STATEMENT OF ADDITIONAL INFORMATION
THE
GOVERNMENT STREET
FUNDS
The Government Street Equity Fund
The Government Street Bond Fund
August 1, 1997
Revised December 17, 1997
Series of
WILLIAMSBURG INVESTMENT TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Telephone 1-800-443-4249
Table of Contents
INVESTMENT OBJECTIVES AND POLICIES......................................... 2
DESCRIPTION OF BOND RATINGS................................................ 5
INVESTMENT LIMITATIONS..................................................... 7
TRUSTEES AND OFFICERS...................................................... 9
INVESTMENT ADVISOR......................................................... 13
ADMINISTRATOR.............................................................. 15
OTHER SERVICES............................................................. 15
BROKERAGE.................................................................. 16
SPECIAL SHAREHOLDER SERVICES............................................... 17
PURCHASE OF SHARES......................................................... 19
REDEMPTION OF SHARES....................................................... 20
NET ASSET VALUE DETERMINATION.............................................. 20
ALLOCATION OF TRUST EXPENSES............................................... 20
ADDITIONAL TAX INFORMATION................................................. 21
CAPITAL SHARES AND VOTING.................................................. 22
CALCULATION OF PERFORMANCE DATA............................................ 23
FINANCIAL STATEMENTS AND REPORTS........................................... 26
This Statement of Additional Information is not a prospectus and should only be
read in conjunction with the Prospectus of both The Government Street Equity
Fund and The Government Street Bond Fund (the "Funds") dated August 1, 1997. The
Prospectus may be obtained from the Funds, at the address and phone number shown
above, at no charge.
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INVESTMENT OBJECTIVES AND POLICIES
All information contained herein applies to both The Government Street Equity
Fund (the "Equity Fund") and The Government Street Bond Fund (the "Bond Fund")
unless otherwise noted.
The investment objectives and policies of the Funds are described in the
Prospectus. Supplemental information about these policies is set forth below.
Certain capitalized terms used herein are defined in the Prospectus.
Foreign Securities. Because of the inherent risk of foreign securities over
domestic issues, the Funds will not invest in foreign investments except those
traded domestically as American Depository Receipts (ADRs). The Funds may invest
in foreign securities if the Advisor believes such investment would be
consistent with the Funds' investment objectives. The same factors would be
considered in selecting foreign securities as with domestic securities, as
discussed in the Prospectus. Foreign securities investment presents special
considerations not typically associated with investments in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuation in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information, and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial or social instability or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the U.S. securities laws against such issuers. Favorable
or unfavorable differences between U.S. and foreign economies could affect
foreign securities values. The U.S. Government has, in the past, discouraged
certain foreign investments by U.S. investors through taxation or other
restrictions and it is possible that such restrictions could be imposed again.
Securities of Unseasoned Companies. The securities of unseasoned companies
(those in business less than three years, including predecessors and, in the
case of bonds, guarantors) may have a limited trading market, which may
adversely affect disposition. If other investors attempt to dispose of such
holdings when the Funds desire to do so, the Funds could receive lower prices
than might otherwise be obtained. Because of the increased risk over larger,
better known companies, each Fund limits its investments in the securities of
unseasoned issuers to no more than 5% of its total assets.
Shares of Other Investment Companies. The Equity Fund may invest up to 5% of its
net assets in shares of other investment companies, including Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs are exchange-traded securities that
represent ownership in the SPDR Trust,
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a long-term unit investment trust which has been established to accumulate and
hold a portfolio of common stocks that is intended to track the price
performance and dividend yield of the Standard & Poor's Composite Stock Price
Index. Holders of SPDRs are entitled to receive proportionate quarterly
distributions corresponding to the dividends which accrue on the S&P 500 stocks
in the underlying portfolio, less accumulated expenses of the SPDR Trust. The
sponsor of the SPDR Trust is PDR Services Corporation, a wholly-owned subsidiary
of the American Stock Exchange, Inc., and the trustee for SPDRs is State Street
Bank and Trust Company of Boston. SPDRs are unlike traditional mutual funds in
that they are available for purchase or sale during the trading day like a share
of stock, rather than at closing net asset value per share. This characteristic
of SPDRs is a risk separate and distinct from the risk that its net asset value
will decrease.
To the extent the Equity Fund invests in securities of other investment
companies, Fund shareholders would indirectly pay a portion of the operating
costs of such companies. These costs include management, brokerage, shareholder
servicing and other operational expenses. Indirectly, then, shareholders may pay
higher operational costs than if they owned the underlying investment companies
directly.
Repurchase Agreements. The Funds may acquire U.S. Government Securities subject
to repurchase agreements. A repurchase transaction occurs when, at the time a
Fund purchases a security (normally a U.S. Treasury obligation), it also resells
it to the vendor (normally a member bank of the Federal Reserve System or a
registered Government Securities dealer) and must deliver the security (and/or
securities substituted for them under the repurchase agreement) to the vendor on
an agreed upon date in the future. Such securities, including any securities so
substituted, are referred to as the "Repurchase Securities." The repurchase
price exceeds the purchase price by an amount which reflects an agreed upon
market interest rate effective for the period of time during which the
repurchase agreement is in effect.
The majority of these transactions run day to day and the delivery pursuant to
the resale typically will occur within one to five days of the purchase. The
Funds' risk is limited to the ability of the vendor to pay the agreed upon sum
upon the delivery date; in the event of bankruptcy or other default by the
vendor, there may be possible delays and expenses in liquidating the instrument
purchased, decline in its value and loss of interest. These risks are minimized
when the Funds hold a perfected security interest in the Repurchase Securities
and can therefore sell the instrument promptly. Under guidelines issued by the
Trustees, the Advisor will carefully consider the creditworthiness during the
term of the repurchase agreement. Repurchase agreements are considered as loans
collateralized by the Repurchase Securities, such agreements being defined as
"loans" under the Investment Company Act of 1940 (the "1940 Act"). The return on
such "collateral" may be more or less than that from the repurchase agreement.
The market value of the resold securities will be
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monitored so that the value of the "collateral" is at all times as least equal
to the value of the loan, including the accrued interest earned thereon. All
Repurchase Securities will be held by the Funds' custodian either directly or
through a securities depository.
Description of Money Market Instruments. Money market instruments may include
U.S. Government Securities or corporate debt obligations (including those
subject to repurchase agreements) as described herein, provided that they mature
in thirteen months or less from the date of acquisition and are otherwise
eligible for purchase by the Funds. Money market instruments also may include
Bankers' Acceptances and Certificates of Deposit of domestic branches of U.S.
banks, Commercial Paper and Variable Amount Demand Master Notes ("Master
Notes"). Bankers' Acceptances are time drafts drawn on and "accepted" by a bank,
are the customary means of effecting payment for merchandise sold in
import-export transactions and are a source of financing used extensively in
international trade. When a bank "accepts" such a time draft, it assumes
liability for its payment. When the Funds acquire a Bankers' Acceptance, the
bank which "accepted" the time draft is liable for payment of interest and
principal when due. The Bankers' Acceptance, therefore, carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest- bearing debt obligation of a bank. CDs acquired by the Funds would
generally be in amounts of $100,000 or more. Commercial Paper is an unsecured,
short term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Funds will
invest in Commercial Paper only if it is rated in the highest rating category by
any nationally recognized statistical rating organization ("NRSRO") or, if not
rated, the issuer must have an outstanding unsecured debt issue rated in the
three highest categories by any NRSRO or, if not so rated, be of equivalent
quality in the Advisor's assessment. Commercial Paper may include Master Notes
of the same quality. Master Notes are unsecured obligations which are redeemable
upon demand of the holder and which permit the investment of fluctuating amounts
at varying rates of interest. Master Notes are acquired by the Funds only
through the Master Note program of the Funds' custodian, acting as administrator
thereof. The Advisor will monitor, on a continuous basis, the earnings power,
cash flow and other liquidity ratios of the issuer of a Master Note held by the
Funds.
Forward Commitment and When-Issued Securities. The Bond Fund may purchase
securities on a when-issued basis or for settlement at a future date if the Fund
holds sufficient assets to meet the purchase price. In such purchase
transactions the Fund will not accrue interest on the purchased security until
the actual settlement. Similarly, if a security is sold for a forward date, the
Bond Fund will accrue the interest until the settlement of the sale. When-
issued security purchases and forward commitments have a higher degree of risk
of price movement before settlement due to the extended time period between the
execution and settlement of the purchase or sale.
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As a result, the exposure to the counterparty of the purchase or sale is
increased. Although the Bond Fund would generally purchase securities on a
forward commitment or when-issued basis with the intention of taking delivery,
the Fund may sell such a security prior to the settlement date if the Advisor
felt such action was appropriate. In such a case the Fund could incur a
short-term gain or loss.
DESCRIPTION OF BOND RATINGS
The various ratings used by the NRSROs are described below. A rating by an NRSRO
represents the organization's opinion as to the credit quality of the security
being traded. However, the ratings are general and are not absolute standards of
quality or guarantees as to the creditworthiness of an issuer. Consequently, the
Advisor believes that the quality of fixed-income securities in which the Bond
Fund may invest should be continuously reviewed and that individual analysts
give different weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one NRSRO, each
rating is evaluated independently. Ratings are based on current information
furnished by the issuer or obtained by the NRSROs from other sources that they
consider reliable. Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other reasons.
Description of Moody's Investors Service, Inc.'s Bond Ratings:
Aaa: Bonds rated Aaa are judged to be of the best quality. These bonds
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large in Aa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements that make the long term
risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to
be considered upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present that
suggest a susceptibility to impairment sometime in the future.
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Baa: Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers (1,2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
Description of Standard & Poor's Ratings Group's Bond Ratings:
AAA: This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA: Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Description of Fitch Investors Service Inc.'s Bond Ratings:
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA.
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A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category.
Description of Duff & Phelps' Credit Rating Co.'s Bond Ratings:
AAA: This is the highest rating credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA: Bonds rated AA are considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time
to time because of economic conditions.
A: Bonds rated A have average protection factors. However risk
factors are more variable and greater in periods of economic stress.
BBB: Bonds rated BBB have below average protection factors, but are
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
INVESTMENT LIMITATIONS
The Funds have adopted the following investment limitations, in addition to
those described in the Prospectus, which cannot be changed without approval by
holders of a majority of the outstanding voting shares of the Funds. A
"majority" for this purpose, means the lesser of (i) 67% of a Fund's outstanding
shares represented in person or by proxy at a meeting at which more than 50% of
its outstanding shares are represented, or (ii) more than 50% of its outstanding
shares.
Under these limitations, each Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer;
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(2) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies and instrumentalities are not subject to these limitations);
(3) Invest in the securities of any issuer if any of the officers or trustees
of the Trust or its Advisor who own beneficially more than 1/2 of 1% of
the outstanding securities of such issuer together own more than 5% of
the outstanding securities of such issuer;
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Invest in interests in real estate, real estate mortgage loans, oil, gas
or other mineral exploration or development programs, except that the
Funds may invest in the securities of companies (other than those which
are not readily marketable) which own or deal in such things.
(6) Underwrite securities issued by others, except to the extent a Fund may
be deemed to be an underwriter under the federal securities laws in
connection with the disposition of portfolio securities;
(7) Purchase securities on margin (but the Funds may obtain such short-term
credits as may be necessary for the clearance of transactions);
(8) Make short sales of securities or maintain a short position, except short
sales "against the box." (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that
the Fund contemporaneously owns or has the right to obtain at no added
cost securities identical to those sold short);
(9) Participate on a joint or joint and several basis in any trading account
in securities;
(10) Make loans of money or securities, except that the Funds may invest in
repurchase agreements;
(11) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be
invested in such securities;
(12) Write, purchase or sell puts, calls or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts
or related options; or
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(13) Invest in restricted securities.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation. However, in the case of the
borrowing limitation (the first restriction in the Prospectus) each Fund will,
to the extent necessary, reduce its existing borrowings to comply with the
limitation.
While the Funds have reserved the right to make short sales "against the box"
(limitation number 8, above), the Advisor has no present intention of engaging
in such transactions at this time or during the coming year.
TRUSTEES AND OFFICERS
Following are the Trustees and executive officers of the Williamsburg Investment
Trust (the "Trust"), their present position with the Trust or Funds, age,
principal occupation during the past 5 years and their aggregate compensation
from the Trust for the fiscal year ended March 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Position, Principal Occupation Compensation
Age and Address During Past 5 Years From the Trust
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Austin Brockenbrough III (age 60) President and Managing None
Trustee** Director of Lowe, Brockenbrough
President & Tattersall, Inc.,
The Jamestown International Equity Richmond, Virginia;
The Jamestown Tax Exempt Director of Tredegar Industries,
Virginia Fund Inc. (plastics manufacturer) and
6620 West Broad Street, Suite 300 Wilkinson O'Grady & Co. Inc.
Richmond, Virginia 23230 (global asset manager); Trustee
of University of Richmond
John T. Bruce (age 43) Principal of None
Trustee and Chairman** Flippin, Bruce & Porter, Inc.,
Vice President Lynchburg, Virginia
FBP Contrarian Balanced Fund
FBP Contrarian Equity Fund
800 Main Street
Lynchburg, Virginia 24504
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Charles M. Caravati, Jr. (age 60) Physician $8,000
Trustee** Dermatology Associates of
5600 Grove Avenue Virginia, P.C.,
Richmond, Virginia 23226 Richmond, Virginia
J. Finley Lee (age 57) Julian Price Professor Emeritus of $8,000
Trustee Business Administration
614 Croom Court University of North Carolina,
Chapel Hill, North Carolina 27514 Chapel Hill, North Carolina;
Director of Montgomery Mutual
Insurance Co.
Richard Mitchell (age 48) Principal of None
Trustee** T. Leavell & Associates, Inc
President Mobile, Alabama
The Government Street Bond Fund
The Government Street Equity Fund
The Alabama Tax Free Bond Fund
150 Government Street
Mobile, Alabama 36602
Richard L. Morrill (age 58) President of $8,000
Trustee University of Richmond,
7000 River Road Richmond, Virginia;
Richmond, Virginia 23229 Director of Central Fidelity Banks,
Inc. and Tredegar Industries, Inc.
Harris V. Morrissette (age 37) President of $7,000
Trustee Marshall Biscuit Co. Inc.,
1500 S. Beltline Hwy. Mobile, Alabama;
Mobile, Alabama 36693 President of Azalea Aviation, Inc
(airplane fueling); Director of
Bank of Mobile
Fred T. Tattersall (age 48) Managing Director of None
Trustee** Lowe, Brockenbrough & Tattersall
President Strategic Advisors, Inc.,
The Jamestown Bond Fund Richmond, Virginia
The Jamestown Short Term
Bond Fund
6620 West Broad Street
Suite 300
Richmond, Virginia 23230
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Erwin H. Will, Jr. (age 64) Chief Investment Officer of None
Trustee Virginia Retirement System,
P.O. Box 2500 Richmond, Virginia
Richmond, Virginia 23218
Samuel B. Witt III (age 61) Senior Vice President and $6,500
Trustee General Counsel of Stateside
2300 Clarendon Blvd. Associates, Inc., Arlington,
Suite 407 Virginia; Director of The Swiss
Arlington, Virginia 22201 Helvetic Fund, Inc. (closed-end
investment company)
Charles M. Caravati III (age 31) Assistant Portfolio Manager of
Vice President Lowe, Brockenbrough & Tattersall,
The Jamestown International Inc., Richmond, Virginia
Equity Fund
6620 West Broad Street
Suite 300
Richmond, Virginia 23230
John M. Flippin (age 55) Principal of
President Flippin, Bruce & Porter, Inc.,
FBP Contrarian Balanced Fund Lynchburg, Virginia
FBP Contrarian Equity Fund
800 Main Street
Lynchburg, Virginia 24504
Timothy S. Healey (age 44) Vice President of
Vice President T. Leavell & Associates, Inc.,
The Alabama Tax Free Bond Fund Mobile, Alabama
150 Government Street
Mobile, Alabama 36602
R. Gregory Porter, III (age 56) Principal of
Vice President Flippin, Bruce & Porter, Inc.,
FBP Contrarian Balanced Fund Lynchburg, Virginia
FBP Contrarian Equity Fund
800 Main Street
Lynchburg, Virginia 24504
Mark J. Seger (age 35) Vice President of Countrywide
Treasurer Fund Services, Inc. and Countrywide
312 Walnut Street, 21st Floor Financial Services, Inc.; Treasurer,
Cincinnati, Ohio 45202 Countrywide Investment Trust,
Countrywide Tax-Free Trust
and Countrywide Strategic Trust,
Cincinnati, Ohio
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Henry C. Spalding, Jr. (age 59) Executive Vice President of
President Lowe, Brockenbrough & Tattersall,
The Jamestown Balanced Fund Inc., Richmond, Virginia
The Jamestown Equity Fund
6620 West Broad Street
Suite 300
Richmond, Virginia 23230
John F. Splain (age 40) Vice President, General Counsel and
Secretary Secretary of Countrywide Fund Services,
312 Walnut Street, 21st Floor Inc.; General Counsel and Secretary,
Cincinnati, Ohio 45202 Countrywide Investments, Inc. and
Countrywide Financial Services, Inc.;
Secretary, Countrywide Investment
Trust, Countrywide Tax-Free Trust
and Countrywide Strategic Trust,
Cincinnati, Ohio
Ernest H. Stephenson, Jr. (age 52) Vice President
Vice President Lowe, Brockenbrough & Tattersall, Inc.,
The Jamestown Balanced Fund Richmond, Virginia
The Jamestown Equity Fund
6620 West Broad St.
Suite 300
Richmond, Virginia 23230
Connie R. Taylor (age 46) Administrator
Vice President Lowe, Brockenbrough & Tattersall, Inc.,
The Jamestown Balanced Fund Richmond, Virginia
The Jamestown Equity Fund
6620 West Broad Street
Suite 300
Richmond, Virginia 23230
Craig D. Truitt (age 38) Senior Vice President
Vice President Lowe, Brockenbrough & Tattersall
The Jamestown Bond Fund Strategic Advisors, Inc.,
The Jamestown Short Term Richmond, Virginia
Bond Fund
6620 West Broad Street
Suite 300
Richmond, Virginia 23230
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Beth Ann Walk (age 38) Portfolio Manager of
Vice President Lowe, Brockenbrough & Tattersall,
The Jamestown Tax Exempt Inc., Richmond, Virginia
Virginia Fund
6620 West Broad Street
Suite 300
Richmond, Virginia 23230
</TABLE>
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**Indicates that Trustee is an Interested Person for purposes of the 1940 Act.
Charles M. Caravati, Jr. is the father of Charles M. Caravati III.
Messrs. Lee, Morrill, Morrissette, Will and Witt constitute the Trust's
Nominating Committee. Messrs. Caravati, Lee, Morrill, Morrissette, Will and Witt
constitute the Trust's Audit Committee. The Audit Committee reviews annually the
nature and cost of the professional services rendered by the Trust's independent
accountants, the results of their year-end audit and their findings and
recommendations as to accounting and financial matters, including the adequacy
of internal controls. On the basis of this review the Audit Committee makes
recommendations to the Trustees as to the appointment of independent accountants
for the following year.
Principal Holders of Voting Securities. As of July 11, 1997, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of both the Equity
Fund and the Bond Fund. On the same date, Charles Schwab & Co., Inc., 101
Montgomery Street, San Francisco, California 94104, owned of record 27.6% of the
then outstanding shares of the Equity Fund and 15.3% of the then outstanding
shares of the Bond Fund; First Alabama Bank as Trustee of the Mobile Paint
Manufacturing Co. Employee Retirement Plans, P.O. Box 2527, Mobile, Alabama
36622, owned of record 6.1% of the then outstanding shares of the Equity Fund
and 7.4% of the then outstanding shares of the Bond Fund; and the Bonnie Brewton
Company, P.O. Box 469, Brewton, Alabama 36427, owned of record 23.2% of the then
outstanding shares of the Equity Fund and 10.3% of the then outstanding shares
of the Bond Fund.
INVESTMENT ADVISOR
T. Leavell & Associates, Inc. (the "Advisor") supervises each Fund's investments
pursuant to an Investment Advisory Agreement (the "Advisory Agreement")
described in the Prospectus. The Advisory Agreement is effective until April 1,
1998 and will be renewed thereafter for one year periods only so long as such
renewal and continuance is specifically approved at least annually by the Board
of Trustees or by vote of a majority of the Funds' outstanding voting
securities, provided the continuance is also approved by a majority of the
Trustees who are not
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"interested persons" of the Trust or the Advisor by vote cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement is terminable without penalty on sixty days notice by the Board of
Trustees of the Trust or by the Advisor. The Advisory Agreement provides that it
will terminate automatically in the event of its assignment.
Compensation of the Advisor with respect to the Equity Fund, based upon the
Fund's average daily net assets, is at the following annual rates: On the first
$100 million, 0.60%; and on assets over $100 million, 0.50%. For the fiscal
years ended March 31, 1997, 1996 and 1995, the Equity Fund paid to the Advisor
advisory fees of $275,299, $221,551 and $175,295, respectively.
Compensation of the Advisor with respect to the Bond Fund, based upon the Fund's
average daily net assets, is at the following annual rates: On the first $100
million, 0.50%; and on assets over $100 million, 0.40%. For the fiscal years
ended March 31, 1997, 1996 and 1995, the Bond Fund paid the Advisor advisory
fees of $147,268, $143,643 and $129,997, respectively.
The Advisor, organized as an Alabama corporation in 1979, is con- trolled by its
shareholders, Thomas W. Leavell, Richard Mitchell, Dorothy G. Gambill, Timothy
S. Healey and John R. Miller, Jr. In addition to acting as Advisor to the Funds,
the Advisor also provides investment advice to corporations, trusts, pension and
profit sharing plans, other business and institutional accounts and individuals.
The Advisor provides a continuous investment program for the Funds, including
investment research and management with respect to all securities, investments,
cash and cash equivalents of the Funds. The Advisor determines what securities
and other investments will be purchased, retained or sold by the Funds, and does
so in accordance with the investment objectives and policies of the Funds as
described herein and in the Prospectus. The Advisor places all securities orders
for the Funds, determining with which broker, dealer, or issuer to place the
orders.
The Advisor must adhere to the brokerage policies of the Funds in placing all
orders, the substance of which policies are that the Advisor must seek at all
times the most favorable price and execution for all securities brokerage
transactions.
The Advisor also provides, at its own expense, certain Executive Officers to the
Trust, and pays the entire cost of distributing Fund shares.
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The Advisor may compensate dealers or others based on sales of shares of the
Funds to clients of such dealers or others or based on the average balance of
all accounts in the Funds for which such dealers or others are designated as the
person responsible for the account.
ADMINISTRATOR
Countrywide Fund Services, Inc. (the "Administrator") maintains the records of
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. The Administrator also provides accounting and pricing
services to the Funds and supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services. The Administrator supervises the preparation of tax
returns, reports to shareholders of the Funds, reports to and filings with the
Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Trustees.
For the performance of these administrative services, the Bond Fund pays the
Administrator a fee at the annual rate of 0.075% of the average value of its
daily net assets up to $200,000,000 and 0.05% of such assets in excess of
$200,000,000 and the Equity Fund pays the Administrator a fee at the annual rate
of 0.20% of the average value of its daily net assets up to $25,000,000, 0.175%
of such assets from $25,000,000 to $50,000,000 and 0.15% of such assets in
excess of $50,000,000; provided, however, that the minimum fee is $2,000 per
month for each Fund. In addition, the Funds pay out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts, forms,
reports, record storage and communication lines.
For the fiscal years ended March 31, 1997, 1996 and 1995, the Administrator
received fees of $86,708, $71,060 and $56,151, respectively, from the Equity
Fund and $24,000, $24,000 and $23,111, respectively, from the Bond Fund.
OTHER SERVICES
The firm of Tait, Weller & Baker, Two Penn Center Plaza, Philadelphia,
Pennsylvania 19102, has been retained by the Board of Trustees to perform an
independent audit of the books and records of the Trust, to review the Funds'
federal and state tax returns and to consult with the Trust as to matters of
accounting and federal and state income taxation.
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The Custodian of the Funds' assets is Star Bank, N.A., 425 Walnut Street,
Cincinnati, Ohio 45202. The Custodian holds all cash and securities of the Funds
(either in its possession or in its favor through "book entry systems"
authorized by the Trustees in accordance with the 1940 Act), collects all income
and effects all securities transactions on behalf of the Funds.
BROKERAGE
It is the Funds' practice to seek the best price and execution for all portfolio
securities transactions. The Advisor (subject to the general supervision of the
Board of Trustees) directs the execution of the Funds' portfolio transactions.
The Trust has adopted a policy which prohibits the Advisor from effecting Fund
portfolio transactions with broker-dealers which may be interested persons of
either Fund, the Trust, any Trustee, officer or director of the Trust or its
investment advisors or any interested person of such persons.
The Bond Fund's fixed income portfolio transactions will normally be principal
transactions executed in over-the-counter markets and will be executed on a
"net" basis, which may include a dealer markup. The Equity Fund's common stock
portfolio transactions will normally be exchange traded and will be effected
through broker-dealers who will charge brokerage commissions. With respect to
securities traded only in the over-the-counter market, orders will be executed
on a principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
For the fiscal years ended March 31, 1997, 1996 and 1995, the total amount of
brokerage commissions paid by the Equity Fund was $15,451, $21,642 and $63,251,
respectively. No brokerage commissions were paid by the Bond Fund for the last
three fiscal years.
While there is no formula, agreement or undertaking to do so, the Advisor may
allocate a portion of either Fund's brokerage commissions to persons or firms
providing the Advisor with research services, which may typically include, but
are not limited to, investment recommendations, financial, economic, political,
fundamental and technical market and interest rate data, and other statistical
or research services. Much of the information so obtained may also be used by
the Advisor for the benefit of the other clients it may have. Conversely, the
Funds may benefit from such transactions effected for the benefit of other
clients. In all cases, the Advisor is obligated to effect transactions for the
Funds based upon obtaining the most favorable price and execution. Factors
considered by the Advisor
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in determining whether the Funds will receive the most favorable price and
execution include, among other things: the size of the order, the broker's
ability to effect and settle the transaction promptly and efficiently and the
Advisor's perception of the broker's reliability, integrity and financial
condition.
As of March 31, 1997, the Bond Fund held securities issued by the following of
the Trust's "regular broker-dealers" (as defined in the 1940 Act) or their
parents: Merrill Lynch & Company, Inc. (the market value of which was $751,566);
Salomon Incorporated (the market value of which was $881,834); NationsBank (the
market value of which was $555,208); and Bear Stearns Company (the market value
of which was $183,246).
SPECIAL SHAREHOLDER SERVICES
As noted in the Prospectus, the Funds offer the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Funds, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a statement showing the current transaction and all prior
transactions in the shareholder account during the calendar year to date.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Administrator will automatically charge the checking account for the amount
specified ($100 minimum) which will be automatically invested in shares at the
public offering price on or about the last business day of the month or quarter.
The shareholder may change the amount of the investment or discontinue the plan
at any time by writing to the Administrator.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Funds to redeem the necessary number of shares periodically
(each month, or quarterly in the months of March, June, September and
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December). Checks will be made payable to the designated recipient and mailed
within three business days of the valuation date. If the designated recipient is
other than the registered shareholder, the signature of each shareholder must be
guaranteed on the application (see "Signature Guarantees"). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Funds upon sixty days' written notice or by a shareholder upon written notice to
the Funds. Applications and further details may be obtained by calling the Funds
at 1-800-443-4249, or by writing to:
The Government Street Funds
Shareholder Services
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Purchases in Kind. The Funds may accept securities in lieu of cash in payment
for the purchase of shares of the Funds. The acceptance of such securities is at
the sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Funds, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Net Asset Value is Determined" in the Prospectus.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in portfolio
securities or other property of the Funds. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election may be filed under
Rule 18f-1 of the 1940 Act, wherein each Fund commits itself to pay redemptions
in cash, rather than in kind, to any shareholder of record of the Funds who
redeems during any ninety day period, the lesser of (a) $250,000 or (b) one
percent (1%) of a Fund's net assets at the beginning of such period.
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Transfer of Registration. To transfer shares to another owner, send a written
request to the Funds at the address shown herein. Your request should include
the following: (1) the Fund name and existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (see the Prospectus under the
heading "Signature Guarantees"); and (5) any additional documents which are
required for transfer by corporations, administrators, executors, trustees,
guardians, etc. If you have any questions about transferring shares, call or
write the Funds.
PURCHASE OF SHARES
The purchase price of shares of each Fund is the net asset value next determined
after the order is received. An order received prior to 4:00 p.m. Eastern time
will be executed at the price computed on the date of receipt; and an order
received after that time will be executed at the price computed on the next
Business Day. An order to purchase shares is not binding on the Funds until
confirmed in writing (or unless other arrangements have been made with the
Funds, for example in the case of orders utilizing wire transfer of funds) and
payment has been received.
Each Fund reserves the right in its sole discretion (i) to suspend the offering
of its shares, (ii) to reject purchase orders when in the judgment of management
such rejection is in the best interest of the Fund and its shareholders, and
(iii) to reduce or waive the minimum for initial and subsequent investments
under circumstances where certain economies can be achieved in sales of Fund
shares.
Employees and Affiliates of the Funds. The Funds have adopted initial investment
minimums for the purpose of reducing the cost to the Funds (and consequently to
the shareholders) of communicating with and servicing their shareholders.
However, a reduced minimum initial investment requirement of $1,000 applies to
Trustees, officers and employees of the Funds, the Advisor and certain parties
related thereto, including clients of the Advisor or any sponsor, officer,
committee member thereof, or the immediate family of any of them. In addition,
accounts having the same mailing address may be aggregated for purposes of the
minimum investment if they consent in writing to share a single mailing of
shareholder reports, proxy statements (but each such shareholder would receive
his/her own proxy) and other Fund literature.
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<PAGE>
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange (the "Exchange") is closed,
or trading on the Exchange is restricted as determined by the Securities and
Exchange Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or to
fairly determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
No charge is made by the Funds for redemptions, although the Trustees could
impose a redemption charge in the future. Any redemption may be more or less
than the shareholder's cost depending on the market value of the securities held
by the Funds.
NET ASSET VALUE DETERMINATION
Under the 1940 Act, the Trustees are responsible for determining in good faith
the fair value of the securities and other assets of the Funds, and they have
adopted procedures to do so, as follows. The net asset value of each Fund is
determined as of the close of trading of the Exchange (currently 4:00 p.m.
Eastern time) on each "Business Day." A Business Day means any day, Monday
through Friday, except for the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Fourth of July, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas. Net asset value per share is
determined by dividing the total value of all Fund securities and other assets,
less liabilities, by the total number of shares then outstanding. Net asset
value includes interest on fixed income securities, which is accrued daily.
ALLOCATION OF TRUST EXPENSES
Each Fund of the Trust pays all of its own expenses not assumed by the Advisor
or the Administrator, including, but not limited to, the following: custodian,
shareholder servicing, stock transfer and dividend disbursing expenses; clerical
employees and junior level officers of the Trust as and if approved by the Board
of Trustees; taxes; expenses of the issuance and redemption of shares (including
registration and qualification fees and expenses); costs and expenses of
membership and attendance at meetings of certain associations which may be
deemed by the Trustees to be of overall benefit to the Fund and its
shareholders; legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Funds. General
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Trust expenses are allocated among the series, or funds, on a fair and equitable
basis by the Board of Trustees, which may be based on relative net assets of
each fund (on the date the expense is paid) or the nature of the services
performed and the relative applicability to each fund.
Under the Advisory Agreement, the Advisor may be required to reimburse a Fund if
that Fund's annual ordinary operating expenses exceed certain limits. This
expense limitation is calculated and administered separately with respect to
each series of the Trust in accordance with the requirements of state securities
authorities. Expenses which are not subject to this limitation are interest,
taxes and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses. Reimbursement, if any, will be on a monthly basis, subject to year
end adjustment. The Advisor in its discretion may, but is not required to,
reimburse a Fund an amount of money in excess of its advisory fee.
ADDITIONAL TAX INFORMATION
Taxation of the Funds. Each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Among its requirements to qualify under Subchapter M, each Fund
must distribute annually at least 90% of its net investment income. In addition
to this distribution requirement, each Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities' loans, gains from the disposition of stock or securities, and
certain other income. Each Fund will also be required to derive less than 30% of
its gross income from the sale or other disposition of securities held for less
than 90 days.
While the above requirements are aimed at qualification of the Funds as
regulated investment companies under Subchapter M of the Code, the Funds also
intend to comply with certain requirements of the Code to avoid liability for
federal income and excise tax. If the Funds remain qualified under Subchapter M,
they will not be subject to federal income tax to the extent they distribute
their taxable net investment income and net realized capital gains. A
nondeductible 4% federal excise tax will be imposed on each Fund to the extent
it does not distribute at least 98% of its ordinary taxable income for a
calendar year, plus 98% of its capital gain net taxable income for the one year
period ending each October 31, plus certain undistributed amounts from prior
years. While each Fund intends to distribute its taxable income
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and capital gains in a manner so as to avoid imposition of the federal excise
and income taxes, there can be no assurance that the Funds indeed will make
sufficient distributions to avoid entirely imposition of federal excise or
income taxes.
As of March 31, 1997, the Bond Fund had capital loss carryforwards for federal
income tax purposes of $307,540 which expire through the year 2005. In addition,
the Bond Fund realized net capital losses of $90,284 during the period from
November 1, 1996 through March 31, 1997, which are treated for federal income
tax purposes as arising in the tax year ending March 31, 1998. These capital
loss carryforwards and "post- October" losses may be utilized in future years to
offset net realized capital gains prior to distributing such gains to
shareholders.
Should additional series, or funds, be created by the Trustees, each Fund would
be treated as a separate tax entity for federal income tax purposes.
Tax Status of the Funds' Dividends and Distributions. Dividends paid by the
Funds derived from net investment income or net short-term capital gains are
taxable to shareholders as ordinary income, whether received in cash or
reinvested in additional shares. Distributions, if any, of long-term capital
gains are taxable to shareholders as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held. For information on "backup" withholding, see "How to Purchase
Shares" in the Prospectus.
For corporate shareholders, the dividends received deduction, if applicable,
should apply to dividends from the Equity Fund. Each Fund will send shareholders
information each year on the tax status of dividends and disbursements. A
dividend or capital gains distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to federal
income taxation. Dividends from net investment income, along with capital gains,
will be taxable to shareholders, whether received in cash or shares and no
matter how long you have held Fund shares, even if they reduce the net asset
value of shares below your cost and thus in effect result in a return of a part
of your investment.
CAPITAL SHARES AND VOTING
Shares of the Funds, when issued, are fully paid and non-assessable and have no
preemptive or conversion rights. Shareholders are entitled to one vote for each
full share and a fractional vote for each fractional share held. Shares have
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noncumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees
and, in this event, the holders of the remaining shares voting will not be able
to elect any Trustees. The Trustees will hold office indefinitely, except that:
(1) any Trustee may resign or retire and (2) any Trustee may be removed with or
without cause at any time (a) by a written instrument, signed by at lease
two-thirds of the number of Trustees prior to such removal; or (b) by vote of
shareholders holding not less than two-thirds of the outstanding shares of the
Trust, cast in person or by proxy at a meeting called for that purpose; or (c)
by a written declaration signed by shareholders holding not less than two-thirds
of the outstanding shares of the Trust and filed with the Trust's custodian.
Shareholders have certain rights, as set forth in the Declaration of Trust,
including the right to call a meeting of the shareholders for the purpose of
voting on the removal of one or more Trustees. Shareholders holding not less
than ten percent (10%) of the shares then outstanding may require the Trustees
to call such a meeting and the Trustees are obligated to provide certain
assistance to shareholders desiring to communicate with other shareholders in
such regard (e.g., providing access to shareholder lists, etc.). In case a
vacancy or an anticipated vacancy shall for any reason exist, the vacancy shall
be filled by the affirmative vote of a majority of the remaining Trustees,
subject to the provisions of Section 16(a) of the 1940 Act. The Trust does not
expect to have an annual meeting of shareholders.
Prior to January 24, 1994 the Trust was called The Nottingham Investment Trust.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, each Fund may, from time to time, advertise
certain total return and yield information. The average annual total return of
the Funds for a period is computed by subtracting the net asset value per share
at the beginning of the period from the net asset value per share at the end of
the period (after adjusting for the reinvestment of any income dividends and
capital gain distributions), and dividing the result by the net asset value per
share at the beginning of the period. In particular, the average annual total
return of a Fund ("T") is computed by using the redeemable value at the end of a
specified period of time ("ERV") of a hypothetical initial investment of $1,000
("P") over a period of time ("n") according to the formula P(l+T)n=ERV. The
average annual total return quotations for the Equity Fund for the one year
period ended March 31, 1997, for the five year period ended March 31, 1997 and
for the period since inception (June 18, 1991) to March 31, 1997 are 16.94%,
11.50% and 11.36%, respectively. The average annual
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total return quotations for the Bond Fund for the one year period ended March
31, 1997, for the five year period ended March 31, 1997 and for the period since
inception (June 7, 1991) to March 31, 1997 are 4.60%, 6.36% and 6.87%,
respectively.
In addition, each Fund may advertise other total return performance data
("Nonstandardized Return"). Nonstandardized Return shows as a percentage rate of
return encompassing all elements of return (i.e., income and capital
appreciation or depreciation); it assumes reinvestment of all dividends and
capital gain distributions. Nonstandardized Return may consist of a cumulative
percentage of return, actual year-by-year rates or any combination thereof.
From time to time, each Fund may advertise its yield. A yield quotation is based
on a 30-day (or one month) period and is computed by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). The yields of the Equity Fund and the Bond Fund
for the 30 days ended March 31, 1997 were 1.26% and 6.45%, respectively.
The Funds' performance may be compared in advertisements, sales literature and
other communications to the performance of other mutual funds having similar
objectives or to standardized indices or other measures of investment
performance. In particular, the Equity Fund may compare its performance to the
S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded
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in the United States securities markets, and the Bond Fund may compare its
performance to the Merrill Lynch 1-5 Year Government Corporate Index and the
Lehman Government Corporate Intermediate Bond Index, which are generally
considered to be representative of the performance of a portfolio of domestic,
taxable fixed income securities of intermediate maturities. Comparative
performance may also be expressed by reference to a ranking prepared by a mutual
fund monitoring service, such as Lipper Analytical Services, Inc. or
Morningstar, Inc. or by one or more newspapers, newsletters or financial
periodicals. Performance comparisons may be useful to investors who wish to
compare the Funds' past performance to that of other mutual funds and investment
products. Of course, past performance is not a guarantee of future results.
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Investors may use such indices in addition to the Funds' Prospectus to obtain a
more complete view of the Funds' performance before investing. Of course, when
comparing the Funds' performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Funds may quote total returns that are calculated
on nonstandardized base periods. The total returns represent the historic change
in the value of an investment in the Funds based on monthly reinvestment of
dividends over a specified period of time.
From time to time the Funds may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Funds may also disclose from time to
time
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information about their portfolio allocation and holdings at a particular date
(including ratings of securities assigned by independent rating services such as
S&P and Moody's). The Funds may also depict the historical performance of the
securities in which the Funds may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Funds may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS AND REPORTS
The books of the Funds will be audited at least once each year by independent
public accountants. Shareholders will receive annual audited and semiannual
(unaudited) reports when published, and will receive written confirmation of all
confirmable transactions in their account. A copy of the Annual Report will
accompany the Statement of Additional Information ("SAI") whenever the SAI is
requested by a shareholder or prospective investor. The Financial Statements of
the Funds as of March 31, 1997, together with the report of the independent
accountants thereon, are included on the following pages.
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