at an annual rate of up to 0.30% of the average amount of
client assets maintained in the Fund during the month. With respect to the
Multiple Index Trust, Distributors pays such fee at an annual rate of up to
0.50% of the average amount of client assets maintained in the Fund during the
month.
In some instances, Distributors may offer additional incentives only to certain
brokers that have sold or may sell significant amounts of shares. Such
incentives may include permitting brokers to be named the dealer of record on
underlying fund shares purchased by the Growth Fund, the Capital Income Fund or
the Multiple Index Trust with the result that those brokers could receive trail
commissions from the underwriters of those underlying funds. These commissions
could be paid as long as a Fund held the underlying fund shares in its portfolio
and the underwriters continued to pay the trail commissions. If these
commissions were not paid to those brokers, then, with respect to the Growth
Fund and the Capital Income Fund, the commissions could be paid to Distributors
and could thereby reduce the fees paid by the Funds to the Adviser for advisory
services. See "Management of the Fund."
Distributors also may pay certain banks, fiduciaries, custodians for public
funds, investment advisers and broker-dealers a fee for administrative services
in connection with the distribution of Fund shares. Such fees would be based on
the average net asset value represented by shares of the administrators'
customers invested in the Fund. This fee is in addition to any commissions these
entities may receive from Distributors out of the fees it receives pursuant to a
Plan, and, if paid, will be reimbursed by the Adviser and not the Fund.
Applicable banking laws prohibit certain deposit-taking institutions from
underwriting or distributing securities. There is currently no precedent
prohibiting banks from performing administrative services in connection with the
distribution of Fund shares. If a bank were prohibited from performing such
administrative services, its shareholder clients would be permitted to remain
shareholders of the Fund and alternate means of servicing such shareholder would
be sought. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
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HOW SHARES MAY BE PURCHASED
Application forms for the purchase of shares of the Funds can be obtained by
contacting the shareholder services department ("Shareholder Services") of State
Street Bank and Trust Company, the Fund's transfer agent, at the address or
telephone number shown on the back of this Prospectus. The minimum initial
investment in each Fund is $500, and the minimum for additional investments is
$100. An exception to these minimums is granted for investments made pursuant to
special plans or if approved by Distributors. All orders are executed at the net
asset value per share next computed after receipt and acceptance of the order by
Shareholder Services. Shares of the Value Trust are sold subject to a contingent
deferred sales charge payable upon certain redemptions. The Trust and
Distributors reserve the right to reject any purchase order.
When shares of a Fund are initially purchased, an account is automatically
established for the shareholder. Any shares of that Fund subsequently purchased
or received as a distribution are credited directly to the shareholder's
account. No share certificates are issued unless specifically requested in
writing to the Trust. Certificates are issued in full shares only. In addition,
no certificates are issued for shares purchased by check until 15 business days
have elapsed, unless the Trust is reasonably assured that payment for the shares
has been collected. There is no charge for certificate issuance.
SYSTEMATIC INVESTMENT PLAN
Shareholders may purchase Fund shares through a Systematic Investment Plan.
Under the Plan, a shareholder's bank checking account will automatically be
debited monthly or quarterly in an amount equal to at least the minimum for
additional investments in that Fund (subject to the minimum initial investment
for that Fund), as specified by the shareholder. The purchase of Fund shares
will be effected at their net asset value at the close of regular trading on the
New York Stock Exchange, Inc. ("NYSE") on or about the 15th day of the month.
Shareholders may elect to participate in the Systematic Investment Plan when
filling out the initial application or may elect to participate later by
completing the appropriate form that is available from Shareholder Services.
EXCHANGE PRIVILEGES
Shares of the Funds described in this Prospectus may be exchanged for shares of
any of the other Funds described in this Prospectus without an exchange fee.
Shareholders may place exchange orders in writing with Shareholder Services, or,
by telephone, if a written authorization for telephone exchanges is on file with
Shareholder Services.
All permitted exchanges will be effected based on the net asset value per share
of each Fund that is next computed after receipt by Shareholder Services of the
exchange request in "good order." An exchange request is considered in "good
order" only if:
1. The dollar amount or number of shares to be purchased is indicated.
2. The written request is signed by the registered owner and by any
co-owner of the account in exactly the same name or names used in
establishing the account.
3. Where share certificates have been issued, the written request is
accompanied by the certificates for shares to be redeemed, properly
endorsed in form for transfer, and either the share certificates or
separate instructions of assignment (stock powers) signed by each
registered owner and co-owner exactly as the shares are registered.
4. The signatures on any share certificates (or on accompanying stock
powers) are guaranteed by a member of the Securities Transfer Agents
Medallion Program ("STAMP"), the Stock Exchanges Medallion Program
("SEMP") or the New York Stock Exchange, Inc.'s Medallion Signature
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Program ("MSP"). Signature guarantees from a notary public are not
acceptable.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the stockholder of record
making the exchange request.
The exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. Before making any exchange, shareholders should
contact Shareholder Services or their broker to obtain more information about
exchanges and prospectuses of the Trust's series to be acquired through the
exchange. For tax purposes, an exchange is treated as a redemption and a
subsequent purchase. Any capital gains or losses on the shares exchanged should
be reported for tax purposes. The price of the acquired shares is the new cost
basis for income tax purposes.
With respect to the Value Trust, no contingent deferred sales charge will be
imposed on exchanges into another Fund (the "Exchange Fund"). A contingent
deferred sales charge may, however, be imposed upon the redemption of shares of
the Exchange Fund. The amount of such contingent deferred sales charge will be
determined based on the aggregate time the shareholder held shares of both the
Value Trust and the Exchange Fund.
DETERMINING NET ASSET VALUE
The net asset value of each Fund's shares is determined as of the close of
regular trading (currently 4:00 p.m. eastern time) on the NYSE each day that the
NYSE is open for business. The net asset value per share is computed by dividing
the value of a Fund's securities plus any cash and other assets (including
dividends accrued but not yet collected) minus all liabilities (including
accrued expenses) by the total number of a Fund's shares outstanding.
The assets of the Growth Fund, the Capital Income Fund and the Multiple Index
Trust consist primarily of shares of underlying funds. Shares of open-end funds
are valued at their respective net asset values under the 1940 Act. An open-end
fund values securities in its portfolio for which market quotations are readily
available at their current market value (generally the last reported sales
price) and all other securities and assets at fair value pursuant to methods
established in good faith by the board of directors/trustees of the underlying
fund. Money market funds with portfolio securities that mature in 397 days or
less may use the amortized cost or penny-rounding methods to value their
securities. Shares of closed-end funds that are listed on U.S. exchanges are
valued at the last sales price on the day the securities are valued or, lacking
any sales on such day, at the last available bid price. Shares of closed-end
funds listed on Nasdaq are valued at the last trade price on Nasdaq at 4:00
p.m., eastern time; other shares traded in the OTC market are valued at the last
bid price available prior to valuation.
Other Fund assets are valued at current market value or, where unavailable, at
fair value as determined in good faith by or under the direction of the Board of
Trustees. Securities having 60 days or less remaining to maturity are valued at
their amortized cost. All investments denominated in foreign currency are valued
daily in U.S. dollars on the basis of the then-prevailing exchange rate.
REDEMPTION OF FUND SHARES
HOW SHARES MAY BE REDEEMED
Fund shares may be redeemed in three different ways: by mailing written
redemption requests for a check or wire representing the redemption proceeds to
Shareholder Services; by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more than $25,000 and the check
is being sent to the record address for the account, which has not changed in
the prior three months); or by making a telephone request for redemption
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proceeds to be wired to a predesignated bank. A written request for redemption
must include the name of the Fund, your account number, the exact name(s) in
which your shares are registered, the number of shares or the dollar amount to
be redeemed and mailing or wiring instructions. Upon receipt by Shareholder
Services of a redemption request in "good order," as described in "Exchange
Privileges" above, the shares will be redeemed at the net asset value per share
computed at the close of regular trading on the NYSE on that day. Redemption
requests received after the close of regular trading will be executed at the net
asset value per share next computed. The signature(s) on all redemptions of
$25,000 or more or redemptions requesting that the proceeds check be made
payable to someone other than the registered owner(s) or sent to an address
other than the record address (or sent to the record address if that address has
been changed in the previous three months) must be guaranteed in the manner
described in "Exchange Privileges" above with respect to share certificates.
To redeem shares by telephone, call Shareholder Services directly at
1-888-933-8274. See "Telephone Transactions." Telephone redemptions are not
available for retirement plans. When a redemption request is made by telephone,
a shareholder may choose to receive redemption proceeds either by having a check
mailed to the address of record on the account, provided the address has not
changed during the past three months and the redemption amount does not exceed
$25,000, or by having a wire sent to a previously designated bank account.
Telephone redemptions by check are available to all shareholders of the Funds
automatically unless this option is declined in the application or in writing.
Shareholders may select the telephone redemption wire service when filling out
the initial application or may select it later by completing the appropriate
form that is available from Shareholder Services.
A telephone redemption request must be received by Shareholder Services prior to
the close of regular trading on the NYSE. If a telephone request is made after
the close of regular trading on the NYSE or on a day when the NYSE is not open
for business, the Funds cannot accept the request and a new request will be
necessary.
Wire redemptions by telephone may be made only if the bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If a shareholder decides to
change the bank account to which proceeds are to be wired, the change must be
effected by filling out the appropriate form that is available from Shareholder
Services.
Proceeds resulting from a written or regular telephone redemption request
normally will be mailed to shareholders within seven days after receipt of a
request in good order. Telephone wire redemption proceeds normally will be wired
to a bank within seven days following receipt of a proper redemption request. If
Fund shares were purchased by check and are redeemed within 15 days of such
purchase, a shareholder may experience delays in receiving redemption proceeds.
A Fund generally will postpone sending redemption proceeds from such investment
until the Trust can verify that the check has been or will be collected. There
will be no such delay for redemptions following investments paid for by federal
funds wire or by bank cashier's check or certified check. If checks representing
redemption proceeds are returned "undeliverable" or remain uncashed for six
months, such checks shall be cancelled and such proceeds shall be reinvested in
the Fund at the per share net asset value determined as of the date of
cancellation of such checks. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the stockholder of record
making the redemption request. If there is a question concerning the redemption
of Fund shares, contact Shareholder Services.
A Fund may not suspend the right of redemption, or postpone payment for more
than seven days, except when the NYSE is closed for other than weekends or
holidays, when trading on the NYSE is restricted, during an emergency (as
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determined by the SEC) that makes it impracticable for the Fund to dispose of
its securities or to determine fairly the value of its net assets, or during any
other period permitted by the SEC for the protection of investors.
Because of the high cost of maintaining small accounts, the Trust reserves the
right to redeem shareholder accounts of less than $100 net asset value resulting
from redemptions or exchanges. If the Trust elects to redeem such shares, it
will notify the shareholder of its intention to do so and provide the
shareholder with the opportunity to increase the amount invested to $100 or more
within 30 days of notice.
SYSTEMATIC WITHDRAWAL PLAN
An investor who has made an initial investment of at least $10,000 in any of the
Funds other than the Value Trust or otherwise has accumulated shares valued at
no less than $10,000 is eligible for a Systematic Withdrawal Plan. If so
eligible, the investor may arrange for fixed withdrawal payments (minimum
payment -- $100; maximum payment -- 1% per month or 3% per quarter of the total
net asset value of the Fund shares in the shareholder account at inception of
the Systematic Withdrawal Plan) at regular monthly or quarterly intervals.
Withdrawal payments are made to the investor or to the beneficiaries designated
by him. An investor is not eligible for a Systematic Withdrawal Plan if he is
making regular purchase payments pursuant to the Systematic Investment Plan
described above. Shareholders may elect to participate in the Systematic
Withdrawal Plan when filling out the initial application or may elect to
participate later by completing the appropriate form that is available from
Shareholder Services.
CONTINGENT DEFERRED SALES CHARGE (VALUE TRUST ONLY)
A contingent deferred sales charge generally is imposed on redemptions of all
shares of the Value Trust (including any shares received as a purchase bonus
("Bonus Shares")) that were purchased within five years of the redemption date.
The contingent deferred sales charge is 2% of the lesser of (1) the net asset
value of the shares redeemed or (2) the cost of such shares. No contingent
deferred sales charge is imposed on amounts derived from (a) increases in the
value of shares redeemed above the original purchase price of such shares due to
increases in the net asset value per share of the Fund, (b) reinvestment of
dividends or capital gain distributions, or (c) shares redeemed five years or
more after their purchase. For purposes of the foregoing, in the event the
redemption involves any Bonus Shares, the cost of each share or original
purchase price shall be determined by allocating the price paid among the shares
paid for by the investor and the Bonus Shares.
The contingent deferred sales charge will be determined as follows:
2% of amounts redeemed in the first five years after the date of
purchase
0% of amounts redeemed thereafter
In determining whether a contingent deferred sales charge is payable and, if so,
the percentage charge applicable, it is assumed that shares held the longest are
the first to be redeemed.
With respect to purchases of shares of the Value Trust made prior to March 20,
1996, the contingent deferred sales charge will not be imposed on redemptions by
officers, directors, full-time employees, and sales representatives of the
Adviser or Distributors, to the extent permitted by law, regulations, and/or
interpretations. Shares of the Value Trust also may be purchased by certain
employee benefit plans ("eligible benefit plans") without the imposition of a
contingent deferred sales charge. To be an eligible benefit plan, there must be
at least 100 initial participants with accounts investing or invested in shares
of the Fund. The initial purchase by the eligible benefit plan by or for the
benefit of the initial participants of the plan must aggregate not less than
$25,000 and subsequent purchases must be at least $100 per account and must
aggregate at least $10,000. Purchases by the eligible benefit plan must be made
pursuant to a single order and may not be made more often than monthly. A
separate account will be established for each participant in the plan. The
requirements for initiating or continuing purchases pursuant to an eligible
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benefit plan may be modified and the offering to such plans may be terminated at
any time without prior notice.
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any contingent deferred sales
charge will be paid to Distributors.
TELEPHONE TRANSACTIONS
Shareholders may initiate three types of transactions by telephone: telephone
exchanges; telephone redemptions by wire; and telephone redemptions by check.
The terms and provisions for each of those services are explained fully in the
preceding sections. Once a telephone transaction request has been placed, it
cannot be revoked.
The telephone exchange privilege and/or telephone redemptions by wire privilege
must be elected by you when you fill out your initial application or you may
select either option later by completing the appropriate form(s) that is
available from Shareholder Services. The telephone redemptions by check
privilege is available to shareholders of the Funds automatically, unless this
option is declined in the application or in writing.
The Funds will employ reasonable procedures to confirm that instructions
received by telephone (including instructions with respect to changes in
addresses) are genuine, such as requesting personal identification information
that appears on an account application and recording the telephone conversation.
A shareholder will bear the risk of loss due to unauthorized or fraudulent
instructions regarding his or her account, although the Funds may be liable if
reasonable procedures are not employed.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from the Treasuries Trust's net investment income, if any, are
declared and distributed at least quarterly. Dividends from the net investment
income (including dividends from underlying funds), if any, of the Growth Fund,
the Capital Income Fund, the Multiple Index Trust and the Value Trust are
distributed at least annually. Any net capital gain (the excess of net long-term
capital gain over net short-term capital loss) realized from the sale of
portfolio securities, including shares of underlying funds, by a Fund, as well
as gains from any foreign currency transactions, also are distributed at least
annually. Unless the Trust receives instructions to the contrary from a
shareholder before the record date, it will be assumed that the shareholder
wishes to receive both dividends and capital gain distributions in additional
Fund shares. Instructions continue in effect until the Trust is notified in
writing that a change is desired. All reinvested dividends and capital gain
distributions are reinvested in additional Fund shares on the payment date at
those shares' net asset value on that day. Account statements are mailed to
shareholders evidencing each reinvestment. If the Trust has received
instructions that a shareholder wishes to receive dividends and capital gain
distributions in cash, and the U.S. Postal Service cannot deliver a check
representing the payment thereof, or if any such check remains uncashed for six
months, the check(s) will be reinvested in Fund shares of the distributing Fund
at the then-current net asset value per share of the Fund and the shareholder's
election will be changed so that future distributions will be received in
additional Fund shares.
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax purposes
and intends to continue to qualify for treatment as a RIC under the Code so that
it will be relieved of federal income tax on the part of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions, if any)
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and net capital gain that it distributes to its shareholders. To the extent,
however, that a Fund does not distribute to its shareholders by the end of any
calendar year substantially all of its ordinary income for that year and
substantially all of its capital gain net income for the one-year period ending
on October 31 of that year, plus certain other amounts, a 4% excise tax will be
imposed on the Fund.
TAXATION OF UNDERLYING FUNDS
The Growth Fund, the Capital Income Fund and the Multiple Index Trust each
intends to invest only in underlying funds that intend to qualify for treatment
as RICs under the Code. No assurance can be given, however, that an underlying
fund will qualify for treatment as a RIC. If an underlying fund fails to qualify
as a RIC, it may be subject to federal income tax and may adversely affect a
Fund's ability to satisfy the diversification requirement applicable to RICs
(see "Taxation" in the Statement of Additional Information) and thereby its
ability to qualify as a RIC.
TAXATION OF SHAREHOLDERS
Dividends from each Fund's investment company taxable income are taxable to its
shareholders, other than tax-exempt entities (including individual retirement
accounts and qualified retirement plans), as ordinary income, whether received
in cash or reinvested in additional Fund shares, to the extent of the Fund's
earnings and profits. Distributions of a Fund's net capital gain, when
designated as such, are taxable to those shareholders as long-term capital
gains, whether received in cash or reinvested in additional Fund shares and
regardless of the length of time the shares have been held. Under the Taxpayer
Relief Act of 1997, as modified by recent legislation, the maximum tax rate
applicable to a non-corporate taxpayer's net capital gain recognized on the
disposition of capital assets held for more than one year is 20% (10% for
taxpayers in the 15% marginal tax bracket). The portion of the dividends paid by
the Treasuries Trust attributable to interest earned on its investments that are
direct obligations of the U.S. Government generally are not subject to state and
local income taxes, although distributions by that Fund to its shareholders of
net realized gains on the disposition of those investments are fully subject to
those taxes.
If a Fund realizes gain from the disposition of shares of any underlying fund it
held as capital assets for more than one year, or if a Fund receives a
distribution from any underlying fund that is designated as a capital gain
distribution (regardless of how long the Fund held the shares), the amount of
that gain or distribution is included in any capital gain distribution made by
the Fund to its shareholders. Any other gain on disposition of shares of an
underlying fund and any other distribution received therefrom is included in the
Fund's investment company taxable income.
Each Fund advises its shareholders of the tax status of distributions following
the end of each calendar year. Each Fund is required to withhold 31% of all
dividends, capital gain distributions and redemption proceeds payable to any
individuals and certain other noncorporate shareholders who do not provide the
Fund with a correct taxpayer identification number. Withholding also is required
from dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
A redemption of Fund shares will result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds are more or less
than the shareholder's adjusted basis for the redeemed shares. Similar tax
consequences will result upon an exchange of shares of a Fund for shares of
another Fund. Capital gain on the redemption or exchange of Fund shares held for
more than one year will be long-term capital gain, in which event it will be
subject to federal income tax at the rates indicated above. If a shareholder
purchases Fund shares within thirty days after redeeming other Fund shares at a
loss, all or part of that loss will not be deductible and instead will increase
the basis of the newly purchased shares.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. Because other
federal, state or local tax considerations may apply, investors are urged to
consult their tax advisers.
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QUALIFIED RETIREMENT PLANS
An investment in Fund shares may be appropriate for individual retirement
accounts (including "Roth IRAs"), tax deferred annuity plans under section
403(b) of the Code, self-employed individual retirement plans (commonly referred
to as "Keogh plans"), simplified employee pension plans and other qualified
retirement plans (including section 401(k) plans). Capital gain distributions
and dividends received on Fund shares held by any of these accounts or plans are
automatically reinvested in additional Fund shares, and taxation thereof is
deferred until distributed by the account or plan. Investors who are considering
establishing such an account or plan may wish to consult their attorneys or
other tax advisers with respect to individual tax questions. The option of
investing in these accounts or plans through regular payroll deductions may be
arranged with Distributors and the employer.
PERFORMANCE INFORMATION
From time to time, quotations of each Fund's average annual total return
("Standardized Return") may be included in advertisements, sales literature or
shareholder reports. Standardized Return shows percentage rates reflecting the
average annual change in the value of an assumed initial investment of $1,000,
assuming the investment has been held for periods of one year, five years and
ten years as of a stated ending date. If a five- and/or ten-year period has not
yet elapsed, data will be provided as of the end of a period corresponding to
the life of the Fund. Standardized Return assumes that all dividends and capital
gain distributions were reinvested in shares of the Fund.
In addition, other total return performance data ("Non-Standardized Return")
regarding a Fund may be included in advertisements, sales literature or
shareholder reports. Non-Standardized Return shows a percentage rate of return
encompassing all elements of return (i.e., income and capital appreciation or
depreciation); and it assumes reinvestment of all dividends and capital gain
distributions. Non-Standardized Return may be quoted for the same or different
periods as those for which Standardized Return is quoted. Non-Standardized
Return may consist of cumulative total returns, average annual total returns,
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in a Fund for various
periods. Average annual total return refers to the annual compound rate of
return of an investment in a Fund. The total return of a Fund is increased to
the extent that the Adviser has waived all or a portion of its advisory fee or
reimbursed all or a portion of the Fund's expenses. Total return figures are
based on historical performance of a Fund, show the performance of a
hypothetical investment and are not intended to indicate future performance.
Additional information about each Fund's performance is contained in the
Statement of Additional Information and the Funds' annual report to
shareholders, both of which may be obtained without charge by contacting the
Trust at the address or telephone numbers on the cover of this Prospectus.
FUND SHARES
The Trust was organized as a Massachusetts business trust in January 1985 under
the name American Pension Investors Trust and is registered with the SEC under
the 1940 Act as an open-end management investment company. The Trust currently
consists of six separate series: the Growth Fund, the Capital Income Fund, the
Multiple Index Trust, the Treasuries Trust, the Value Trust and the Yorktown
Value Income Trust ("Income Trust"). The Board of Trustees may elect to add
additional series in the future, although it has no present plan to do so. This
Prospectus relates only to shares of the Growth Fund, the Capital Income Fund,
the Multiple Index Trust, the Treasuries Trust and the Value Trust. As of the
date of this Prospectus, the Income Trust has not commenced investment
operations.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest without par value of separate series. Shares of beneficial interest of
each Fund, when issued, are fully paid, nonassessable, fully transferable,
redeemable at the option of the shareholder and have equal dividend and
liquidation rights and noncumulative voting rights. The shares of each series of
the Trust will be voted separately except when an aggregate vote of all series
is required by the 1940 Act.
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The Trust does not hold annual meetings of shareholders. There will normally be
no meetings of shareholders for the purpose of electing trustees unless and
until such time as less than a majority of the trustees holding office have been
elected by shareholders, at which time the trustees then in office will call a
shareholders' meeting for the election of trustees. Under the 1940 Act,
shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a trustee by vote cast in person or by proxy at a meeting
called for that purpose. The trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the shareholders of record of not
less than 10% of the Trust's outstanding shares.
CUSTODIANS, TRANSFER AND DIVIDEND DISBURSING AGENT
MainStreet Trust Company, 1 Ellsworth Street, Martinsville, Virginia 24112,
serves as the custodian for the Growth Fund and the Capital Income Fund.
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540-6231,
serves as the custodian for the Multiple Index Trust, the Treasuries Trust and
the Value Trust.
State Street Bank and Trust Company, Two Heritage Drive, North Quincy,
Massachusetts 02171, is the Funds' transfer and dividend disbursing agent.
GENERAL INFORMATION
Fund shareholders are kept informed through semi-annual and annual reports. Any
inquiries should be directed in writing to the Trust at P.O. Box 2529, 2303
Yorktown Avenue, Lynchburg, Virginia 24501. Shareholders may direct general
telephone inquiries to the Trust at the numbers listed on the back cover of this
Prospectus. Telephone inquiries regarding shareholder account information should
be directed to Shareholder Services at the number listed on the back cover of
this Prospectus.
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APPENDIX A
FOREIGN SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS
FOREIGN SECURITIES
The Value Trust may invest in foreign securities. The Growth Fund, the Capital
Income Fund and the Multiple Index Trust, through an underlying fund, also may
do so. Investments in foreign securities involve risks relating to political and
economic developments abroad as well as those that may result from the
differences between the regulation to which U.S. issuers are subject and that
applicable to foreign issuers. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of a fund's assets and political or social instability or
diplomatic developments. These risks often are heightened to the extent a fund
invests in issuers located in emerging markets.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Securities of many foreign companies may be less liquid and their
prices more volatile than securities of comparable U.S. companies. Moreover,
funds generally calculate their net asset values and complete orders to
purchase, exchange or redeem shares only on days when the NYSE is open. However,
foreign securities in which funds may invest may be listed primarily on foreign
stock exchanges that may trade on other days (such as U.S. holidays and
weekends). As a result, the net asset value of a fund's portfolio may be
significantly affected by such trading on days when the NYSE is not open and
shareholders do not have access to a fund.
Additionally, because foreign securities ordinarily are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect a fund's net asset value, the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and capital gain, if any, to be distributed to shareholders by the fund.
If the value of a foreign currency rises against the U.S. dollar, the value of
the fund's assets denominated in that currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar, the value
of the fund's assets denominated in that currency will decrease. The exchange
rates between the U.S. dollar and other currencies are determined by supply and
demand in the currency exchange markets, international balances of payments,
governmental intervention, speculation and other economic and political
conditions. The costs attributable to foreign investing that a fund must bear
frequently are higher than those attributable to domestic investing. For
example, the costs of maintaining custody of foreign securities exceed custodian
costs related to domestic securities.
FOREIGN CURRENCY TRANSACTIONS
In connection with its portfolio transactions in securities traded in a foreign
currency, a fund may enter into forward contracts to purchase or sell an agreed
upon amount of a specific currency at a future date that may be any fixed number
of days from the date of the contract agreed upon by the parties at a price set
at the time of the contract. Under such an arrangement, concurrently with the
entry into a contract to acquire a foreign security for a specified amount of
currency, the fund would purchase with U.S. dollars the required amount of
foreign currency for delivery at the settlement date of the purchase; the fund
would enter into similar forward currency transactions in connection with the
sale of foreign securities. The effect of such transactions would be to fix a
U.S. dollar price for the security to protect against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date the security is
purchased or sold and the date on which payment is made or received, the normal
range of which is three to fourteen days. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although such contracts tend to minimize the risk of loss due to a decline in
the value of the subject currency, they tend to limit commensurately any
26
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potential gain that might result should the value of such currency increase
during the contract period.
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APPENDIX B
WARRANTS, CONVERTIBLE SECURITIES
AND FIXED-INCOME SECURITIES
WARRANTS
Warrants are instruments that provide the owner with the right to purchase a
specified security, usually an equity security such as common stock, at a
specified price (usually representing a premium over the applicable market value
of the underlying equity security at the time of the warrant's issuance) and
usually during a specified period of time. Moreover, they are usually issued by
the issuer of the security to which they relate. While warrants may be traded,
there is often no secondary market for them. A Fund may invest in publicly
traded warrants only. To the extent that the market value of the security that
may be purchased upon exercise of the warrant rises above the exercise price,
the value of the warrant will tend to rise. To the extent that the exercise
price equals or exceeds the market value of such security, the warrants will
have little or no market value. If warrants remain unexercised at the end of the
specified exercise period, they lapse and a Fund's investment in them will be
lost. A Fund may not invest more than 5% of its net assets in warrants.
CONVERTIBLE SECURITIES
A Fund may directly or indirectly, through an underlying fund, invest in a
convertible security, which is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividends paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. While no securities investment is without
some risk, investments in convertible securities generally entail less risk than
the issuer's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. Convertible securities have unique
investment characteristics in that they generally (1) have higher yields than
common stocks, but lower yields than comparable nonconvertible securities, (2)
are less subject to fluctuation in value than the underlying stock since they
have fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
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A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
FIXED-INCOME SECURITIES
The market value of fixed-income securities is affected by changes in interest
rates. If interest rates fall, the market value of fixed-income securities tends
to rise; if interest rates rise, the value of fixed-income securities tends to
fall. Moreover, the longer the remaining maturity of a fixed-income security,
the greater the effect of interest rate changes on the market value of the
security. This market risk affects all fixed-income securities, but U.S.
Government securities are generally subject to less market risk.
A Fund may directly or indirectly, through an underlying fund, invest in debt
securities rated at least investment grade (BBB and above/Baa and above) by
Standard & Poor's Ratings Services ("S&P") or Moody's Investors Service, Inc.
("Moody's"), or in debt securities that are rated below investment grade by S&P
or Moody's. Investment grade debt securities are those that at the time of
purchase have been assigned one of the four highest ratings by S&P or Moody's
or, if unrated, are determined by the underlying fund's investment adviser to be
of comparable quality. This includes debt securities rated BBB by S&P or Baa by
Moody's. Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher grade debt securities. Debt
securities rated below investment grade (commonly referred to as "junk bonds"),
which include debt securities rated BB, B, CCC and CC by S&P and Ba, B, Caa, Ca
and C by Moody's, are deemed by these agencies to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal and
may involve major risk exposure to adverse conditions. Debt securities rated
lower than B may include securities that are in default or face the risk of
default with respect to principal or interest.
Ratings of debt securities represent the rating agencies' opinions regarding
their quality and are not a guarantee of quality. Subsequent to its purchase by
an underlying fund, the rating of an issue of debt securities may be reduced
below the minimum rating required for purchase by that fund. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than the
rating indicates. See the Statement of Additional Information for more
information about S&P and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues. However, lower rated securities involve
higher risks, in that they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers and to price fluctuation in
response to changes in interest rates.
Accordingly, the yield on lower rated debt securities will fluctuate over time.
During periods of economic downturn or rising interest rates, highly leveraged
issuers may experience financial stress that could adversely affect their
ability to make payments of principal and interest and increase the possibility
of default. In addition, the market for lower rated securities has expanded
rapidly in recent years, and its growth paralleled a long economic expansion. In
the past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically, but such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. The market for lower
rated debt securities may be thinner and less active than that for higher
quality securities, which may limit an underlying fund's ability to sell such
securities at their fair value in response to changes in the economy or the
financial markets. Adverse publicity and investor perceptions, whether or not
29
<PAGE>
based on fundamental analysis, may also decrease the values and liquidity of
lower rated securities, especially in a thinly traded market.
An underlying fund may invest in zero coupon securities and payment-in-kind
securities. Zero coupon securities pay no interest to holders prior to maturity
and payment-in-kind securities pay interest in the form of additional
securities. However, a portion of the original issue discount on the zero coupon
securities, and the "interest" on payment-in-kind securities, must be included
in the underlying fund's income. Accordingly, to continue to qualify for tax
treatment as a regulated investment company and to avoid certain excise taxes,
these funds may be required to distribute as a dividend an amount that is
greater than the total amount of cash they actually receive. These distributions
must be made from a fund's cash assets or, if necessary, from the proceeds of
sales of portfolio securities. A fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
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SHAREHOLDER SERVICES
API Trust
P.O. Box 9204
Boston, Massachusetts 02266-9204
(888) 933-8274
EXECUTIVE OFFICES
American Pension Investors Trust
P.O. Box 2529
2303 Yorktown Avenue
Lynchburg, Virginia 24501
(800) 544-6060
INDEPENDENT AUDITORS
PricewaterhouseCoopers, LLP
250 West Pratt Street
Baltimore, Maryland 21201
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information and
representations must not be relied upon as having been authorized by the Trust
or its distributor. This Prospectus does not constitute an offering by the Trust
or its distributor in any jurisdiction to any person to whom such offering may
not lawfully be made.
<PAGE>
API TRUST
2303 Yorktown Avenue
Lynchburg, Virginia 24501
(804) 846-1361
(800) 544-6060
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information sets forth information
regarding API Trust (the "Trust") and five of its series: the Growth Fund, the
Capital Income Fund, the Multiple Index Trust, the Treasuries Trust and the
Yorktown Classic Value Trust ("Value Trust") (each a "Fund" and collectively,
the "Funds"). Yorktown Management & Research Company, Inc. ("Adviser") is the
investment adviser and administrator of each Fund; Yorktown Distributors, Inc.
("Distributors") is the distributor of each Fund.
----------------------------------------
This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Funds' current Prospectus, dated October 1,
1998, which may be obtained from:
Yorktown Distributors, Inc.
2303 Yorktown Avenue, P.O. Box 2529
Lynchburg, Virginia 24501
-----------------------------------------
October 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL........................................................................1
INVESTMENT RESTRICTIONS........................................................1
General.....................................................................1
Growth Fund and Capital Income Fund.........................................2
Multiple Index Trust and Treasuries Trust...................................3
Value Trust.................................................................3
Growth Fund and Capital Income Fund.........................................4
Multiple Index Trust and Treasuries Trust...................................4
Value Trust.................................................................5
INVESTMENT POLICIES............................................................5
General.....................................................................6
Repurchase Agreements....................................................6
Bank Obligations.........................................................6
Commercial Paper.........................................................6
Illiquid Securities......................................................7
Short Sales..............................................................7
Lending of Portfolio Securities..........................................8
Foreign Securities.......................................................8
Other Investment Companies...............................................9
Warrants.................................................................9
Hedging Strategies......................................................10
Multiple Index Trust and Treasuries Trust..................................10
Reverse Repurchase Agreements...........................................10
MANAGEMENT OF THE TRUST.......................................................10
Investment Adviser and Administrator.......................................10
Trustees and Officers......................................................12
DISTRIBUTION OF FUND SHARES...................................................14
PORTFOLIO TRANSACTIONS........................................................16
PRICING AND ADDITIONAL EXCHANGES..............................................19
Determining Net Asset Value................................................19
Exchange of Shares.........................................................20
PERFORMANCE INFORMATION.......................................................20
Total Return Calculations..................................................20
Yield......................................................................22
Other Information..........................................................22
<PAGE>
TAXATION......................................................................23
General....................................................................23
Distributions..............................................................23
Foreign Income (Value Trust)...............................................24
Hedging Transactions.......................................................25
CUSTODIANS, TRANSFER AND DIVIDEND DISBURSING AGENT............................26
INDEPENDENT ACCOUNTANTS.......................................................27
OTHER INFORMATION.............................................................27
FINANCIAL STATEMENTS..........................................................28
APPENDIX A....................................................................29
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS..............................29
Description of Moody's Short-Term Debt Ratings.............................29
Description of Standard & Poor's Commercial Paper Ratings..................29
Description of Moody's Long-Term Debt Ratings..............................29
Description of S&P Corporate Debt Ratings..................................30
APPENDIX B....................................................................32
HEDGING STRATEGIES............................................................32
General Description of Hedging Strategies..................................32
Special Risks of Hedging Strategies........................................32
Cover for Hedging Strategies...............................................33
Options Activities.........................................................33
Futures Contracts..........................................................35
Options on Futures Contracts...............................................37
Forward and Foreign Currency Contracts.....................................38
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GENERAL
The Trust was organized as a Massachusetts business trust in January
1985 under the name American Pension Investors Trust and is registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940 ("1940 Act") as an open-end management investment company and consists of
six series, each with a different investment objective.
The following information supplements the discussion of each Fund's
investment objective and policies found in the Prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and, like the
Funds' investment objectives, may not be changed with respect to a Fund without
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund or (2) 67% or more of the shares of the Fund present at a
shareholders' meeting if more than 50% of the outstanding shares of the Fund are
represented at the meeting in person or by proxy.
GENERAL
A Fund will not as a matter of fundamental policy:
1. Purchase any security if, as a result of such purchase, more than 5%
of the value of the Fund's total assets would be invested in the securities of a
single issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the value of the
Fund's total assets (50% of the Value Trust's total assets) may be invested
without regard to this limitation and provided that this limitation does not
apply to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") or to securities issued by
other open-end investment companies;
2. Purchase any security if, as a result of such purchase, 25% or more
of the value of the Fund's total assets would be invested in the securities of
issuers having their principal business activities in the same industry;
provided, however, that (a) the Multiple Index Trust will invest at least 25% of
its total assets in securities issued by other open-end investment companies,
and (b) this limitation does not apply to U.S. Government securities;
3. Purchase or sell real estate (including, with respect to the Value
Trust, real estate limited partnerships); except that the Growth Fund and the
Capital Income Fund may invest in the securities of companies whose business
involves the purchase or sale of real estate;
4. Purchase or sell commodities or commodity contracts including
futures contracts, except that all Funds other than the Growth Fund and the
Capital Income Fund may purchase or sell interest rate, stock index and foreign
<PAGE>
currency futures contracts and options thereon, may engage in transactions in
foreign currencies and may purchase or sell options on foreign currencies for
hedging purposes; or
5. Make loans, except when (a) purchasing a portion of an issue of debt
securities; (b) engaging in repurchase agreements; or (c) engaging in securities
loan transactions limited to one-third of the Fund's total assets (5% of the
Fund's total assets with respect to the Growth Fund and the Capital Income
Fund).
GROWTH FUND AND CAPITAL INCOME FUND
The following additional fundamental investment restrictions apply only
to the Growth Fund and the Capital Income Fund. A Fund may not:
1. Purchase any security if, as a result of such purchase, more than 5%
of the value of the Fund's total assets would be invested in the securities of
issuers which at the time of purchase had been in operation for less than three
years, except U.S. Government securities or securities issued by open-end
investment companies (for this purpose, the period of operation of any issuer
shall include the period of operation of any predecessor issuer or unconditional
guarantor of such issuer);
2. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs;
3. Make short sales of securities or purchase securities on margin,
except for such short-term credits as may be necessary for the clearance of
purchases of portfolio securities;
4. Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only from banks in amounts not exceeding the lesser
of 10% of the Fund's total assets (valued at cost) or 5% of its total assets
(valued at market) and, in any event, only if immediately thereafter there is
asset coverage of at least 300%;
5. Invest in puts, calls, straddles, spreads, or any combinations
thereof, except that a Fund may write covered call options as described below;
6. Mortgage, pledge or hypothecate securities, except in connection
with the borrowings permitted under restriction (4) above and then only where
the market value of the securities mortgaged, pledged or hypothecated does not
exceed 15% of the Fund's assets (valued at cost), or 10% of its net assets
(valued at market);
7. Underwrite securities issued by other persons;
8. Invest in companies for the purpose of exercising management or
control;
9. Purchase or retain the securities of any issuer if, to the knowledge
of the Trust's management, the officers or trustees of the Trust and the
officers and directors of the investment adviser who each own beneficially more
than 0.50% of the outstanding securities of such issuer together own
beneficially more than 5% of such securities;
2
<PAGE>
10. Issue securities or other obligations senior to the Fund's share of
beneficial interest;
11. Purchase any securities that would cause more than 2% of the value
of the Fund's total assets at the time of such purchase to be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange, or more than 5% of the value of its total assets to be invested
in warrants whether or not so listed, such warrants in each case to be valued at
the lesser of cost or market, but assigning no value to warrants acquired by the
Fund in units with or attached to debt securities; or
12. Purchase any security if, as a result of such purchase, more than
10% of the value of the Fund's total assets would be invested in illiquid
securities (including repurchase agreements and time deposits maturing in more
than seven days) or foreign securities which are not publicly traded in the
United States.
MULTIPLE INDEX TRUST AND TREASURIES TRUST
The following additional fundamental investment restrictions apply only
to the Multiple Index Trust and the Treasuries Trust. A Fund may not:
1. Borrow money, except to the extent permitted by the 1940 Act;
2. Underwrite securities issued by other persons, except to the extent
that, in connection with the disposition of portfolio securities, the Fund may
be deemed an underwriter under federal securities laws; or
3. Issue senior securities, except as appropriate to evidence
indebtedness that the Fund is permitted to incur and to issue additional classes
of securities that the Board of Trustees may establish, provided that the Fund's
use of options, futures contracts and options thereon, and currency-related
contracts will not be deemed senior securities for this purpose.
VALUE TRUST
The following additional fundamental investment restrictions apply only
to the Value Trust. The Value Trust may not:
1. Borrow money, (a) except from a bank in an amount not in excess of
one-third of the Fund's net assets; or (b) by engaging in reverse repurchase
agreements;
2. Underwrite securities issued by other persons, except to the extent
that, in connection with the disposition of portfolio securities, the Fund may
be deemed an underwriter under federal securities laws; or
3. Issue senior securities, except as permitted in the 1940 Act and
provided that the Fund's use of options, futures contracts and options thereon
and currency-related contracts will not be deemed senior securities for this
purpose.
3
<PAGE>
Whenever an investment policy or restriction states a maximum
percentage of a Fund's assets that may be invested in any security or other
asset or sets forth a policy regarding quality standards, that percentage shall
be determined, or that standard shall be applied, immediately after the Fund's
acquisition of the security or other asset. Accordingly, any later increase or
decrease resulting from a change in the market value of a security or in the
Fund's net or total assets will not cause the Fund to violate a percentage
limitation. Similarly, any later change in quality, such as a rating downgrade
or the delisting of a warrant, will not cause the Fund to violate a quality
standard.
The following investment limitations may be changed for any Fund by the
vote of the Trust's Board of Trustees (the "Board") without shareholder
approval.
GROWTH FUND AND CAPITAL INCOME FUND
A Fund may not:
1. Purchase or otherwise acquire the securities of any open-end
investment company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, the Fund and all of its affiliates would
own more than 3% of the total outstanding stock of that company; or
2. Invest directly in real estate limited partnerships.
In addition, the underlying funds in which a Fund invests may, but need not,
have the same investment objective, policies or limitations as the Fund.
Although the Growth Fund and Capital Income Fund may, from time to time, invest
in shares of the same underlying fund, the percentage of each Fund's assets so
invested may vary, and the Adviser will determine whether such investments are
consistent with the investment objective and policies of each particular Fund.
MULTIPLE INDEX TRUST AND TREASURIES TRUST
A Fund may not:
1. Invest more than 15% of its net assets in illiquid securities, a
term that means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities and includes, among other things, repurchase agreements
maturing in more than seven days;
2. Make short sales of securities or purchase securities on margin,
except (a) for such short-term credits as may be necessary for the clearance of
the purchases of portfolio securities and (b) in connection with the Fund's use
of options, futures contracts and options on future contracts; or
3. Borrow money, except from banks for temporary purposes and for
reverse repurchase agreements, and then in an aggregate amount not in excess of
4
<PAGE>
10% of the Fund's total assets, provided the Fund may not purchase securities
while borrowings in excess of 5% of the Fund's total assets are outstanding.
The underlying funds in which the Multiple Index Trust invests may, but
need not, have the same investment objective, policies or limitations as the
Multiple Index Trust.
VALUE TRUST
A Fund may not:
1. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund's management, those trustees or officers of the Trust and the
directors and officers of the Adviser who individually own beneficially more
than 1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities;
2. Invest in oil, gas or other mineral exploration or development
programs or leases, provided that the Fund may invest in securities issued by
companies engaged in such activities;
3. Invest more than 15% of its net assets in illiquid securities, a
term which means securities that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the securities and includes, among other things, repurchase agreements
maturing in more than seven days;
4. Make short sales of securities or purchase securities on margin,
except (a) for such short-term credits as may be necessary for the clearance of
the purchases of portfolio securities, (b) in connection with the Fund's use of
options, futures contracts and options on future contracts and (c) the Fund may
sell short "against the box;"
5. Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of its net assets, which amount may include warrants that are
not listed on the New York or American Stock Exchanges, provided that such
warrants, valued at the lower of cost or market, do not exceed 2% of the Fund's
net assets, and further provided that this restriction does not apply to
warrants attached to, or sold as a unit with other securities; or
6. Purchase any security if as a result the Fund would have more than
5% of its total assets invested in securities of companies which together with
any predecessors have been in continuous operation for less than three years.
INVESTMENT POLICIES
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies.
5
<PAGE>
GENERAL
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements
secured by U.S. Government securities with U.S. banks and dealers. A repurchase
agreement is a transaction in which a Fund purchases a security from a bank or
recognized securities dealer and simultaneously commits to resell that security
to the bank or dealer at an agreed-upon date and price reflecting a market rate
of interest unrelated to the coupon rate or maturity of the purchased security.
The Fund maintains custody of the underlying security prior to its repurchase;
thus, the obligation of the bank or securities dealer to pay the repurchase
price on the date agreed to is, in effect, secured by such security. If the
value of such security is less than the repurchase price, the other party to the
agreement shall provide additional collateral so that at all times the
collateral is at least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with
direct investments in securities, each Fund intends to enter into repurchase
agreements only with banks and dealers believed by the Adviser to present
minimum credit risks in accordance with guidelines established by the Trust's
Board of Trustees. The Adviser will review and monitor the creditworthiness of
such institutions under the Board's general supervision. To the extent that the
proceeds from any sale of collateral upon a default in the obligation to
repurchase were less than the repurchase price, the Fund would suffer a loss. If
the other party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to bankruptcy or other liquidation proceedings, there
might be restrictions on the Fund's ability to sell the collateral and the Fund
could suffer a loss.
BANK OBLIGATIONS. Each Fund may invest in instruments (including
certificates of deposit and bankers' acceptances) of U.S. banks and savings
associations that are insured by the Federal Deposit Insurance Corporation. A
certificate of deposit is an interest-bearing negotiable certificate issued by a
bank against funds deposited in the bank. A bankers' acceptance is a short-term
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction. Although the borrower is liable for
payment of the draft, the bank unconditionally guarantees to pay the draft at
its face value on the maturity date. To the extent a Fund invests more than
$100,000 in a single bank or savings and loan association, the investment is not
protected by federal insurance.
COMMERCIAL PAPER. Each Fund may invest in commercial paper. Commercial
paper represents short-term unsecured promissory notes issued in bearer form by
bank holding companies, corporations and finance companies. The commercial paper
purchased by the Funds consists of direct obligations of domestic issuers that,
at the time of investment, are (i) rated Prime-1 by Moody's or A-1 by S&P, (ii)
issued or guaranteed as to principal and interest by issuers or guarantors
having an existing debt security rating of Aa or better by Moody's or AA or
better by S&P or (iii) securities that, if not rated, are, in the opinion of the
Adviser, of an investment quality comparable to rated commercial paper in which
the Funds may invest. See Appendix A to this Statement of Additional Information
for more information on ratings assigned to commercial paper.
6
<PAGE>
ILLIQUID SECURITIES. Each Fund may invest in illiquid securities either
directly (Treasuries Trust and Value Trust), or indirectly through underlying
funds (Growth Fund, Capital Income Fund and Multiple Index Trust). A Fund or an
underlying open-end fund may invest up to 15% of its net assets in securities
for which no readily available market exists ("illiquid securities") or
securities the disposition of which would be subject to legal restrictions
(so-called "restricted securities") and repurchase agreements maturing in more
than seven days. An underlying closed-end fund may invest without limit in such
securities. A considerable period may elapse between a decision to sell such
securities and the time when such securities can be sold. If, during such a
period, adverse market conditions were to develop, a Fund or an underlying fund
might obtain a less favorable price than prevailed when it decided to sell.
SHORT SALES. The Growth Fund, the Capital Income Fund and the Multiple
Index Trust may invest in underlying funds that sell securities short. In a
short sale, the fund sells securities that it does not own, making delivery with
securities "borrowed" from a broker. The fund is then obligated to replace the
borrowed securities by purchasing them at the market price at the time of
replacement. This price may or may not be less than the price at which the
securities were sold by the fund. Until the securities are replaced, the fund is
required to pay to the lender any dividends or interest that accrue during the
period of the loan. In order to borrow the securities, the fund may also have to
pay a premium that would increase the cost of the securities sold. The proceeds
of the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out.
The fund also must deposit in a segregated account an amount of cash or
U.S. Government securities equal to the difference between (a) the market value
of the securities sold short at the time they were sold short and (b) the value
of the collateral deposited with the broker in connection with the sale (not
including the proceeds from the short sale). Each day the short position is
open, the fund must maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
(1) equals the current market value of the securities sold short and (2) is not
less than the market value of the securities at the time they were sold short.
Depending upon market conditions, up to 80% of the value of a fund's net assets
may be deposited as collateral for the obligation to replace securities borrowed
to effect short sales and allocated to a segregated account in connection with
short sales.
A fund will incur a loss as a result of a short sale if the price of
the security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased and the amount of any loss increased by the amount of any premium,
dividends or interest the fund may be required to pay in connection with the
short sale.
In addition, the Value Trust and certain underlying funds may engage in
short sales "against the box." A short sale is "against the box" if at all times
when the short position is open the Fund owns an equal amount of the securities
or securities convertible into, or exchangeable without further consideration
for, securities of the same issue as the securities sold short. Such a
transaction serves to defer a gain or loss for federal income tax purposes. The
Value Trust will not engage in short sales involving securities they do not own
or have the right to acquire.
7
<PAGE>
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend a portion of its
portfolio securities constituting up to 5% (25% in the case of the Value Trust)
of its respective net assets to brokers, dealers, banks or other institutional
investors, provided that (1) the loan is secured by cash or equivalent
collateral equal to at least 100% of the current market value of the loaned
securities that is maintained with the Fund's custodian while portfolio
securities are on loan and (2) the borrower pays the Fund an amount equivalent
to any dividends or interest received on such securities. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. Although a Fund does not have the
right to vote securities on loan, the Fund could terminate the loan and regain
the right to vote if the vote were considered important. Any underlying fund
also may lend its portfolio securities pursuant to similar conditions in an
amount not in excess of one-third of its total assets. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral. In order to minimize these risks, each Fund
will make loans of securities only to firms deemed creditworthy by the Adviser
and only when, in the judgment of the Adviser, the consideration that the Fund
will receive from the borrower justifies the risk.
FOREIGN SECURITIES. The Growth Fund, the Capital Income Fund and the
Multiple Index Trust may invest in securities of foreign issuers through an
underlying fund. Investments in foreign securities involve risks relating to
political and economic developments abroad as well as those that may result from
the differences between the regulation to which U.S. issuers are subject and
that applicable to foreign issuers. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of an underlying fund's assets and political or social
instability or diplomatic developments. These risks often are heightened to the
extent an underlying fund invests in issuers located in emerging markets or a
limited number of countries.
Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficient and balance of
payments position. Securities of many foreign companies may be less liquid and
their prices more volatile than securities of comparable U.S. companies.
Moreover, the underlying funds generally calculate their net asset values and
complete orders to purchase, exchange or redeem shares only on days when the New
York Stock Exchange ("NYSE") is open. However, foreign securities in which the
underlying funds may invest may be listed primarily on foreign stock exchanges
that may trade on other days (such as U.S. holidays and weekends). As a result,
the net asset value of an underlying fund's portfolio may be significantly
affected by such trading on days when the Adviser does not have access to the
underlying funds and shareholders do not have access to the Fund.
Additionally, because foreign securities ordinarily are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect an underlying fund's net asset value, the value of dividends
and interest earned, gains and losses realized on the sale of securities and net
investment income and capital gain, if any, to be distributed to shareholders by
the underlying fund. If the value of a foreign currency rises against the U.S.
8
<PAGE>
dollar, the value of the underlying fund's assets denominated in that currency
will increase; correspondingly, if the value of a foreign currency will
increase; correspondingly, if the value of a foreign currency declines against
the U.S. dollar, the value of the underlying fund's assets denominated in that
currency will decrease. The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in the currency exchange markets,
international balances of payments, government intervention, speculation and
other economic and political conditions. The costs attributable to foreign
investing that an underlying fund must bear frequently are higher than those
attributable to domestic investing. For example, the costs of maintaining
custody of foreign securities exceed custodian costs related to domestic
securities.
Investment income on certain foreign securities in which the funds may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the funds would be subject.
In addition, the Value Trust may invest in foreign equity or debt
securities directly or through the use of American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and other similar securities convertible
into securities of foreign companies. ADRs are receipts typically issued by a
U.S. bank evidencing ownership of the underlying foreign securities. EDRs are
receipts typically issued by a European bank evidencing ownership of the
underlying foreign securities. To the extent the ADR and EDR is issued by a bank
unaffiliated with the foreign company issuer of the underlying security, the
bank has no obligation to disclose material information about the foreign
company issuer. Foreign fixed income securities include corporate debt
obligations issued by foreign companies and debt obligations of foreign
governments or international organizations. This category may include floating
rate obligations, variable rate obligations and Yankee dollar obligations (U.S.
dollar denominated obligations issued by foreign companies and traded on foreign
markets).
OTHER INVESTMENT COMPANIES. Each of the Growth Fund, the Capital Income
Fund and the Multiple Index Trust seeks to achieve its investment objectives by
investing in shares of underlying funds. In addition, the Value Trust may invest
in other investment companies. However, the Value Trust will not invest more
than 10% of its total assets in securities of other investment companies, or
more than 5% of its total assets in securities of any investment company and
will not purchase more than 3% of the outstanding voting stock of any investment
company. Investments by the Value Trust in CMOs and foreign banks that are
deemed to be investment companies under the 1940 Act will be included in the
limitations on investments in other investment companies (except that the 10%
limitation does not apply to debt securities and non-voting preferred stock of
foreign banks). If a Fund invests in other investment companies, the
shareholders of the Fund may be subject to duplicative management fees and other
expenses.
WARRANTS. Each Fund, except the Treasuries Trust, may invest in
warrants either directly (Value Trust) or indirectly through an investment in an
underlying fund (Growth Fund, Capital Income Fund and Multiple Index Trust).
Warrants are options to purchase a specified security, usually an equity
security such as common stock, at a specified price (usually representing a
premium over the applicable market value of the underlying equity security at
9
<PAGE>
the time of the warrant's issuance) and usually during a specified period of
time. Moreover, they are usually issued by the issuer of the security to which
they relate. While warrants may be traded, there is often no secondary market
for them. The prices of warrants do not necessarily move parallel to the prices
of the underlying securities. Holders of warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer. To the
extent that the market value of the security that may be purchased upon exercise
of the warrant rises above the exercise price, the value of the warrant will
tend to rise. To the extent that the exercise price equals or exceeds the market
value of such security, the warrants will have little or no market value. If a
warrant is not exercised within the specified time period, it will become
worthless and the fund will lose the purchase price paid for the warrant and the
right to purchase the underlying security.
HEDGING STRATEGIES. Each Fund, except the Treasuries Trust, may either
directly (Value Trust) or indirectly through an investment in an underlying fund
(Growth Fund, Capital Income Fund and Multiple Index Trust) engage in certain
hedging strategies involving options, futures and forward currency exchange
contracts. These hedging strategies are described in detail in Appendix B.
MULTIPLE INDEX TRUST AND TREASURIES TRUST
REVERSE REPURCHASE AGREEMENTS. Although they have no intention of doing
so during the coming year, each Fund may enter into reverse repurchase
agreements with banks and broker-dealers up to an aggregate value of not more
than 10% of its total assets. Such agreements involve the sale of securities
held by a Fund subject to the Fund's agreement to repurchase the securities at
an agreed-upon date and price reflecting a market rate of interest. Such
agreements are considered to be borrowings and may be entered into only for
temporary or emergency purposes. While a reverse repurchase agreement is
outstanding, a Fund will maintain with its custodian in a segregated account
cash, U.S. Government securities or other liquid securities, marked to market
daily, in an amount at least equal to the Fund's obligations under the reverse
repurchase agreement.
MANAGEMENT OF THE TRUST
INVESTMENT ADVISER AND ADMINISTRATOR
The Adviser provides investment advisory and administrative services
for the Funds pursuant to Investment Advisory and Administrative Services
Agreements ("Advisory Agreements") with the Trust. The Adviser is controlled, as
a result of stock ownership, by David D. Basten. Mr. Basten is a Trustee and
Officer of the Trust.
Each Advisory Agreement provides that, subject to overall supervision
by the Board, the Adviser shall act as investment adviser and shall manage the
investment and reinvestment of the assets of each Fund, obtain and evaluate
pertinent economic data relative to the investment policies of each Fund, place
orders for the purchase and sale of securities on behalf of each Fund, and
report to the Board periodically to enable them to determine that the investment
policies of each Fund and all other provisions of its Advisory Agreement are
being properly observed and implemented. Under the terms of each Advisory
10
<PAGE>
Agreement, the Adviser is further obligated to cover basic administrative and
operating expenses including, but not limited to, office space and equipment,
executive and clerical personnel, telephone and communications services and to
furnish supplies, stationery and postage relating to the Adviser's obligations
under the Advisory Agreement.
Each Advisory Agreement provides that it will remain in effect for two
years and may be renewed from year to year thereafter with respect to a Fund,
provided that renewal is specifically approved at least annually by the vote of
a majority of the outstanding voting securities of that Fund, or by the Board,
including a majority of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any such party (by vote cast in person at a
meeting called for that purpose). Any approval of the Advisory Agreement or the
renewal thereof with respect to a Fund shall be effective to continue the
Advisory Agreement with respect to that Fund notwithstanding that (a) the
Advisory Agreement or the renewal thereof has not been approved by any other
Fund or (b) the Advisory Agreement or renewal has not been approved by the vote
of a majority of the outstanding voting securities of the Trust as a whole.
Each Advisory Agreement provides that the Adviser will not be liable
for any error of judgment or mistake of law or for any loss suffered by a Fund
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. Each Advisory Agreement may be terminated as
to a Fund, without penalty, by the Trustees or by the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that Fund, on 60
days' written notice to the Adviser or by the Adviser on 60 days' written notice
to the Trust. The Advisory Agreement may not be terminated by the Adviser unless
another investment advisory agreement has been approved by the Fund in
accordance with the 1940 Act. The Advisory Agreement terminates automatically
upon assignment (as defined in the 1940 Act).
For the fiscal years ended May 31, 1998, 1997 and 1996, the Value Trust
paid to the Adviser advisory fees in the amount of $104,856, $69,685 and
$55,363, respectively, and the Adviser waived $20,971, $13,937 and $14,535 of
its fees, respectively. During the fiscal years ended May 31, 1998, 1997 and
1996, the Growth Fund paid to the Adviser advisory fees in the amounts of
$480,477, $414,919 and $433,697, respectively, and the Adviser waived, pursuant
to the above-referenced procedure to reduce fees, a portion of its fees during
those fiscal years in the amounts of $261,195, $248,499 and $215,209,
respectively. During the fiscal years ended May 31, 1998, 1997 and 1996, the
Adviser waived all advisory fees in the amounts of $58,321, $33,229 and $21,194,
respectively, for the Capital Income Fund. During the fiscal period ended May
31, 1998, the Adviser waived all advisory fees in the amount of $11,631 for the
Multiple Index Trust and in the amount of $6,060 for the Treasuries Trust.
In addition to the advisory fees, the Trust and the Funds are obligated
to pay certain expenses that are not assumed by the Adviser or Distributors.
These expenses include, among others, securities registration fees, compensation
for non-interested trustees, interest expense, taxes, brokerage fees,
11
<PAGE>
commissions and sales loads, custodian charges, transfer agency fees, certain
distribution expenses pursuant to a plan of distribution adopted in the manner
prescribed under Rule 12b-1 under the 1940 Act (a "Plan"), if any, legal
expenses, insurance expenses, association membership dues and the expense of
reports to the shareholders, shareholders' meetings and proxy solicitations. The
Trust and the Funds are also liable for nonrecurring expenses as may arise,
including litigation to which the Trust or a Fund may be a party.
TRUSTEES AND OFFICERS
Information concerning the Trustees and officers of the Trust is set
forth below.
<TABLE>
<CAPTION>
<S> <C>
Name, Age, Position(s) Held Principal Occupation(s)
With the Trust and Address During Past Five Years
- --------------------------- -----------------------
DAVID D. BASTEN; 47 * President and Director, Yorktown Management & Research
President and Trustee Company, Inc.; President and Director, Yorktown
P. O. Box 2529 Distributors, Inc.; President, Yorktown Financial
2303 Yorktown Avenue Corp. (insurance); Vice President, The Travel Center
Lynchburg, Virginia 24501 of Virginia, Inc.; Partner, The Rivermont Company
(real estate); Managing Partner, Basten-Mason
Properties (real estate); Managing Partner, D.A.D., A
Virginia General Partnership (real estate). He is the
brother of Louis B. Basten III.
LOUIS B. BASTEN III; 55 * Secretary/Treasurer and Director, Yorktown Management &
Secretary/Treasurer and Trustee Research Company, Inc.; Secretary/Treasurer and
P. O. Box 2529 Director, Yorktown Distributors, Inc.; President,
2303 Yorktown Avenue Mid-State Insurance; Secretary/Treasurer, The Travel
Lynchburg, Virginia 24501 Center of Virginia, Inc.; Managing Partner, The
Rivermont Company (real estate). He is the brother of
David D. Basten.
MARK A. BOREL; 46 President, Borel Construction Company, Inc.; President,
Trustee River Properties, Inc. (real estate); President,
P. O. Box 640 MOBOWAD, Inc. (real estate); Vice President/Secretary,
Lynchburg, Virginia 24505 BOWAD, Inc. (real estate); Partner, James Riviera,
L.L.C. (real estate).
STEPHEN B. COX; 50 Vice-President of Operations, Span America Medical
Trustee Systems, Inc. (medical equipment supplier).
1510 Stoney Brook Road
Bedford, Virginia 24523
12
<PAGE>
Name, Age, Position(s) Held Principal Occupation(s)
With the Trust and Address During Past Five Years
- --------------------------- -----------------------
G. EDGAR DAWSON III; 42 Shareholder, Officer and Director, Petty, Livingston,
Trustee Dawson, Devening & Richards, P.C. (law firm); prior to
725 Church Street January 1995, he was a partner at the same firm.
Suite 1300
Lynchburg, Virginia 24505
WAYNE C. JOHNSON; 45 Director of Personnel, C.B. Fleet Company, Inc.
Trustee (pharmaceuticals)
1736 Crockett Road
Forest, Virginia 24551
CHARLES D. FOSTER; 38 Chief Financial Officer, Yorktown Management & Research
Chief Financial Officer Company, Inc.; Chief Financial Officer, Yorktown
P. O. Box 2529 Distributors, Inc.
2303 Yorktown Avenue
Lynchburg, Virginia 24501
M. DENNIS STRATTON; 35 Controller, Yorktown Management & Research Company,
Controller Inc.; Controller, Yorktown Distributors, Inc.
P. O. Box 2529
2303 Yorktown Avenue
Lynchburg, Virginia 24501
</TABLE>
- ----------------------
* "Interested Person" of the Trust as defined in the 1940 Act by virtue of
his position with the Adviser and Distributors.
On August 31, 1998, the Trustees and officers of the Growth Fund, the
Capital Income Fund, the Multiple Index Trust, the Treasuries Trust and the
Value Trust as a group owned beneficially, or may be deemed to have owned
beneficially, less than 1% of the outstanding shares of each Fund. Because the
Adviser performs substantially all of the services necessary for the operation
of the Trust and the Funds, the Trust requires no employees. No officer,
director or employee of the Adviser currently receives any compensation from the
Trust for acting as a Trustee or officer.
The Trust also pays Trustees who are not "interested persons" of the
Trust $900 per meeting of the Board. There are no pension or retirement benefits
accrued as part of the Trust's expenses and there are no estimated annual
benefits to be paid upon retirement. The following table shows the fees paid to
the Trustees during the fiscal year ended May 31, 1998, for their services to
the Trust.
13
<PAGE>
Trustees' Compensation for
Trustee Fiscal Year Ended 5/31/98
- ------- -------------------------
David D. Basten $ 0
Louis B. Basten III $ 0
Mark A. Borel $3,600
Stephen B. Cox $3,600
G. Edgar Dawson III $3,600
Wayne C. Johnson $3,600
DISTRIBUTION OF FUND SHARES
Distributors, located at 2303 Yorktown Avenue, Lynchburg, Virginia,
acts as distributor of shares of the Funds under distribution agreements with
the Trust ("Distribution Agreements") that require Distributors to use its best
efforts to sell shares of the Funds. Shares of the Funds are offered
continuously.
Payments by the Growth Fund, the Capital Income Fund and the Value
Trust to compensate Distributors for its activities are authorized under the
Distribution Agreement for each Fund and made in accordance with each Fund's
Plan. Under their respective Plans, the Growth Fund pays Distributors, as
compensation for Distributors' distribution activities, a fee of 0.75% per
annum, accrued daily and paid monthly, of its average daily net assets; and the
Capital Income Fund pays Distributors, as compensation for Distributors'
distribution activities, a fee of 0.25% per annum, accrued daily and paid
monthly, of its average daily net assets. In addition, under their respective
Plans, the Growth Fund and the Capital Income Fund each pays Distributors, as
compensation for Distributors' service activities, a fee of 0.25% per annum,
accrued daily and paid monthly, of their average daily net assets. Under its
Plan, the Value Trust pays Distributors a fee for distribution activities of
0.65% per annum and a fee for service activities of 0.25%, each accrued daily
and paid monthly, of its average daily net assets.
For the fiscal year ended May 31, 1998, the Growth Fund, the Capital
Income Fund and the Value Trust paid to Distributors aggregate distribution fees
of $741,672, $48,601 and $125,827, respectively. For the same period,
Distributors estimates that the following distribution related expenses were
incurred on behalf of or allocable to each Fund:
14
<PAGE>
Capital
Growth Income Value
Fund Fund Trust
---- ---- -----
(a) brokers' $681,193 $48,880 $31,230
commissions
(b) printing of 6,142 4,194 4,374
prospectuses
and statements
of additional
information
(c) allocated
costs 54,337 0 22,883
-------- -------- --------
Total $741,672 $53,074 $58,487
"Allocated costs" include various internal costs allocated by
Distributors to its distribution efforts. These internal costs encompass office
rent and other overhead expenses of Distributors.
In approving these Plans, the Board considered all relevant factors,
including that as the size of each Fund increases, each Fund should experience
economies of scale and greater investment flexibility. The Board also considered
the compensation to be received by Distributors under the Plans and the benefits
that would accrue to the Adviser as a result of the Plans in that the Adviser
receives advisory fees that are calculated based upon a percentage of the
average net assets of each Fund, which fees would increase if the Plans were
successful and the Funds attained and maintained significant asset levels.
The Plans will remain in effect for one year from the date of approval.
Thereafter, each Plan, together with any related agreements, will continue in
effect for successive periods of one year so long as such continuance is
specifically approved by votes of a majority of both (a) the Board and (b) those
Trustees who are not "interested persons" of the Trust, as defined in the 1940
Act, and have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it, cast in person at a meeting called for the
purpose of voting on the Plan and such related agreements. Each Plan may be
terminated at any time with respect to any Fund by vote of a majority of the
disinterested trustees or by vote of a majority of the outstanding voting
securities of each Fund.
While the Plans are in effect, the selection and nomination of Trustees
who are not interested persons of the Trust, as defined in the 1940 Act, shall
be committed to the discretion of the Trustees who are themselves not interested
persons. Under the Plans, any person authorized to direct the disposition of
monies paid by the Trusts must provide to the Board of Trustees, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
15
<PAGE>
In addition to payments under the Plans, Distributors receives any
contingent deferred sales charges payable with respect to redemptions of shares
of the Value Trust. For the fiscal years ended May 31, 1998, May 31, 1997 and
May 31, 1996, Distributors collected contingent deferred sales charges in the
amount of $20,662, $22,398 and $2,526, respectively.
With respect to the Growth Fund and the Capital Income Fund,
Distributors also may receive dealer reallowances (up to a maximum of 1% of the
public offering price) and/or distribution payments on purchases by the Funds of
shares of open-end funds sold with a sales load and/or which have a distribution
plan. For the fiscal year ended May 31, 1998, such payments and reallowances
amounted to $261,195 and $29,234, respectively, for the Growth Fund and the
Capital Income Fund.
Distributors may also pay certain banks, fiduciaries, custodians for
public funds, investment advisers and broker-dealers a fee for administrative
services in connection with the distribution of Fund shares. Such fees would be
based on the average net asset value represented by shares of the
administrators' customers invested in a Fund. This fee is in addition to any
commissions these entities may receive from Distributors out of the fees paid to
it by the Fund pursuant to the Plan, and, if paid, will be reimbursed by the
Adviser and not the Fund.
Applicable banking laws prohibit certain deposit-taking institutions
from underwriting or distributing securities. There is currently no precedent
prohibiting banks from performing administrative services in connection with the
distribution of Fund shares. If a bank were prohibited from performing such
administrative services, its shareholder clients would be permitted to remain
shareholders of a Fund and alternate means of servicing such shareholders would
be sought. It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board, the Adviser is
responsible for the execution of each Fund's portfolio transactions and the
allocation of brokerage transactions. In effecting portfolio transactions, the
Adviser seeks to obtain the best net results for each Fund. This determination
involves a number of considerations, including the economic effect on the Fund
(involving both price paid or received and any commissions and other costs), the
efficiency with which the transaction is effected where a large block is
involved, the availability of the broker to stand ready to execute potentially
difficult transactions, and the financial strength and stability of the broker.
Such considerations are judgmental and are weighed by the Adviser in determining
the overall reasonableness of brokerage commissions paid. Purchases from
underwriters include an underwriting commission or concession and purchases from
dealers serving as market makers include the spread between the bid and asked
price. Where transactions are made in the over-the-counter market, the Funds
will deal with the primary market makers unless more favorable prices are
obtainable elsewhere.
Under the 1940 Act, a mutual fund must sell its shares at the price
(including sales load, if any) described in its prospectus, and current rules
16
<PAGE>
under the 1940 Act do not permit negotiations of sales loads. Currently, an
open-end fund is permitted to impose a front-end sales load of up to 8.5% of the
public offering price; provided it does not also impose an asset-based sales
charge. The Adviser takes into account the amount of the applicable sales load,
if any, when it is considering whether or not to purchase shares of an
underlying fund. The Adviser anticipates investing substantially all of the
assets of the Growth Fund, the Capital Income Fund and the Multiple Index Trust
in funds that impose no front-end sales load or impose a front-end sales load on
the Fund of no more than 1%, in the case of the Multiple Index Trust, and 3%, in
the case of the Growth Fund and Capital Income Fund, of the public offering
price. The Adviser, to the extent possible, seeks to reduce the sales load
imposed by purchasing shares pursuant to (i) letters of intent, permitting
purchases over time; (ii) rights of accumulation, permitting it to obtain
reduced sales charges as it purchases additional shares of an underlying fund;
and (iii) rights to obtain reduced sales charges by aggregating its purchases of
several funds within a "family" of mutual funds. The Adviser also takes
advantage of exchange or conversion privileges offered by any "family" of mutual
funds.
With respect to purchases of shares of underlying funds subject to a
front-end sales load at the time of purchase ("load fund shares"), the Adviser
may direct, to the extent possible, substantially all of the orders to
Distributors. Where Distributors acts as the dealer with respect to purchases of
load fund shares, it retains dealer reallowances on those purchases up to a
maximum of 1% of the public offering price of the shares. Distributors is not
designated as the dealer on any sales where such reallowance exceeds 1% of the
public offering price. In the event Distributors is unable to execute a
particular transaction, the Adviser will direct such order to another
broker-dealer.
Distributors may assist in the execution of Fund portfolio transactions
to purchase underlying fund shares for which it may receive distribution
payments from the underlying funds or their underwriters or sponsors in
accordance with the normal distribution arrangements of those funds. These
payments are separate from the dealer reallowances noted above. In providing
execution assistance, Distributors receives orders from the Adviser; places them
with the underlying fund's distributor, transfer agent or other person, as
appropriate; confirms the trade, price and number of shares purchased; and
assures prompt payment by the Fund and proper completion of the order.
For the fiscal year ended May 31, 1998, payments and reallowances
received by Distributors with respect to the purchase of underlying funds shares
amounted to $261,195 and $29,234, respectively, for the Growth Fund and Capital
Income Fund.
Distributors also may retain brokerage commissions on portfolio
transactions of underlying funds held in the portfolio of the Growth Fund, the
Capital Income Fund and Multiple Index Trust, including funds that have a policy
of considering sales of their shares in selecting broker-dealers for the
execution of their portfolio transactions. Payment of brokerage commissions to
Distributors on such transactions is not a factor considered by the Adviser in
selecting an underlying fund for investment.
17
<PAGE>
A factor in the selection of brokers to execute the Funds' portfolio
transactions is the receipt of research, analysis, advice and similar services.
To the extent that research services of value are provided by brokers with or
through whom the Adviser places the Funds' portfolio transactions, the Adviser
may be relieved of expenses that it might otherwise bear. Research services
furnished by brokers through which a Fund effects securities transactions may be
used by the Adviser in advising other Funds, and, conversely, research services
furnished to the Adviser by brokers in connection with other Funds the Adviser
advises may be used by the Adviser in advising a Fund. Research and other
services provided by brokers to the Adviser or the Funds is in addition to, and
not in lieu of, services required to be performed by the Adviser under its
Advisory Agreement. For the fiscal year ended May 31, 1998, the Adviser directed
$794,593 and $25,268,999 in portfolio transactions on behalf of the Growth Fund
and the Value Trust, respectively, to brokers chosen because they provided
research services, for which the Growth Fund and the Value Trust paid $4,957 and
$58,564, respectively, in commissions.
The Capital Income Fund and the Multiple Index Trust did not direct any
portfolio transactions to brokers or dealers chosen because they provided
research services.
Another factor in the selection of brokers is the sale of Fund shares.
Where all major factors such as price and execution capability are equal, the
fact that a broker has sold Fund shares may be considered in placing portfolio
transactions. The Funds reserve the right to pay brokerage commissions to
brokers affiliated with the Trust or with affiliated persons of such persons.
Any such commissions will comply with applicable securities laws and
regulations. In no instance, however, will portfolio securities be purchased
from or sold to the Adviser or any other affiliated person. Since the Funds'
inception, no brokerage commissions have been paid to such affiliated persons.
The Trust expects that purchases and sales of money market instruments
will usually be principal transactions and purchases and sales of other debt
securities may be principal transactions. Thus, the Funds will normally not pay
brokerage commissions in connection with those transactions. Money market
instruments are generally purchased directly from the issuer, an underwriter or
market maker for the securities and other debt securities may be purchased in a
similar manner. Purchases from underwriters include an underwriting commission
or concession and purchases from dealers serving as market makers include the
spread between the bid and asked price. Where transactions are made in the
over-the-counter market, the Funds will deal with the primary market makers
unless more favorable prices are obtainable elsewhere.
Investment decisions for each Fund are made independently of each other
in light of differing considerations. However, the same investment decision may
occasionally be made for more than one Fund. In such cases, simultaneous
transactions are inevitable. Purchases or sales are then averaged as to price
and allocated between the Funds as to amount according to a formula deemed
equitable to the Funds. While in some cases this practice could have a
detrimental effect upon the price or quantity of the security as far as a Fund
is concerned, or upon its ability to complete its entire order, in other cases
it is believed that coordination and the ability to participate in volume
transactions will be beneficial to a Fund.
18
<PAGE>
The policy of the Trust with respect to brokerage is reviewed by the
Board from time to time. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be modified.
During the fiscal years ended May 31, 1998, 1997 and 1996, the Growth
Fund, the Capital Income Fund, the Value Trust and the Multiple Index Trust paid
the following amounts in brokerage commissions:
Fiscal Year Ended
-----------------
5/31/98 5/31/97 5/31/96
------- ------- -------
Growth Fund $ 15,507 $ 26,800 $ 11,447
Capital Income Fund
$ 2,357 $ 5,382 $ 0
Value Trust
$178,371 $ 127,552 $126,702
Multiple Index Trust
$ 0 N/A N/A
The portfolio turnover rate may vary greatly from year to year for any
Fund and will not be a limiting factor when the Adviser deems portfolio changes
appropriate. The annual portfolio turnover rate is calculated by dividing the
lesser of a Fund's annual sales or purchases of portfolio securities (exclusive
of purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
Fund during the year.
PRICING AND ADDITIONAL EXCHANGES
DETERMINING NET ASSET VALUE
ALL FUNDS. Each Fund determines its net asset value per share as of the
close of regular trading (currently 4:00 p.m., eastern time) on the NYSE on each
business day, which is defined as each Monday through Friday when the NYSE is
open. Currently, the NYSE is closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of a Fund is determined by dividing
the Fund's total net assets by the number of shares outstanding at the time of
calculation. Total net assets are determined by adding the total current value
of portfolio securities, cash, receivables and other assets and subtracting
liabilities.
VALUE TRUST. Current market value for portfolio securities is
determined as follows. A security listed or traded on an exchange is valued at
its last sale price on the exchange where it is principally traded. Securities
traded over-the-counter ("OTC") and listed on NASDAQ are valued at the last
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trade price listed on NASDAQ; other OTC securities are valued at the last bid
price available prior to valuation. Debt securities that have a remaining
maturity of 60 days or less are valued at cost, plus or minus any amortized
discount or premium. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
Foreign security prices are expressed in their local currency and
translated into U.S. dollars at current exchange rates. Any changes in the value
of forward contracts due to exchange rate fluctuations are included in the
determination of net asset value. Foreign currency exchange rates are generally
determined prior to the close of trading on the NYSE. Occasionally, events
affecting the value of foreign securities and such exchange rates occur between
the time at which they are determined and the close of trading on the NYSE. When
events materially affecting the value of such securities or exchange rates occur
during such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Board.
EXCHANGE OF SHARES
Shareholders will receive at least 60 days notice of any termination or
material modification of the exchange privilege described in the prospectus,
except no notice need be given if, under extraordinary circumstances, either
redemptions are suspended under the circumstances described below or a Fund
temporarily delays or ceases the sale of its shares because it is unable to
invest amounts effectively in accordance with the Fund's investment objective,
policies and restrictions.
PERFORMANCE INFORMATION
The Funds' performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represents past performance and is not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost.1
TOTAL RETURN CALCULATIONS
Average annual total return quotes ("Standardized Return") used in the
Funds' Performance Advertisements are calculated according to the following
formula:
P (1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of that period.
- ----------------------
1 Prior to February 22, 1991, the Growth Fund and the Capital Income Fund
invested directly in market securities.
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Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertisement for
publication. In calculating the ending redeemable value all dividends and
distributions by the Funds are assumed to have been reinvested at net asset
value on the reinvestment dates during the period. For the Value Trust,
contingent deferred sales charges are taken into account. Total return, or "T"
in the formula above, is computed by finding the average annual compounded rate
of return over the period that would equate the initial amount invested to the
ending redeemable value. The Standardized Return of the Multiple Index Trust and
the Treasuries Trust for the period from July 2, 1997 (commencement of
operations) to May 31, 1998 was 11.99% and 9.33%, respectively. The Standardized
Return for the fiscal year ended May 31, 1998 for the Growth Fund and Capital
Income Fund was 18.39% and 25.30%, respectively. The Standardized Return for the
Growth Fund and Capital Income Fund for the five years ended May 31, 1998 was
13.40% and 16.42%, respectively. The Standardized Return for the Growth Fund and
Capital Income Fund for the ten years ended May 31, 1998 was 12.47% and 10.98%,
respectively. The Standardized Return for the Value Trust for the fiscal year
ended May 31, 1998, for the five years ended May 31, 1998 and for the period
from November 2, 1992 (commencement of operations) to May 31, 1998 was 11.02%,
13.17% and 12.46%, respectively.
In addition to Standardized Returns, each Fund also may include other
total return performance data in Performance Advertisements ("Non-Standardized
Return"). Non-Standardized Return is calculated separately and may be calculated
according to several different formulas. Non-Standardized Returns may be quoted
for the same or different time periods for which Standardized Returns are
quoted.
The Value Trust may include average annual Non-Standardized Returns in
Performance Advertisements that is calculated according to the formula described
above except that contingent deferred sales charges are not taken into account.
The Value Trust's average annual Non-Standardized Return for the fiscal year
ended May 31, 1998, for the five years ended May 31, 1998 and for the period
from November 2, 1992 (commencement of operations) to May 31, 1998 was 13.02%,
13.17% and 12.46%, respectively.
In addition, each Fund may include aggregate Non-Standardized Return in
Performance Advertisements. Aggregate Non-Standardized Return is calculated by
subtracting the beginning value of an investment in a Fund from the value of the
investment at the end of the period and dividing the remainder by the beginning
value. For purposes of the calculation, it is assumed that the beginning value
is $1,000 and that dividends and other distributions are reinvested. In
addition, with respect to the Value Trust, contingent deferred sales charges are
not taken into account. The aggregate Non-Standardized Return for the Growth
Fund for the period from its inception on June 14, 1985 to May 31, 1998 was
350.08%. The aggregate Non-Standardized Return for the Capital Income Fund for
the period from its inception on April 18, 1988 to May 31, 1998 was 177.83%. The
aggregate Non-Standardized Return for the Value Trust for the period from its
inception on November 2, 1992 to May 31, 1998 was 91.92%. The aggregate
Non-Standardized Return for the Treasuries Trust for the period from its
inception on July 2, 1997 was 9.33%. The aggregate Non-Standardized Return for
the Multiple Index Trust for the period from its inception on July 2, 1997 to
May 31, 1998 was 11.99%.
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YIELD
Yield used in Performance Advertisements for the Treasuries Trust is
calculated by dividing its interest income for a 30-day period ("Period"), net
of expenses by the average number of shares of such class entitled to receive
dividends during the Period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the Period. Yield quotations are calculated according to the
following formula:
6
YIELD = 2[( a-b + 1) - 1]
---
cd
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.
Except as noted below, in determining net investment income earned
during the Period (variable "a" in the above formula), the Treasuries Trust
calculates interest earned on each debt obligation held by it during the Period
by (1) computing the obligation's yield to maturity, based on the market value
of the obligation (including actual accrued interest) on the last business day
of the Period or, if the obligation was purchased during the Period, the
purchase price plus accrued interest and (2) dividing the yield to maturity by
360, and multiplying the resulting quotient by the market value of the
obligation (including actual accrued interest) to determine the interest income
on the obligation for each day of the period that the obligation is in the
portfolio. Once interest earned is calculated in this fashion for each debt
obligation held by the Treasuries Trust, interest earned during the Period is
then determined by totaling the interest earned on all debt obligations. For
purposes of these calculations, the maturity of an obligation with one or more
call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date. The
Treasuries Trust's yield for the 30-day period ended May 31, 1998 was 6.37%.
Without fee waivers by the Adviser during the period, the yield for that Fund
would have been 5.65%.
OTHER INFORMATION
In connection with communicating a Fund's performance information to
current or prospective shareholders, the Trust also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
other unmanaged indexes that may assume reinvestment of distributions but
generally do not reflect deductions for administrative and management costs.
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TAXATION
GENERAL
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended ("Code"), each Fund
must distribute annually to its shareholders at least 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain and net gains from certain foreign currency transactions, if any)
("Distribution Requirement") and must meet several additional requirements. With
respect to each Fund, these requirements include the following: (1) at least 90%
of the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of securities or foreign currencies and other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies ("Income
Requirement"); (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or securities of other RICs) of any one
issuer.
DISTRIBUTIONS
Dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in any one of these months will be deemed to have been paid by the Fund and
received by the shareholders on December 31 of that year if the distributions
are paid by the Fund during the following January. Accordingly, those
distributions will be taxed to shareholders for the year in which that December
31 falls.
A portion of the dividends from a Fund's investment company taxable
income (whether paid in cash or reinvested in additional Fund shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion for a Fund may not exceed the aggregate dividends it receives
either directly from U.S. corporations (excluding RICs, among others) or
indirectly from such corporations through underlying funds in which it invests.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax. It is not anticipated that any part of the
distributions by the Treasuries Trust (which invests exclusively in debt
securities and thus receives no dividend income) will be eligible for this
deduction.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
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If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
Generally, a redemption by the Growth Fund, the Capital Income Fund or
the Multiple Index Trust of an underlying fund's shares will result in taxable
gain or loss to a Fund, depending on whether the redemption proceeds are more or
less than that Fund's adjusted basis for the redeemed shares (which normally
includes any sales charge paid); an exchange of an underlying fund's shares for
shares of another underlying fund normally will have similar tax consequences.
However, if a Fund disposes of an underlying fund's shares ("original shares")
within 90 days after its purchase thereof and subsequently reacquires shares of
that underlying fund or acquires shares of another underlying fund on which a
sales charge normally is imposed ("replacement shares"), without paying the
sales charge (or paying a reduced charge) due to an exchange privilege or a
reinstatement privilege, then (1) any gain on the disposition of the original
shares will be increased, or the loss thereon decreased, by the amount of the
sales charge paid when the original shares were acquired and (2) that amount
will increase the adjusted basis of the replacement shares that were
subsequently acquired.
The Treasuries Trust may acquire zero coupon securities or other
securities issued with original issue discount ("OID"), such as "stripped" U.S.
Treasury securities. As a holder of those securities, that Fund must include in
its income the OID that accrues on the securities during the taxable year, even
if it receives no corresponding payment on them during the year. Because that
Fund annually must distribute substantially all of its investment company
taxable income, including any accrued OID, to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax, it may be required in a
particular year to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. Those distributions will be made from
its cash assets or from the proceeds of sales of portfolio securities, if
necessary. That Fund may realize capital gains or losses from those sales, which
would increase or decrease its investment company taxable income and/or net
capital gain (the excess of net long-term capital gain over net short-term
capital loss).
FOREIGN INCOME (VALUE TRUST)
Dividends and interest received by the Value Trust, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield and/or total return
on its securities. Tax conventions between certain countries and the United
States may reduce or eliminate these foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
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<PAGE>
The Funds may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund is a U.S. shareholder -- that, in general,
meets either of the following tests: (1) at least 75% of its gross income is
passive or (2) an average of at least 50% of its assets produce, or are held for
the production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain from disposition of that stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders. If a Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of
the foregoing tax and interest obligation, the Fund will be required to include
in income each year its pro rata share of the QEF's annual ordinary earnings and
net capital gain -- which probably would have to be distributed to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gain were not received by the Fund from the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
A Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the PFIC's stock
over a Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also will be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. A Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election. Regulations proposed in
1992 provided a similar election with respect to the stock of certain PFICs.
HEDGING TRANSACTIONS
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the amount, character
and timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations), and gains from options,
futures and forward contracts derived by a Fund with respect to its business of
investing in securities or those currencies, will qualify as permissible income
under the Income Requirement.
Certain futures and forward contracts in which the Funds may invest
will be "section 1256 contracts." Section 1256 contracts held by a Fund at the
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<PAGE>
end of each taxable year, other than section 1256 contracts that are part of a
"mixed straddle" with respect to which a Fund has made an election not to have
the following rules apply, must be "marked-to-market" (that is, treated as sold
for their fair market value) for federal income tax purposes, with the result
that unrealized gains or losses will be treated as though they were realized.
Sixty percent of any net gain or loss recognized on these deemed sales, and 60%
of any net realized gain or loss from any actual sales of section 1256
contracts, will be treated as long-term capital gain or loss, and the balance
will be treated as short-term capital gain or loss. Section 1256 contracts also
may be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which the Funds may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character, and timing of recognition of the gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to
the Funds of straddle transactions are not entirely clear.
If a Fund has an "appreciated financial position" - generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis - and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by the Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
CUSTODIANS, TRANSFER AND DIVIDEND DISBURSING AGENT
Custodial Trust Company ("CTC"), 101 Carnegie Center, Princeton, New
Jersey 08540-6231 is the custodian for the Multiple Index Trust, the Treasuries
Trust and the Value Trust. The Value Trust borrows money from CTC in connection
with its leveraging activities. MainStreet Trust Company, P.O. Box 5228,
Martinsville, Virginia 24115, serves as the custodian for the Growth Fund and
the Capital Income Fund. First Community Bank, an affiliate of MainStreet Trust
Company, has loans outstanding to Adviser under terms and conditions arrived at
without regard to the custodial relationship.
State Street Bank and Trust Company, Two Heritage Drive, North Quincy,
Massachusetts 02171 is the Trust's transfer and dividend disbursing agent.
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers, LLP, 250 West Pratt Street, Baltimore, Maryland
21201, was appointed by the Trustees to serve as the Trust's independent
certified public accountants, providing professional services including (1)
audit of the annual financial statements, (2) assistance and consultation in
connection with SEC filings and semi-annual reports, including semi-annual
financial statements, and (3) preparation of the federal income tax returns
filed on behalf of the Funds.
OTHER INFORMATION
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that no shareholder as such shall be subject to any
personal liability whatsoever to any person in connection with Trust property or
the acts, omissions, obligations or affairs of the Trust. It also states that
every written obligation, contract, instrument, certificate, share, other
security of the Trust or undertaking made or issued by the Trustees may recite,
in substance, that the same is executed or made by them not individually, but as
Trustees under the Declaration of Trust, and that the obligations of the Trust
under any such instrument are not binding upon any of the Trust's Trustees or
shareholders individually, but bind only the Trust estate, and may contain any
further recital which they or he may deem applicable, but the omission of such
recital shall not operate to bind the Trustees or shareholders individually.
The Declaration of Trust further provides that the Trust shall
indemnify and hold each shareholder harmless from and against all claims and
liabilities to which such shareholder may become subject by reason of his being
or having been a shareholder, and shall reimburse such shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
would be unable to meet its obligations.
The Prospectus relating to the Funds and this Statement of Additional
Information do not contain all the information included in the Trust's
registration statement filed with the SEC under the Securities Act of 1933 and
the 1940 Act with respect to the securities offered hereby, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith, may be examined
at the offices of the SEC in Washington, D.C.
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract or other documents referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contracts or other documents filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
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FINANCIAL STATEMENTS
The financial statements of the Funds for the year ended May 31, 1998,
which are included in the Annual Report to Shareholders of the Funds, are hereby
incorporated by reference.
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APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER
AND BOND RATINGS
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
Prime-1. Issuers (or supporting institutions) rated Prime-1 ("P-1")have
a superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity. Prime-2. Issuers (or supporting institutions) rated
Prime-2("P-2") have a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety. A-1. This
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation. A-2. Capacity for
timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt 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 which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities; A. Bonds
which are rated A possess many favorable investment attributes and are
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considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future; Baa. Bonds
which are 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; Ba. Bonds which are rated Ba are judged to
have speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa. Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest; Ca. Bonds which are rated C are
present obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C. 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.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the Company ranks in
the higher end of its generic rating category; the modifier 2 indicates
amid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
DESCRIPTION OF S&P CORPORATE DEBT RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong; AA. Debt rated AA has a
very strong capacity to pay interest and repay principal and differs from the
higher rated issues only in small degree; A. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories; BBB. Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories; BB,
B, CCC, CC, and C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
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inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating; B. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating; CCC. Debt rated CCC
has a currently identifiable vulnerability to default, and is dependent upon
favorable business, financial and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied B or B- rating; CC. The
rating CC is typically applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating; C. The rating C is typically applied
to debt subordinated to senior debt which is assigned an actual or implied
CCC-debt rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued; CI.
The rating CI is reserved for income bonds on which no interest is being paid;
D. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are in jeopardy.
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APPENDIX B
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may engage in a variety of
strategies ("Hedging Strategies") involving the use of certain financial
instruments, including options, futures contracts (sometimes referred to as
"futures") and options on futures contracts to attempt to hedge the portfolio of
the Value Trust. The Funds' Adviser may also hedge currency risks associated
with these Funds' investments in foreign securities through the use of
forwarding foreign currency contracts. An underlying fund may also engage in
Hedging Strategies.
Hedging Strategies are used to hedge against price movements in one or
more particular securities positions that the Fund owns or intends to acquire.
Hedging Strategies on stock indices, in contrast, generally are used to hedge
against price movements in broad equity market sectors in which the Fund has
invested or expects to invest. Hedging Strategies on debt securities may be used
to hedge either individual securities or broad fixed income market sectors.
The use of Hedging Strategies is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they are traded,
the Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, the Funds' ability to use Hedging Strategies will be
limited by tax considerations.
SPECIAL RISKS OF HEDGING STRATEGIES
The use of Hedging Strategies involves special considerations and
risks, as described below. Risks pertaining to particular instruments are
described in the sections that follow:
(1) Successful use of most Hedging Strategies depends upon the
Adviser's ability to predict movements of the overall securities and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Strategy and price movements of the
investments being hedged. For example, if the value of an instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which hedging
instruments are traded. The effectiveness of Hedging Strategies on indices will
depend on the degree of correlation between price movements in the index and
price movements in the securities being hedged.
(3) Hedging Strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
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movements in the investments being hedged. However, Hedging Strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because the Adviser projected a decline in the price of a security in the
Fund's portfolio, and the price of that security increased instead, the gain
from that increase might be wholly or partially offset by a decline in the price
of the hedging instrument. Moreover, if the price of the hedging instrument
declined by more than the increase in the price of the security, the Fund could
suffer a loss. In either such case, the Fund would have been in a better
position had it not hedged at all.
(4) A Fund might be required to maintain assets as "cover," maintain
segregated accounts or make margin payments when it takes positions in hedging
instruments involving obligations to third parties (i.e., hedging instruments
other than purchased options). If the Fund were unable to close out its
positions in such hedging instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the positions
expired or matured. These requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to close out a position in an
instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the opposite party to the transaction to enter into a transaction
closing out the position. Therefore, there is no assurance that any hedging
position can be closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES
The Funds will not use Hedging Strategies for speculative purposes or
for purposes of leverage, although an underlying fund may do so. Hedging
Strategies, other than purchased options, expose the Funds to an obligation to
another party. The Funds will not enter into any such transactions unless they
own either (1) an offsetting ("covered") position in securities or other options
or futures contracts or (2) cash, receivables and short-term debt securities,
with a value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (1) above. The Funds will comply with SEC
guidelines regarding cover for Hedging Strategies and will, if the guidelines so
require, set aside cash or liquid, high-grade debt securities in a segregated
account with their custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover segregated accounts could impede portfolio management
or the Fund's ability to meet redemption requests or other current obligations.
OPTIONS ACTIVITIES
Each Fund, either directly or through an underlying fund, may write
(i.e., sell) call options ("calls") if the calls are "covered" throughout the
life of the option. A call is "covered" if the fund owns the optioned
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securities. When a fund writes a call, it receives a premium and gives the
purchaser the right to buy the underlying security at anytime during the call
period (usually not more than nine months in the case of common stock) at a
fixed exercise price regardless of market price changes during the call period.
If the call is exercised, the fund will forego any gain from an increase in the
market price of the underlying security over the exercise price. Each Fund also
is authorized to write covered call options, but has no intention of doing so
during the current fiscal year.
Each Fund, either directly or through an underlying fund, may purchase
a call on securities only to effect a "closing transaction," which is the
purchase of a call covering the same underlying security and having the same
exercise price and expiration date as a call previously written by the fund on
which it wishes to terminate its obligation. If the fund is unable to effect a
closing transaction, it will not be able to sell the underlying security until
the call previously written by the fund expires (or until the call is exercised
and the fund delivers the underlying security).
Each Fund, either directly or through an underlying fund, may also may
write and purchase put options ("puts"). When a fund writes a put, it receives a
premium and gives the purchaser of the put the right to sell the underlying
security to the fund at the exercise price at any time during the option period.
When a fund purchases a put, it pays a premium in return for the right to sell
the underlying security at the exercise price at any time during the option
period. An underlying fund also may purchase stock index puts, which differ from
puts on individual securities in that they are settled in cash based on the
values of the securities in the underlying index rather than by delivery of the
underlying securities. Purchase of a stock index put is designed to protect
against a decline in the value of the portfolio generally rather than an
individual security in the portfolio. If any put is not exercised or sold, it
will become worthless on its expiration date.
A fund's option positions may be closed out only on an exchange that
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at any given time for any
particular option. In this regard, trading in options on certain securities
(such as U.S. Government securities) is relatively new, so that it is impossible
to predict to what extent liquid markets will develop or continue. Closing
transactions may be effected with respect to options traded in the OTC markets
(currently the primary markets for options on debt securities) only by
negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although the funds will
enter into OTC options with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with the fund,
there can be no assurance that the fund would be able to liquidate an OTC option
at a favorable price at any time prior to expiration. In the event of insolvency
of the contra-party, the fund may be unable to liquidate an OTC option.
Accordingly, it may not be possible to effect closing transactions with respect
to certain options, which would result in the fund having to exercise those
options that it has purchased in order to realize any profit. With respect to
options written by the fund, the inability to enter into a closing transaction
may result in material losses to the fund. For example, because the fund must
maintain a covered position with respect to any call option it writes on a
security or stock index, the fund may not sell the underlying security or invest
any cash, U.S. Government securities or short-term debt securities used to cover
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the option during the period it is obligated under such option. This requirement
may impair the fund's ability to sell a portfolio security or make an investment
at a time when such a sale or investment might be advantageous.
An underlying fund's custodian, or a securities depository acting for
it, generally acts as escrow agent as to the securities on which the fund has
written puts or calls, or as to other securities acceptable for such escrow so
that no margin deposit is required of the fund. Until the underlying securities
are released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation ("OCC") has the
authority to permit other, generally comparable securities to be delivered in
fulfillment of option exercise obligations. If the OCC exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the OCC may impose special
exercise settlement procedures.
In view of the risks involved in using the options strategies described
above, each Fund that engages directly in options activities has adopted the
following investment guidelines to govern its use of such strategies; these
guidelines may be modified without shareholder vote:
(1) a Fund will write only covered options and each such
option will remain covered so long as the Fund is obligated under the
option;
(2) a Fund will not write call or put options having aggregate
exercise prices greater than 25% of its net assets; and
(3) a Fund may purchase a put or call option, including any
straddles or spreads, only if the value of its premium, when aggregated
with the premiums on all other options held by the Funds, does not
exceed 5% of the Fund's total assets.
The Funds' activities in the option markets may result in a higher
portfolio turnover rate and additional brokerage costs; however, the Funds also
may save on commissions by using options as a hedge rather than buying or
selling individual securities in anticipation of or as a result of market
movements.
FUTURES CONTRACTS
The Value Trust may enter into futures contracts for the purchase or
sale of debt securities and stock indexes. The Growth Fund, the Capital Income
Fund and the Multiple Index Trust, through an underlying fund, may also do so. A
futures contract is an agreement between two parties to buy and sell a security
or an index for a set price on a future date. Futures contracts are traded on
designated "contract markets" that, through their clearing corporation,
guarantee performance of the contracts.
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Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract for
the sale of debt securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. For example, if an underlying fund holds long-term U.S.
Government securities and it anticipates a rise in long-term interest rates (and
therefore a decline in the value of those securities), it could, in lieu of
disposing of those securities, enter into futures contracts for the sale of
similar long-term securities. If rates thereafter increase and the value of the
fund's portfolio securities thus declines, the value of the fund's futures
contracts would increase, thereby protecting the fund by preventing the net
asset value from declining as much as it otherwise would have. Similarly,
entering into futures contracts for the purchase of debt securities has an
effect similar to the actual purchase of the underlying securities, but permits
the continued holding of securities other than the underlying securities. For
example, if an underlying fund expects long-term interest rates to decline, it
might enter into futures contracts for the purchase of long-term securities so
that it could gain rapid market exposure that may offset anticipated increases
in the cost of securities it intends to purchase while continuing to hold
higher-yield short-term securities or waiting for the long-term market to
stabilize.
A stock index futures contract may be used to hedge an underlying
fund's portfolio with regard to market risk as distinguished from risk relating
to a specific security. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs. Changes in the market value of a particular stock index
futures contract reflect changes in the specified index of equity securities on
which the contract is based.
There are several risks in connection with the use of futures
contracts. In the event of an imperfect correlation between the futures contract
and the portfolio position that is intended to be protected, the desired
protection may not be obtained and the fund may be exposed to risk of loss.
Further, unanticipated changes in interest rates or stock price movements may
result in a poorer overall performance for the fund than if it had not entered
into futures contracts on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions that could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Positions in futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
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where there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Funds would continue to be required to make variation margin
deposits.
As is the case with options, the Funds' activities in the futures
markets may result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions; however, the Funds
also may save on commissions by using futures contracts as a hedge rather than
buying or selling individual securities in anticipation of or as a result of
market movements.
In view of the risks involved in using the futures strategies that are
described above, each of these Funds has adopted the following investment
guidelines to govern its use of such strategies; these guidelines may be
modified without shareholder vote.
(1)a Fund will not purchase or sell futures contracts or
related options if, immediately thereafter, the sum of the
amount of initial margin deposits on the Fund's existing
futures positions and related options and premiums paid
for related options would exceed 5% of the Fund's total
assets; and
(2)futures contracts and related options will not be
purchased if immediately thereafter more than 30% of the
Fund's total assets would be so invested.
OPTIONS ON FUTURES CONTRACTS
The Value Trust may purchase and write (sell) put and call options on
futures contracts. The Growth Fund, the Capital Income Fund and the Multiple
Index Trust, through an underlying fund, also may do so. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put), at a specified exercise price at
any time during the option period. When an option on a futures contract is
exercised, delivery of the futures position is accompanied by cash representing
the difference between the current market price of the futures contract and the
exercise price of the option. A fund may purchase put options on futures
contracts in lieu of, and for the same purpose as, a sale of a futures contract.
It also may purchase such put options in order to hedge a long position in the
underlying futures contract in the same manner as it purchases "protective puts"
on securities.
Each Fund, either directly or indirectly through an underlying fund,
also may purchase put options on interest rate and stock index futures
contracts. As with options on securities, the holder of an option on a futures
contract may terminate its position by selling an option of the same series.
There is no guarantee that such closing transactions can be effected. An
underlying fund is required to deposit initial margin and variation margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those applicable to futures contracts described
above and, in addition, net option premiums received will be included as initial
margin deposits.
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In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. There can be no
certainty that liquid secondary markets for all options on futures contracts
will develop. Compared to the use of futures contracts, the purchase of options
on futures contracts involves less potential risk to an underlying fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to the fund when the use of a futures
contract would not, such as when there is no movement in the prices of the
underlying securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as described above.
FORWARD AND FOREIGN CURRENCY CONTRACTS
The Value Trust may use forward or foreign currency contracts to
protect against uncertainty in the level of future foreign currency exchange
rates. The Growth Fund, the Capital Income Fund and the Multiple Index Trust,
through an underlying fund, also may do so. The Funds will not speculate with
forward currency contracts or foreign currency exchange rates.
The Value Trust may enter into forward currency contracts with respect
to specific transactions. The Growth Fund, the Capital Income Fund and the
Multiple Index Trust, through an underlying fund, also may do so. For example,
when a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or the Fund anticipates the receipt in a
foreign currency of dividend or interest payments on a security that it holds or
anticipates purchasing, the Fund may desire to "lock in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such payment, as the case may
be, by entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars or foreign currency, of the amount of foreign currency
involved in the underlying transaction. The Fund will thereby be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between the
date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. Although such contracts tend to minimize the risk of loss due
to a decline in the value of the subject currency, they tend to limit
commensurately any potential gain that might result should the value of such
currency increase during the contract period.
The Value Trust also may hedge by using forward currency contracts in
connection with portfolio positions to lock in the U.S. dollar value of those
positions, to increase the Fund's exposure to foreign currencies that the
Adviser believes may rise in value relative to the U.S. dollar or to shift the
Fund's exposure to foreign currency fluctuations from one country to another.
The Growth Fund, the Capital Income Fund and the Multiple Index Trust, through
an underlying fund, may also do so. For example, when the Adviser believes that
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the currency of a particular foreign country may suffer a substantial decline
relative to the U.S. dollar or another currency, it may enter into a forward
contract to sell the amount of the former foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. This investment practice generally is referred to as
"cross-hedging" when another foreign currency is used.
The precise matching of the forward amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (that is, cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
the market value of the security exceeds the amount of foreign currency the Fund
is obligated to deliver. The projection of short-term currency market movements
is extremely difficult and the successful execution of a short-term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transaction costs. The Fund may
enter into forward contracts or maintain a net exposure on such contracts only
if (1) the consummation of the contracts would not obligate the Fund to deliver
an amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency or (2) the Fund
maintains cash, U.S. Government securities or liquid, high-grade debt securities
in a segregated account in an amount not less than the value of the Fund's total
assets committed to the consummation of the contract which value must be marked
to market daily. Under normal circumstances, consideration of the prospect for
currency parties will be incorporated into the longer term investment decisions
made with regard to overall diversification strategies. However, the Adviser
believes that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
At or before the maturity date of a forward contract requiring the Fund
to sell a currency, the Value Trust may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, the Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize
a gain or loss as a result of entering into such an offsetting forward currency
contract under either circumstance to the extent the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
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are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate fluctuations
in the prices of the underlying securities the Fund owns or intends to acquire,
but it does fix a rate of exchange in advance. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase.
Although each Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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The Financial Statements of the Registrant are incorporated herein by reference
to the Annual Report to Shareholders filed with the Securities and Exchange
Commission on August 24, 1998, Edgar Accession No. 0000916641-98-0009666.
<PAGE>
PART C. OTHER INFORMATION
ITEM 22. FINANCIAL STATEMENTS AND EXHIBITS
Included in Part A of this Registration Statement:
Financial Highlights for one share of Growth Fund, Capital Income Fund,
Yorktown Classic Value Trust, Multiple Index Trust and Treasuries Trust.
Included in Part B of this Registration Statement through incorporation by
reference:
The Annual Report to shareholders for the Growth Fund, Capital Income
Fund, Yorktown Classic Value Trust, Multiple Index Trust and Treasuries Trust
for the fiscal year ended May 31, 1998 containing financial statements as of and
for the fiscal year ended May 31, 1998 (previously filed with the Securities and
Exchange Commission through Edgar on August 24, 1998, Edgar
Accession No.0000916641-98-0009666).
ITEM 23. EXHIBITS
(1) (a) Declaration of Trust 1/
(b) Amendment to the Declaration of Trust 2/
(2) (a) By-Laws of the Trust 1/
(b) Amendment dated September 16, 1988 to the By-Laws of the
Trust 1/
(3) Instrument defining the rights of holders of the Registrant's shares
of beneficial interest 1/
(4) (a) Investment Advisory and Administrative Services Agreement
for Growth Fund and Capital Income Fund 1/
(b) Investment Advisory and Administrative Services Agreement
for Yorktown Classic Value Trust and Yorktown Value Income
Trust 1/
(c) Investment Advisory and Administrative Services Agreement
for Multiple Index Trust and Treasuries Trust 3/
(5) (a) Distribution Agreement for Growth Fund and Capital Income
Fund 1/
(b) Distribution Agreement for Yorktown Classic Value Trust and
Yorktown Value Income Trust 1/
(c) Distribution Agreement for Multiple Index Trust and
Treasuries Trust 3/
(6) Bonus, Profit Sharing, Pension or Other Similar Contracts - Not
Applicable
(7) (a) Custodian Agreement for Growth Fund and Capital Income Fund 1/
(b) Custodian Agreement for Yorktown Classic Value Trust,
Multiple Index Trust and Treasuries Trust 1/
(8) (a) Transfer and Dividend Disbursing Agency Agreement 1/
(b) Transfer Agency and Service Agreement (filed herewith)
(9) (a) Opinion and Consent of Counsel 1/
(b) Opinion and Consent of Counsel regarding Yorktown Classic
Value Trust and Yorktown Value Income Trust 1/
(10) Consent of Independent Accountants (filed herewith)
<PAGE>
(11) Financial Statements Omitted from Item 22 - Not Applicable
(12) Initial Capitalization Agreements 1/
(13) (a) Rule 12b-1 Plan for Growth Fund and Capital Income Fund 1/
(b) Rule 12b-1 Plan for Yorktown Classic Value Trust and
Yorktown Value Income Trust 1/
(c) Form of Subdistribution Agreement 1/
(14) Financial Data Schedules (filed herewith)
(15) Rule 18f-3 Plan - Not Applicable
- --------------
1/ Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on September 30, 1996.
2/ Incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A, filed on April 16, 1997.
3/ Incorporated by reference to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A, filed January 5, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
Section 5.1 of Article V of the Declaration of Trust provides that no
Trustee, officer, employee or agent of the Trust as such shall be subject to any
personal liability whatsoever to any person in connection with Trust Property or
the affairs of the Trust, save only that to which they would be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of their duties, or by reason of their reckless disregard of their obligations
and duties with respect to such person; and all persons shall look solely to the
Trust Property for satisfaction of claims of any nature arising directly or
indirectly in connection with the affairs of the Trust. Section 5.1 also
provides that if any Trustee, officer, employee or agent, as such, of the Trust
is made party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability.
Section 5.2 of Article V of the Declaration of Trust provides that no
Trustee, officer, employee or agent of the Trust shall be liable to the Trust,
its Shareholders, or to any Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of Trust), except for his own bad faith, willful misfeasance, gross negligence
or reckless disregard of the duties involved in the conduct of his office.
Paragraph (a) of Article VI of the By-Laws indemnifies Trustees or
officers of the Trust against losses sustained in a legal action by virtue of
such person's position with the Trust. Such person must have been acting in good
faith and in a manner which the person reasonably believed to be in, or not
opposed to, the best interests of the Trust, and in the case of a criminal
proceeding, not unlawful.
<PAGE>
The provisions of paragraph (a) do not cover losses sustained in actions
brought by or on behalf of the Trust. The provisions of paragraph (b) are
similar to those of paragraph (a) but cover losses sustained in actions brought
by or in the right of the Trust itself. The required standard of conduct is the
same, except that no indemnification may be made if the indemnitee is adjudged
liable of negligence or misconduct unless a court determines the indemnitee is
entitled to indemnification.
Paragraph (c) of Article VI allows a Trustee or officer to be indemnified
against expenses actually and reasonably incurred without a determination as to
the standard of conduct required in paragraphs (a) and (b) if the indemnitee is
successful on the merits of an action. Paragraph (d) provides that if such a
determination is necessary, it must be made either by a majority vote of
Trustees who were disinterested and not parties to the action or by independent
legal counsel.
Paragraph (e) of Article VI provides that expenses in defending an action
may be paid in advance if the prospective indemnitee undertakes to repay the
expenses if he or she is not found to be entitled to indemnification. A majority
of disinterested, non-party Trustees or independent legal counsel must determine
that there is reason to believe that the prospective indemnitee ultimately will
be found entitled to indemnification before such payment may be made.
Paragraph (f) of Article VI provides that agents and employees of the
Trust who are not Trustees or officers may be indemnified under the
above-mentioned standards at the discretion of the Board.
Paragraph (g) of Article VI provides that indemnification pursuant to that
Article is not exclusive of other rights, continues as to a person who has
ceased to be a Trustee or officer and inures to heirs, executors and
administrators of such a Person.
Paragraph (h) of Article VI provides that "nothing in the Declaration or
in these By-Laws shall be deemed to protect any Trustee or officer of the Trust
against any liability to the Trust or to its Shareholders to which such Person
would otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Person's office."
Paragraph (i) of Article VI provides that the Trust may purchase insurance
for any persons against liability but that "insurance will not be purchased or
maintained by the Trust if the purchase or maintenance of such insurance would
result in the indemnification of any Person in contravention of any rule or
regulation and/or interpretation of the Securities and Exchange Commission."
Paragraph 9 of the Investment Advisory and Administrative Services
Agreement dated December 28, 1990, provides that except as may be determined by
applicable legal standards, Yorktown Management & Research Company, Inc.
("Adviser") shall have no liability to the Trust, or its shareholders or
creditors, for any error in business judgment, or for any loss arising out of
any investment, or for any other act or omission in performance of its
obligations to the Trust pursuant to the Agreement except (1) for actions and
omissions constituting violations of the Investment Company Act of 1940 ("1940
Act"), the Securities Act of 1933 ("1933 Act") or other federal securities laws,
<PAGE>
(2) in circumstances where the Adviser has failed to conform to reasonable
business standards, and (3) by reason of its willful misfeasance, bad faith or
reckless disregard of its duties and obligations.
Paragraph 9 of the Investment Advisory and Administrative Services
Agreements dated October 1, 1992 and May 31, 1997, respectively, provides that
the Adviser not be liable for any error of judgment or mistake of law, for any
loss arising out of any investment, or in any event whatsoever, provided that
nothing herein shall be deemed to protect, or purport to protect, the Adviser
against any liability to the trust or to the security holders of the Trust to
which it would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties hereunder, or by reason of
reckless disregard of its obligations and duties hereunder. No provision of this
Agreement shall be construed to protect any Trustee or officer of the Trust, or
Investors, from liability in violation of Section 17(h), 17(i), or 36(b) of the
1940 Act.
Paragraph 15 of the Distribution Agreements dated December 28, 1990,
October 1, 1992 and May 31, 1997, respectively, provides that Yorktown
Distributors, Inc. shall not incur liability to the Trust or any third party and
shall be indemnified and held harmless by the Trust from and against all taxes
(except for such taxes as may be assessed against it in its corporate capacity
arising out of its compensation hereunder), charges, expenses, assessments,
losses, claims and liabilities (including counsel fees) incurred or assessed
against it in connection with the good faith performance of this Agreement,
except as such may arise from (a) its own willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or (b) expenses incurred
pursuant to this Agreement.
Registrant undertakes to carry out all indemnification provisions of its
Declaration of Trust, By-Laws, and the above-described contracts in accordance
with the Investment Company Act Release No. 11330 (September 4, 1980) and
successor releases.
Insofar as indemnification for liability arising under the 1933 Act, as
amended, may be provided to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information regarding the officers and directors of the Trust's Adviser,
Yorktown Management & Research Company, Inc. is included in its Form ADV filed
<PAGE>
on March 24, 1998 with the Securities and Exchange Commission (registration
number 801-23441) and is incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
Yorktown Distributors, Inc. is the distributor of the Trust's shares
and does not act as a principal underwriter, depositor or investment adviser
for any other investment company at this time. The information set forth
below is furnished for those directors or officers of Yorktown Distributors,
Inc. who also serve as trustees or officers of the Trust.
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
---------------- ------------ ----------
<S> <C> <C>
David D. Basten Director and President Trustee and President
2303 Yorktown Avenue
Lynchburg, VA 24501
Louis B. Basten III Director and Secretary/Treasurer Trustee and Secretary/Treasurer
2303 Yorktown Avenue
Lynchburg, VA 24501
Charles D. Foster Chief Financial Officer Chief Financial Officer
2303 Yorktown Avenue
Lynchburg, VA 24501
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
With the exceptions noted below, Yorktown Management & Research Company,
Inc. (2303 Yorktown Avenue, Lynchburg, Virginia 24501) maintains the books,
accounts and records required to be maintained pursuant to Section 31(a) of the
Investment Company Act of 1940 ("1940 Act") and the rules promulgated
thereunder.
Yorktown Distributors, Inc. (2303 Yorktown Avenue, Lynchburg, Virginia
24501) maintains the books, accounts and records required to be maintained
pursuant to Rule 31(a)-1(d) under the 1940 Act.
State Street Bank & Trust Co., (Two Heritage Drive, North Quincy,
Massachusetts 02171) maintains the books, records and accounts required to be
maintained pursuant to Rule 31a-1(b)(2)(iv) under the 1940 Act.
ITEM 29. MANAGEMENT SERVICES
None
ITEM 30. UNDERTAKINGS
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, American Pension Investors
Trust, certifies that this Post-Effective Amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Lynchburg,
and Commonwealth of Virginia on the 23rd day of September, 1998.
AMERICAN PENSION INVESTORS TRUST
By: /s/ David D. Basten
-----------------------------
David D. Basten, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ David D. Basten Trustee and President September 23, 1998
- ------------------------------------ (Principal Executive
David D. Basten Officer)
/S/ Louis B. Basten III Trustee September 23, 1998
- ------------------------------------
Louis B. Basten III
/S/ Mark A. Borel Trustee September 23, 1998
- ---------------------------
Mark A. Borel
/S/ Stephen B. Cox Trustee September 23, 1998
- ------------------------------------
Stephen B. Cox
/S/ G. Edgar Dawson Trustee September 23, 1998
- ------------------------------------
G. Edgar Dawson
/S/ Wayne C. Johnson Trustee September 23, 1998
- ------------------------------------
Wayne C. Johnson
/S/ Charles D. Foster Chief Financial Officer September 23, 1998
- ------------------------------------
Charles D. Foster
</TABLE>
<PAGE>
AMERICAN PENSION INVESTORS TRUST
EXHIBIT INDEX
Exhibit
NUMBER
(1) (a) Declaration of Trust 1/
(b) Amendment to the Declaration of Trust 2/
(2) (a) By-Laws of the Trust 1/
(b) Amendment dated September 16, 1988 to the By-Laws of the
Trust 1/
(3) Instrument defining the rights of holders of the Registrant's shares of
beneficial interest 1/
(4) (a) Investment Advisory and Administrative Services
Agreement for Growth Fund and Capital Income Fund 1/
(b) Investment Advisory and Administrative Services
Agreement for Yorktown Classic Value Trust and Yorktown
Value Income Trust 1/
(c) Investment Advisory and Administrative Services
Agreement for Multiple Index Trust and Treasuries Trust 3/
(5) (a) Distribution Agreement for Growth Fund and Capital Income Fund 1/
(b) Distribution Agreement for Yorktown Classic Value Trust
and Yorktown Value Income Trust 1/
(c) Distribution Agreement for Multiple Index Trust and
Treasuries Trust 3/
(6) Bonus, Profit Sharing, Pension or Other Similar Contracts -
Not Applicable
(7) (a) Custodian Agreement for Growth Fund and Capital Income Fund 1/
(b) Custodian Agreement for Yorktown Classic Value Trust ,
Multiple Index Trust and Treasuries Trust 1/
(8) (a) Transfer and Dividend Disbursing Agency Agreement
(b) Transfer Agency and Service Agreement (filed herewith)
(9) (a) Opinion and Consent of Counsel 1/
(b) Opinion and Consent of Counsel regarding Yorktown
Classic Value Trust and Yorktown Value Income Trust 1/
(10) Consent of Independent Accountants (filed herewith)
(11) Financial Statements Omitted from Item 23 - Not Applicable
(12) Initial Capitalization Agreements 1/
(13) (a) Rule 12b-1 Plan for Growth Fund and Capital Income Fund 1/
(b) Rule 12b-1 Plan for Yorktown Classic Value Trust and
Yorktown Value Income Trust 1/1
(c) Form of Subdistribution Agreement 1/
(14) Financial Data Schedules (filed herewith)
(15) Rule 18f-3 Plan - Not Applicable
- --------------
1/ Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, filed on September 30, 1996.
<PAGE>
2/ Incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A, filed on April 16, 1997.
3/ Incorporated by reference to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A, filed on January 5, 1998.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> APIT GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 63,849,323
<INVESTMENTS-AT-VALUE> 77,024,702
<RECEIVABLES> 0
<ASSETS-OTHER> 75,085
<OTHER-ITEMS-ASSETS> 251,168
<TOTAL-ASSETS> 77,350,955
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,805
<TOTAL-LIABILITIES> 177,805
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,557,485
<SHARES-COMMON-STOCK> 5,460,742
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,440,286
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,175,379
<NET-ASSETS> 77,173,150
<DIVIDEND-INCOME> 1,115,925
<INTEREST-INCOME> 40,337
<OTHER-INCOME> 0
<EXPENSES-NET> 1,613,171
<NET-INVESTMENT-INCOME> (456,909)
<REALIZED-GAINS-CURRENT> 8,913,483
<APPREC-INCREASE-CURRENT> 3,926,788
<NET-CHANGE-FROM-OPS> 12,383,362
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7,875,892
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 555,387
<NUMBER-OF-SHARES-REDEEMED> 810,738
<SHARES-REINVESTED> 594,591
<NET-CHANGE-IN-ASSETS> 8,456,126
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 741,672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,874,366
<AVERAGE-NET-ASSETS> 73,850,935
<PER-SHARE-NAV-BEGIN> 13.42
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 2.36
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.57
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.13
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> APIT CAPITAL INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 9,472,947
<INVESTMENTS-AT-VALUE> 11,457,403
<RECEIVABLES> 0
<ASSETS-OTHER> 10,901
<OTHER-ITEMS-ASSETS> 142,721
<TOTAL-ASSETS> 11,611,025
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,969
<TOTAL-LIABILITIES> 18,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,864,216
<SHARES-COMMON-STOCK> 504,806
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 743,384
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,984,456
<NET-ASSETS> 11,592,056
<DIVIDEND-INCOME> 210,804
<INTEREST-INCOME> 9,646
<OTHER-INCOME> 0
<EXPENSES-NET> 142,750
<NET-INVESTMENT-INCOME> 77,700
<REALIZED-GAINS-CURRENT> 1,182,203
<APPREC-INCREASE-CURRENT> 867,042
<NET-CHANGE-FROM-OPS> 2,126,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 137,628
<DISTRIBUTIONS-OF-GAINS> 619,051
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 123,986
<NUMBER-OF-SHARES-REDEEMED> 60,388
<SHARES-REINVESTED> 34,684
<NET-CHANGE-IN-ASSETS> 3,494,242
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,321
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 201,071
<AVERAGE-NET-ASSETS> 9,721,348
<PER-SHARE-NAV-BEGIN> 19.92
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 4.64
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> 1.46
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.96
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> APIT YORKTOWN CLASSIC VALUE TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 14,091,892
<INVESTMENTS-AT-VALUE> 16,853,201
<RECEIVABLES> 0
<ASSETS-OTHER> 53,399
<OTHER-ITEMS-ASSETS> 46,886
<TOTAL-ASSETS> 16,953,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,289,917
<TOTAL-LIABILITIES> 3,289,917
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,794,875
<SHARES-COMMON-STOCK> 916,722
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,107,385
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,761,309
<NET-ASSETS> 13,663,569
<DIVIDEND-INCOME> 336,154
<INTEREST-INCOME> 1,830
<OTHER-INCOME> 0
<EXPENSES-NET> 766,093
<NET-INVESTMENT-INCOME> (428,109)
<REALIZED-GAINS-CURRENT> 2,342,121
<APPREC-INCREASE-CURRENT> (262,014)
<NET-CHANGE-FROM-OPS> 1,651,998
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 977,103
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174,926
<NUMBER-OF-SHARES-REDEEMED> 247,792
<SHARES-REINVESTED> 71,927
<NET-CHANGE-IN-ASSETS> 603,681
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 125,827
<INTEREST-EXPENSE> 413,693
<GROSS-EXPENSE> 787,064
<AVERAGE-NET-ASSETS> 13,886,754
<PER-SHARE-NAV-BEGIN> 14.23
<PER-SHARE-NII> (.47)
<PER-SHARE-GAIN-APPREC> 2.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.90
<EXPENSE-RATIO> 5.52
<AVG-DEBT-OUTSTANDING> 5,796,073
<AVG-DEBT-PER-SHARE> 6.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> APIT TREASURIES TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-02-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 3,689,866
<INVESTMENTS-AT-VALUE> 3,735,162
<RECEIVABLES> 28,075
<ASSETS-OTHER> 36,923
<OTHER-ITEMS-ASSETS> 77,171
<TOTAL-ASSETS> 3,849,226
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,392
<TOTAL-LIABILITIES> 5,392
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,746,129
<SHARES-COMMON-STOCK> 361,475
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 51,335
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,074
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,296
<NET-ASSETS> 3,843,834
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 110,774
<OTHER-INCOME> 0
<EXPENSES-NET> 13,980
<NET-INVESTMENT-INCOME> 96,794
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 45,296
<NET-CHANGE-FROM-OPS> 143,164
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45,459
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 396,805
<NUMBER-OF-SHARES-REDEEMED> 39,664
<SHARES-REINVESTED> 4,334
<NET-CHANGE-IN-ASSETS> 3,843,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,581
<AVERAGE-NET-ASSETS> 1,655,691
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.63
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> APIT MULTIPLE INDEX TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-02-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 2,786,724
<INVESTMENTS-AT-VALUE> 2,938,021
<RECEIVABLES> 0
<ASSETS-OTHER> 64,037
<OTHER-ITEMS-ASSETS> 82,976
<TOTAL-ASSETS> 3,085,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,853
<TOTAL-LIABILITIES> 4,853
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,863,141
<SHARES-COMMON-STOCK> 278,887
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,743
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 151,297
<NET-ASSETS> 3,080,181
<DIVIDEND-INCOME> 17,870
<INTEREST-INCOME> 1,644
<OTHER-INCOME> 0
<EXPENSES-NET> 12,888
<NET-INVESTMENT-INCOME> 6,626
<REALIZED-GAINS-CURRENT> 88,423
<APPREC-INCREASE-CURRENT> 151,297
<NET-CHANGE-FROM-OPS> 246,346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,626
<DISTRIBUTIONS-OF-GAINS> 22,680
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 296,136
<NUMBER-OF-SHARES-REDEEMED> 20,001
<SHARES-REINVESTED> 2,752
<NET-CHANGE-IN-ASSETS> 3,080,181
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,631
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49,944
<AVERAGE-NET-ASSETS> 1,815,729
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> .12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit 8(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
AMERICAN PENSION INVESTORS TRUST
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
PAGE
1. Terms of Appointment; Duties of the Bank.............................1
2. Fees and Expenses....................................................4
3. Representations and Warranties of the Bank...........................4
4. Representations and Warranties of the Fund...........................5
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code......................................................5
6. Data Access and Proprietary Information..............................7
7. Indemnification......................................................8
8. Standard of Care.....................................................10
9. Year 2000............................................................10
10. Confidentiality......................................................10
11. Covenants of the Fund and the Bank...................................11
12. Termination of Agreement.............................................11
13. Additional Funds.....................................................12
14. Assignment...........................................................12
15. Amendment............................................................13
16. Massachusetts Law to Apply...........................................13
17. Force Majeure........................................................13
18. Consequential Damages................................................13
19. Merger of Agreement..................................................13
20. Limitations of Liability of the Trustees and Shareholders............14
21. Counterparts.........................................................14
22. Reproduction of Documents............................................14
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1998, by and between AMERICAN PENSION
INVESTORS TRUST, a Massachusetts business trust, having its principal office and
place of business at 2303 Yorktown Avenue, Lynchburg, Virginia 24501 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund intends to initially offer shares in five (5) series, such
series shall be named in the attached Schedule A which may be amended by the
parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 13, being herein referred to as a "Portfolio", and
collectively as the "Portfolios"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its beneficial interest, ("Shares"),
dividend disbursing agent, custodian of certain retirement plans and agent
in connection with any accumulation, open-account or similar plans
provided to the shareholders of each of the respective Portfolios of the
Fund ("Shareholders") and set out in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
1
<PAGE>
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Declaration of Trust of the Fund (the "Custodian");
(ii) pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) in respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund;
(v) at the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(vi) effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii)issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total
number of shares of the Fund which are authorized, based
upon data provided to it by the Fund, and issued and
outstanding. The Bank shall also provide the Fund on a
regular basis with the total number of shares which are
authorized and issued and outstanding. The Bank shall have
no obligation, however, when recording the issuance of
shares, to monitor the issuance of such shares or to take
cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole
responsibility of the Fund.
2
<PAGE>
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic
investment plan or periodic withdrawal program), including but
not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing Shareholder proxies,
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information
and (ii) provide a system which will enable the Fund to monitor
the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue
sky reporting for each State and (ii) verify the establishment
of transactions for each State on the system prior to activation
and thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by
the Fund and the reporting of such transactions to the Fund as
provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only
a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
3
<PAGE>
(e) The Bank shall provide additional services on behalf of the Fund
(e.g., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. FEES AND EXPENSES
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank the fees as set
out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.2 below may
be changed from time to time subject to mutual written agreement between
the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, as set out in the initial fee schedule attached hereto.
The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced
to the Bank by the Fund at least seven (7) days prior to the mailing date
of such materials.
3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4
<PAGE>
3.6 It is registered with the appropriate Federal agency for the registration
of transfer agents, and it will remain so registered for the duration of
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
5. WIRE TRANSFER OPERATING GUIDELINES/ARTICLES 4A OF THE UNIFORM COMMERCIAL
CODE
5.1 The Bank is authorized to promptly debit the appropriate Fund account(s)
upon the receipt of a payment order in compliance with the selected
security procedure (the "Security Procedure") chosen for funds transfer
and in the amount of money that the Bank has been instructed to transfer.
The Bank shall execute payment orders in compliance with the Security
Procedure and with the Fund instructions on the execution date provided
that such payment order is received by the customary deadline for
processing such a request, unless the payment order specifies a later
time. All payment orders and communications received after this the
customary deadline will be deemed to have been received the next business
day.
5.2 The Fund acknowledges that the Security Procedure it has designated on the
Fund Selection Form was selected by the Fund from security procedures
offered by the Bank. The Fund shall restrict access to confidential
information relating to the Security Procedure to authorized persons as
5
<PAGE>
communicated to the Bank in writing. The Fund must notify the Bank
immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Fund's
authorized personnel. The Bank shall verify the authenticity of all Fund
instructions according to the Security Procedure.
5.3 The Bank shall process all payment orders on the basis of the account
number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number,
the account number shall take precedence and govern.
5.4 The Bank reserves the right to decline to process or delay the processing
of a payment order which (a) is in excess of the collected balance in the
account to be charged at the time of the Bank's receipt of such payment
order; (b) if initiating such payment order would cause the Bank, in the
Bank's sole judgement, to exceed any volume, aggregate dollar, network,
time, credit or similar limits which are applicable to the Bank; or (c) if
the Bank, in good faith, is unable to satisfy itself that the transaction
has been properly authorized.
5.5 The Bank shall use reasonable efforts to act on all authorized requests to
cancel or amend payment orders received in compliance with the Security
Procedure provided that such requests are received in a timely manner
affording the Bank reasonable opportunity to act. However, the Bank
assumes no liability if the request for amendment or cancellation cannot
be satisfied.
5.6 The Bank shall assume no responsibility for failure to detect any
erroneous payment order provided that the Bank complies with the payment
order instructions as received and the Bank complies with the Security
Procedure. The Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
5.7 The Bank shall assume no responsibility for lost interest with respect to
the refundable amount of any unauthorized payment order, unless the Bank
is notified of the unauthorized payment order within thirty (30) days of
notification by the Bank of the acceptance of such payment order. In no
event (including failure to execute a payment order) shall the Bank be
liable for special, indirect or consequential damages, even if advised of
the possibility of such damages.
5.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Bank will act as an Originating Depository Financial
Institution and/or receiving depository Financial Institution, as the case
may be, with respect to such entries. Credits given by the Bank with
respect to an ACH credit entry are provisional until the Bank receives
final settlement for such entry from the Federal Reserve Bank. If the Bank
6
<PAGE>
does not receive such final settlement, the Fund agrees that the Bank
shall receive a refund of the amount credited to the Fund in connection
with such entry, and the party making payment to the Fund via such entry
shall not be deemed to have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within twenty four (24) hours notice of which may be delivered
through the Bank's proprietary information systems, or by facsimile or
call-back. Fund must report any objections to the execution of an order
within thirty (30) days.
6. DATA ACCESS AND PROPRIETARY INFORMATION
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
7
<PAGE>
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.1 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.2 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely
on the validity and authenticity of such instruction without undertaking
any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to
time.
7. INDEMNIFICATION
7.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct;
8
<PAGE>
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of
the Fund hereunder;
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have
been prepared, maintained or performed by the Fund or any other
person or firm on behalf of the Fund including but not limited to
any previous transfer agent or registrar;
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio;
(e) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other determination
or ruling by any federal or any state agency with respect to the
offer or sale of such Shares; and
(f) upon the Fund's request entering into any agreements required by the
National Securities Clearing Corporation (the "NSCC") required by
the NSCC for the transmission of Fund or Shareholder data through
the NSCC clearing systems.
7.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall
not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in acting
upon any paper or document, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or
co-registrar.
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<PAGE>
7.3 In order that the indemnification provisions contained in this Section 7
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
8. STANDARD OF CARE
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
9. YEAR 2000
The Bank will take reasonable steps to ensure that its products (and those
of its third-party suppliers) reflect the available technology to offer
products that are Year 2000 ready, including, but not limited to, century
recognition of dates, calculations that correctly compute same century and
multi century formulas and date values, and interface values that reflect
the date issues arising between now and the next one-hundred years, and if
any changes are required, the Bank will make the changes to its products
at a price to be agreed upon by the parties and in a commercially
reasonable time frame and will require third-party suppliers to do
likewise.
10. CONFIDENTIALITY
10.1 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
10
<PAGE>
10.2 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
11. COVENANTS OF THE FUND AND THE BANK
11.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
11.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such certificates,
forms and devices.
11.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Fund Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with its
request.
12. TERMINATION OF AGREEMENT
12.1 The initial term of the Agreement shall be for a period of two (2) years
(the "Initial Term"). Thereafter the Agreement shall renew automatically
for successive one year terms annually ("Renewal Term").
12.2 After the Initial Term, this Agreement may be terminated by either party
upon one hundred twenty (120) days written notice to the other. During
11
<PAGE>
either the Initial Term or any Renewal Term, this Agreement may also be
terminated at an earlier date by either the Fund or the Bank for cause.
With respect to the Fund, cause shall mean the Bank's material breach of
this Agreement causing it to fail to substantially perform its duties
under this Agreement. In order for such material breach to constitute
"cause" under this Section, the Bank must receive written notice from the
Fund specifying the material breach and the Bank shall not have corrected
such breach within a 30-day period. With respect to the Bank cause
includes, but is not limited to, the failure of the Fund to pay the
compensation provided for Section 2 of this Agreement after it has
received written notice from the Bank specifying the amount due and the
Fund shall not have paid that amount within a 30-day period. Any notice of
termination for cause shall be effective sixty (60) days from the date of
any such notice.
12.3 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination unless such termination results from a
breach of this Agreement by the Bank.
13. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to the attached Schedule A with respect to which it desires to
have the Bank render services as transfer agent under the terms hereof, it
shall so notify the Bank in writing, and if the Bank agrees in writing to
provide such services, such series of Shares shall become a Portfolio
hereunder.
14. ASSIGNMENT
14.1 Except as provided in Section 14.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
14.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
14.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc.,
a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly
12
<PAGE>
registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
15. AMENDMENT
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
16. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
17. FORCE MAJEURE
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
18. CONSEQUENTIAL DAMAGES
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
19. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
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<PAGE>
20. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
The Trustees of the Fund and the Shareholders of the Fund individually
shall not be liable for any obligations of the Fund under this Agreement,
and the Bank agrees that, in asserting any rights or claims under this
Agreement, it shall only look to the assets of and property of the Fund or
the applicable Portfolio in settlement of such right or claim, and not to
such Trustees or Shareholders.
21. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
22. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction shall likewise
be admissible in evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
AMERICAN PENSION INVESTORS TRUST
BY: /s/ David D. Basten
----------------------------------
President
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<PAGE>
ATTEST:
/s/ Charles D. Foster
- -------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald Logue
--------------------------------------
Executive Vice President
ATTEST:
/s/ Steve Cesso
- -------------------------------
15
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
SERVICE PERFORMED RESPONSIBILITY
BANK FUND
<S> <C> <C>
1. Receives orders for the purchase of Shares. X
2. Issue Shares and hold Shares in Shareholders accounts. X
3. Receive redemption requests. X
4. Effect transactions 1-3 above directly with broker-dealers. X
5. Pay over monies to redeeming Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends and distributions. X
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X X
10. Maintain records of account. X
11. Maintain and keep a current and accurate control book for each issue X
of securities.
12. Mail proxies. X X
13. Mail Shareholder reports. X X
14. Mail prospectuses to current Shareholders. X X
15. Withhold taxes on U.S. resident and non-resident alien accounts. X
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation statements for Shareholders. X
18. Provide Shareholder account information. X
19. Blue sky reporting. X
</TABLE>
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the
Agreement.
<PAGE>
AMERICAN PENSION INVESTORS TRUST
BY: /s/ David D. Basten
----------------------------------
President
ATTEST:
/s/ Charles D. Foster
- -------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald Logue
--------------------------------------
Executive Vice President
ATTEST:
/s/ Steve Cesso
- -------------------------------
<PAGE>
SCHEDULE A
American Pension Investors Trust Growth Fund
American Pension Investors Trust Multiple Index Trust
American Pension Investors Trust Capital Income Fund
American Pension Investors Trust Treasuries Trust
Yorktown Classic Value Trust
Exhibit 10
PricewaterhouseCoopers LLP
250 West Pratt Street
Baltimore, MD 21201-2304
Telephone (410) 783-7600
Facsimile (410) 783-7680
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment
No. 29 to the Registration Statement of American Pension Investors Trust's
Growth Fund, Capital Income Fund, Multiple Index Trust, Treasuries Trust and
Yorktown Classic Value Trust (the "Funds") on Form N-1A (File Number 2-96538) of
our reports dated June 12, 1998, on our audit of the financial statements and
financial highlights of the Funds, which reports are included in the Annual
Report to Shareholders for the year ended May 31, 1998, which is incorporated by
reference in the Registration Statement. We also consent to the reference of our
firm under the caption "Financial Highlights" in the Prospectus and "Independent
Accountants" in the Statement of Additional information.
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
Baltimore, Maryland
September 28, 1998
