<PAGE> 1
January 2, 1996
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
Supplement to Prospectus Dated April 1, 1995
The following should be read in conjunction with the section entitled "Operation
of the Funds" beginning on page 16 of the Prospectus:
On January 2, 1996, Brundage, Story and Rose (the "Adviser") changed its form of
organization from a general partnership to a New York limited liability
corporation known as Brundage, Story and Rose LLC. This reorganization will have
no effect on the operations of the Funds. Nor will the reorganization result in
any change in the control or ownership of the Adviser.
<PAGE> 2
PROSPECTUS
April 1, 1995
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
================================================================================
Brundage, Story and Rose Investment Trust currently offers two separate series
of shares to investors, the Brundage, Story and Rose Growth & Income Fund and
the Brundage, Story and Rose Short/Intermediate Term Fixed-Income Fund
(individually a "Fund" and collectively the "Funds").
The BRUNDAGE, STORY AND ROSE GROWTH & INCOME FUND seeks to provide protection
and enhancement of capital, current income and growth of income. The Fund
invests primarily in common stocks and securities convertible into common stock.
The BRUNDAGE, STORY AND ROSE SHORT/INTERMEDIATE TERM FIXED-INCOME FUND seeks to
provide a higher and more stable level of income than a money market fund with
more principal stability than a mutual fund investing in intermediate and
long-term fixed-income securities. The Fund may provide higher income, but with
less principal stability and greater credit risks than a money market fund.
Because the Fund may provide a more stable level of income than a money market
fund (i.e., the Fund's yield will not change as rapidly during periods of
fluctuating interest rates), the Fund's yield may not rise as rapidly as that of
a money market fund during periods of rising interest rates. Although the Fund
may provide more principal stability than a mutual fund investing in
intermediate and long-term fixed-income securities, it may provide a lower
yield. The Fund invests primarily in short and intermediate-term fixed-income
securities.
Brundage, Story and Rose (the "Adviser"), One Broadway, New York, New York,
manages the Funds' investments. Brundage, Story and Rose is an independent
investment counsel firm that has advised individual and institutional clients
since 1932.
This Prospectus sets forth concisely the information about the Funds that you
should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated April 1, 1995 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling one of the numbers listed below.
- --------------------------------------------------------------------------------
FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
Nationwide (Toll-Free) ............................................ 800-320-2212
Cincinnati ........................................................ 513-629-2070
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
1
<PAGE> 3
EXPENSE INFORMATION
================================================================================
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases .......... None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee ............................. None
Wire Redemption Processing Fee ........... $8.00
Check Redemption Fee (per check) ......... $0.50
</TABLE>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
Growth & Short/Interm.
Income Term Fixed-
Fund Income Fund
-------- -------------
<S> <C> <C>
Management Fees ............................ .65% .09%(A)
12b-1 Fees(B) .............................. .01% .01%
Other Expenses ............................. .84% .55%
---- ---
Total Fund Operating Expenses .............. 1.50% .65%(C)
==== ===
</TABLE>
(A) Absent waivers of management fees, such fees would have been .50% for the
fiscal year ended November 30, 1994.
(B) Each Fund may incur 12b-1 fees in an amount up to .25% of its average net
assets. Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales loads permitted by the National Association of
Securities Dealers.
(C) Absent waivers of management fees and expense reimbursements by the Adviser,
total Fund operating expenses would have been 1.06% for the fiscal year
ended November 30, 1994.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred during the most recent fiscal year, except that annual fund
operating expenses of the Short/Intermediate Term Fixed-Income Fund have been
restated to reflect an increase in the amount of expenses being charged to the
Fund. THE EXAMPLE BELOW SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
Short/Interm.
Growth & Term Fixed-
Income Fund Income Fund
----------- -------------
<S> <C> <C>
1 Year $ 15 $ 7
3 Years 47 21
5 Years 82 36
10 Years 179 81
</TABLE>
2
<PAGE> 4
FINANCIAL HIGHLIGHTS
================================================================================
The following information, which has been audited by Arthur Andersen LLP, is an
integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of
November 30, 1994 and related auditors' report appear in the Statement of
Additional Information of the Funds, which can be obtained by shareholders at no
charge by calling MGF Service Corp. (Nationwide call toll-free 800-320-2212; in
Cincinnati call 629-2070) or by writing to the Trust at the address on the front
of this Prospectus.
GROWTH & INCOME FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
FROM DATE OF
PUBLIC OFFERING
(JAN. 2, 1991)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period ..................... $ 12.70 $ 12.26 $ 10.85 $ 10.00
--------- ---------- ---------- ---------
Income from investment operations:
Net investment income ................................ 0.06 0.09 0.12 0.15
Net realized and unrealized gains on investments ..... 0.11 0.76 1.40 0.92
--------- ---------- ---------- ---------
Total from investment operations ........................... 0.17 0.85 1.52 1.07
--------- ---------- ---------- ---------
Less distributions:
Dividends from net investment income ................. 0.06 0.10 0.11 0.15
Distributions from net realized gains ................ 0.38 0.31 -- 0.07
--------- ---------- ---------- ---------
Total distributions ........................................ 0.44 0.41 0.11 0.22
--------- ---------- ---------- ---------
Net asset value at end of period ........................... $ 12.43 $ 12.70 $ 12.26 $ 10.85
========= ========== ========== =========
Total return ............................................... 1.35% 6.83% 14.39% 11.64%(B)
========= ========== ========== =========
Net assets at end of period (000's) ........................ $ 8,821 $ 19,150 $ 15,081 $ 9,103
========= ========== ========== =========
Ratios net of fees waived by the Adviser(A):
Ratio of net expenses to average net assets .......... 1.50% 1.50% 1.50% 1.48%(B)
Ratio of net investment income to average net assets.. 0.51% 0.74% 1.05% 1.51%(B)
Ratios assuming no Adviser waiver of fees:
Ratio of expenses to average net assets .............. 1.50% 1.58% 1.78% 2.35%(B)
Ratio of net investment income to average net assets.. 0.51% 0.66% 0.77% 0.64%(B)
Portfolio turnover rate .................................... 44% 45% 44% 37%(B)
</TABLE>
(A) The Adviser has periodically absorbed expenses of the Fund through waiver of
the investment advisory fee.
(B) Annualized.
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<PAGE> 5
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
FROM DATE OF
PUBLIC OFFERING
(JAN. 2, 1991)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period...................... $ 10.77 $ 10.49 $ 10.43 $ 10.00
--------- ---------- ---------- ---------
Income from investment operations:
Net investment income..................................... 0.59 0.64 0.69 0.62
Net realized and unrealized
gains (losses) on investments........................... (0.79) 0.28 0.06 0.43
--------- ---------- ---------- ---------
Total from investment operations............................ (0.20) 0.92 0.75 1.05
--------- ---------- ---------- ---------
Less distributions:
Dividends from net investment income...................... 0.59 0.64 0.69 0.62
Distributions from net realized gains..................... 0.04 -- -- --
--------- ---------- ---------- ---------
Total distributions......................................... 0.63 0.64 0.69 0.62
--------- ---------- ---------- ---------
Net asset value at end of period............................ $ 9.94 $ 10.77 $ 10.49 $ 10.43
========= ========== ========== =========
Total return................................................ (1.98%) 9.00% 7.38% 11.87%(B)
========= ========== ========== =========
Net assets at end of period (000's)......................... $ 35,390 $ 43,272 $ 32,025 $ 12,871
========= ========== ========== =========
Ratios net of fees waived and
expenses reimbursed by the Adviser(A):
Ratio of net expenses to average net assets............. 0.50% 0.50% 0.50% 0.50%(B)
Ratio of net investment income to average net assets.... 5.67% 5.95% 6.50% 7.05%(B)
Ratios assuming no Adviser waiver
of fees or reimbursement of expenses:
Ratio of expenses to average net assets................. 1.06% 1.11% 1.30% 2.54%(B)
Ratio of net investment income to average net assets.... 5.11% 5.34% 5.70% 5.01%(B)
Portfolio turnover rate..................................... 57% 29% 24% 12%(B)
</TABLE>
(A) The Adviser has periodically absorbed expenses of the Fund through waiver of
the investment advisory fee and reimbursement of other operating expenses.
(B) Annualized.
4
<PAGE> 6
INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK CONSIDERATIONS
===============================================================================
Brundage, Story and Rose Investment Trust (the "Trust") is comprised of two
Funds, each with its own portfolio and objective. Neither Fund is intended to be
a complete investment program, and there is no assurance that the investment
objective of either Fund can be achieved. Each Fund's investment objective may
be changed by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and after this Prospectus has been
revised accordingly. If there is a change in a Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. Unless otherwise
indicated, all investment practices and limitations of the Funds are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval.
BRUNDAGE, STORY AND ROSE GROWTH & INCOME FUND
The Growth & Income Fund seeks to provide protection and enhancement of capital,
current income and growth of income. The Fund will invest primarily in a
diversified portfolio of common stocks and securities convertible into common
stock.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions and other factors
beyond the control of the Adviser. As a result, the return and net asset value
of the Fund will fluctuate. In selecting securities for the Fund, the Adviser
first attempts to identify economic trends. On the basis of this analysis,
industries with the best prospects for providing protection and enhancement of
capital, current income and growth of income are determined and reviewed. Then,
from within those industries, the Adviser selects as candidates those companies
that have experienced, capable managements, sound financial policies and strong
competitive positions in their markets. The final step in specific stock
selection is the Adviser's determination whether the current market valuation of
a company is reasonable in relation to its earnings, dividends, assets and
long-term opportunities. Once approved as appropriate for investment, companies
remain under continuous review by the Adviser.
The Fund expects to invest primarily in securities currently paying dividends
although it may buy securities that are not paying dividends but offer prospects
for growth of capital or future income. Although the Fund invests primarily in
common stocks and securities convertible into common stock (such as convertible
bonds, convertible preferred stocks and warrants), the Fund may also invest in
non-convertible preferred stocks and bonds. The Fund may invest in preferred
stocks and bonds which are rated at the time of purchase in the four highest
grades assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) or
Standard & Poor's Ratings Group (AAA, AA, A or BBB) or unrated securities
determined by the Adviser to be of comparable quality. Preferred stocks and
bonds rated Baa or BBB have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to pay principal and interest or to pay the preferred stock obligations than is
the case with higher grade securities. Subsequent to its purchase by the Fund, a
security's rating may be reduced below Baa or BBB and the Adviser will sell such
security, subject to market conditions and the Adviser's assessment of the most
opportune time for sale.
The Fund may invest in securities of foreign issuers. When selecting foreign
investments, the Adviser will seek to invest in securities that have investment
characteristics and qualities comparable to the kinds of domestic securities in
which the Fund invests. The Fund may invest in securities of foreign issuers
directly or in the form of sponsored American Depository Receipts. American
Depository Receipts are receipts typically issued by an American bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. Where investments in foreign securities are made in currencies of
foreign countries, the value of the Fund's assets as measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations. Foreign investments may be subject to special
risks, including future political and economic developments and the possibility
of seizure or nationalization of companies, imposition of withholding taxes on
income, establishment of exchange controls or adoption of other restrictions,
that might affect an investment adversely. The Fund will not invest in
securities of foreign issuers which are not listed on a recognized domestic or
foreign exchange.
5
<PAGE> 7
When the Adviser believes substantial price risks exist for common stocks and
securities convertible into common stocks because of uncertainties in the
investment outlook or when in the judgment of the Adviser it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold all or a portion of its assets in short-term obligations such as bank debt
instruments (certificates of deposit and bankers' acceptances), commercial
paper, U.S. Government obligations having a maturity of less than one year or
repurchase agreements.
BRUNDAGE, STORY AND ROSE SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
The Short/Intermediate Term Fixed-Income Fund seeks to provide a higher and more
stable level of income than a money market fund with more principal stability
than a mutual fund investing in intermediate and long-term fixed-income
securities. The Fund will invest in a diversified portfolio of short and
intermediate-term fixed-income securities. Under normal market conditions, at
least 90% of the Fund's total assets will be invested in fixed-income securities
with remaining maturities or, in the case of mortgage-backed and asset-backed
securities, remaining average lives of between one and ten years, and at no time
will the Fund be less than 65% invested in such securities. For defensive or
liquidity purposes, the Fund may temporarily hold up to 35% of its total assets
in securities having a maturity of less than one year, including bank debt
instruments, commercial paper, U.S. Government obligations or repurchase
agreements. Under normal market conditions, the Fund will maintain a
dollar-weighted average maturity of between two and five years. In calculating
the Fund's dollar-weighted average maturity, the Adviser will use average life
as the remaining maturity of mortgage-backed and asset-backed securities (see
below).
The Fund invests in securities having longer maturities and lower ratings than
securities in which a money market fund may invest. The Fund may therefore
provide higher income, but with less principal stability and greater credit
risks than a money market fund. In addition, because the Fund invests in
securities having longer maturities, the Fund may provide a more stable level of
income than a money market fund, i.e., the Fund's yield will not change as
rapidly as a money market fund during periods of fluctuating interest rates.
During periods of rising interest rates, the Fund's yield may not rise as
quickly as the yield of a money market fund because a money market fund will
generally be able to reinvest the proceeds of maturing securities sooner than
the Fund.
The Fund pursues its objective by investing primarily in U.S. Government
obligations, corporate fixed-income securities, bank debt instruments,
mortgage-backed and asset-backed securities, U.S. dollar-denominated
fixed-income securities issued by foreign issuers, foreign branches of U.S.
banks and U.S. branches of foreign banks, and money market instruments. In
addition, the Fund may purchase securities on a when-issued basis and may invest
in interest rate futures contracts and options on fixed-income securities or
market indices.
The Fund may invest in securities which are rated at the time of purchase within
the four highest grades assigned by Moody's Investors Service, Inc. (Aaa, Aa, A
or Baa) or Standard & Poor's Ratings Group (AAA, AA, A or BBB), or unrated
securities determined by the Adviser to be of comparable quality. While
securities in these categories are generally accepted as being of investment
grade, securities rated Baa or BBB have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to pay principal and interest than is the case with higher
grade securities. The Fund will not invest more than 10% of its net assets in
securities rated Baa or BBB. Subsequent to its purchase by the Fund, a
security's rating may be reduced below Baa or BBB and the Adviser will sell such
security, subject to market conditions and the Adviser's assessment of the most
opportune time for sale. At least 65% of the Fund's assets will be invested in a
combination of U.S. Government obligations (described below) and securities
rated at the time of purchase in one of the two highest categories of Moody's
Investors Service, Inc. (Aaa or Aa) or Standard & Poor's Ratings Group (AAA or
AA), or unrated securities determined by the Adviser to be of comparable
quality.
Investments in debt securities are subject to inherent market risks and
fluctuations in value due to changes in earnings, economic conditions, quality
ratings and other factors beyond the control of the Adviser. Debt securities are
subject to price fluctuations based upon changes in the level of interest rates,
which will generally result in all those securities
6
<PAGE> 8
changing in price in the same way, i.e., all those securities experiencing
appreciation when interest rates decline and depreciation when interest rates
rise. As a result, the return and net asset value of the Fund will fluctuate but
these fluctuations should be less than a mutual fund investing in longer term
securities.
U.S. GOVERNMENT OBLIGATIONS. Under normal market conditions, at least 35% of the
Fund's assets will be invested in U.S. Government obligations. "U.S. Government
obligations" include securities which are issued or guaranteed by the United
States Treasury, by various agencies of the United States Government, and by
various instrumentalities which have been established or sponsored by the United
States Government. U.S. Treasury obligations are backed by the "full faith and
credit" of the United States Government. U.S. Treasury obligations include
Treasury bills, Treasury notes and Treasury bonds. Other U.S. Government
obligations may or may not be backed by the "full faith and credit" of the
United States. In the case of securities not backed by the "full faith and
credit" of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States in the event the agency or
instrumentality does not meet its commitments. Government agencies which issue
or guarantee securities backed by the "full faith and credit" of the United
States include the Government National Mortgage Association, the Student Loan
Marketing Association and the Small Business Administration. Government agencies
and instrumentalities which issue or guarantee securities not backed by the
"full faith and credit" of the United States include the Federal Farm Credit
Banks, the Federal Home Loan Banks, the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation, the Federal Land Bank, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing Bank,
the Resolution Funding Corporation, the Financing Corporation of America and the
Tennessee Valley Authority.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities, which are mortgage loans made by banks, savings and
loan institutions, and other lenders which are assembled into pools. Often these
securities are issued and guaranteed by an agency or instrumentality of the
United States Government, though not necessarily backed by the full faith and
credit of the United States Government, or are collateralized by U.S. Government
obligations. The Fund invests in mortgage-backed securities representing
undivided ownership interests in pools of mortgage loans, including Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) Certificates and
so-called "CMOs" -- i.e., collateralized mortgage obligations which are issued
by non-governmental entities.
The rate of return on mortgage-backed securities such as GNMA, FNMA and FHLMC
Certificates and CMOs may be affected by early prepayment of principal on the
underlying loans. Prepayment rates vary widely and may be affected by changes in
market interest rates. It is not possible to accurately predict the average life
of a particular pool. Reinvestment of principal may occur at higher or lower
rates than the original yield. Therefore, the actual maturity and realized yield
on mortgage-backed securities will vary based upon the prepayment experience of
the underlying pool of mortgages. Mortgage-backed securities purchased by the
Fund will be either (i) issued by United States Government sponsored
corporations or (ii) rated at least Aa by Moody's Investors Service, Inc. or AA
by Standard & Poor's Ratings Group or, if not rated, are of comparable quality
as determined by the Adviser.
The Fund may also invest in stripped mortgage-backed securities, which are
derivative multiclass mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage-backed securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
stripped mortgage-backed security will have one class receiving all of the
interest from the mortgage assets (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the securities' yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated AAA or Aaa,
7
<PAGE> 9
and could even lose its entire investment. Although stripped mortgage-backed
securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not
developed for certain stripped mortgage-backed securities. The Fund will not
invest more than 10% of its net assets in stripped mortgage-backed securities
and CMOs for which there is no established market and other illiquid securities.
In addition, pursuant to the position of the staff of the Securities and
Exchange Commission, the Fund will not invest more than 5% of its total assets
in any CMO which is an investment company under the Investment Company Act of
1940 and will not invest more than 10% of its total assets in all such CMO's and
securities of other investment companies.
Asset-backed securities may include such securities as Certificates for
Automobile Receivables and Credit Card Receivable Securities. Certificates for
Automobile Receivables represent undivided fractional interests in a pool of
motor vehicle retail installment sales contracts. Underlying sales contracts are
subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment or losses if
the full amounts due on underlying sales contracts are not realized because of
unanticipated costs of enforcing the contracts or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors. Credit
Card Receivable Securities are backed by receivables from revolving credit card
agreements. An acceleration in cardholders' payment rates may adversely affect
the overall return to holders of such certificates. Unlike most other
asset-backed securities, Credit Card Receivable Securities are unsecured
obligations of the credit cardholders. The Fund may also invest in other
asset-backed securities that may be developed in the future, provided that this
Prospectus is revised before the Fund does so. The Fund will not invest more
than 10% of its net assets in asset-backed securities for which there is no
established market and other illiquid securities.
Mortgage-backed securities, when they are issued, have stated maturities of up
to forty years, depending on the length of the mortgages underlying the
securities. In practice, unscheduled or early payments of principal on the
underlying mortgages may make the securities' effective maturity shorter than
this. A security based on a pool of forty-year mortgages may have an average
life of as short as two years. The average life of asset-backed securities may
also be substantially less than the stated maturity of the contracts or
receivables underlying such securities. It is common industry practice to
estimate the average life of mortgage-backed and asset-backed securities based
on assumptions regarding prepayments. The Fund will assume an average life based
on the prepayment characteristics of the underlying mortgages or other assets.
BANK DEBT INSTRUMENTS. The Fund may invest in certificates of deposit, time
deposits and bankers' acceptances issued by commercial banks. Certificates of
deposit are receipts from a bank for funds deposited for a specified period of
time at a specified rate of return. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with international
commercial transactions. Time deposits are generally similar to certificates of
deposit, but are uncertificated. The Fund will not invest more than 10% of its
net assets in time deposits maturing in greater than seven days and other
illiquid securities.
The Fund will not invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign banks, the security is, in the opinion of the Adviser, of an
investment quality comparable with other debt securities which may be purchased
by the Fund. These limitations do not prohibit investments in securities issued
by foreign branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
Foreign Securities. The Fund may invest in U.S. dollar-denominated fixed-income
securities issued by foreign issuers, foreign branches of U.S. banks and U.S.
branches of foreign banks. Investment in securities of foreign issuers and in
8
<PAGE> 10
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of domestic issuers. In addition to credit and
market risks, investments in foreign securities involve sovereign risk, which
includes local political and economic developments, potential nationalization,
withholding taxes on dividend or interest payments and currency blockage.
Foreign companies may have less public or less reliable information available
about them and may be subject to less governmental regulation than U.S.
companies. Securities of foreign companies may be less liquid or more volatile
than securities of U.S. companies. The Fund will not invest more than 10% of its
net assets in foreign securities which, in the opinion of the Adviser, are not
readily marketable and other illiquid securities.
The Fund may invest in corporate fixed-income securities in the Eurodollar
market. Eurodollar notes and bonds are U.S. dollar-denominated securities for
which the primary trading market is outside the United States. Many U.S.
corporations sell Eurodollar notes and bonds through a foreign subsidiary and
then guarantee payment of principal and interest. Since offerings of Eurodollar
securities are not registered with the Securities and Exchange Commission, these
securities must be sold at issue to non-U.S. investors. Underwriters are legally
prohibited from selling new issues to the U.S. public until the issue has come
to rest and a seasoning period has expired. Although U.S.-based investors,
including the Fund, may buy Eurodollar bonds after the seasoning period, the
market remains dominated by foreign-based investors.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued basis.
Delivery of and payment for these securities may occur a month or more after the
date of the purchase commitment. The securities are subject to market
fluctuations during this period and no interest accrues to the Fund until
settlement. The Fund maintains with the Custodian a segregated account of cash,
U.S. Government obligations or other high-grade debt securities in an amount at
least equal to these commitments.
INTEREST RATE FUTURES CONTRACTS. The Fund may enter into futures contracts as a
hedge against or to minimize adverse principal fluctuations, or as an efficient
means of adjusting its exposure to the market, but not for speculation. An
interest rate futures contract between two parties locks in the price of a
specified package of securities (primarily U.S. Treasury Bills, U.S. Treasury
Notes or U.S. Treasury Bonds) to be delivered at a future date. Selling an
interest rate futures contract has a similar effect to selling a portion of the
Fund's securities. While the value of the Fund's securities would decline if
interest rates were to rise, the value of the futures contract would increase,
offsetting the decline in the Fund's net asset value to that extent. Conversely,
an increase in the value of the Fund's securities resulting from a decline in
interest rates would be offset by a decline in value of the futures contract.
The Fund will limit its use of futures contracts so that (1) no more than 5% of
the Fund's total assets will be committed to initial margin deposits and (2)
immediately after entering into such contracts, no more than 30% of the Fund's
total assets would be represented by such contracts. These contracts entail
certain risks, including possible reduction of the Fund's total return and yield
due to the use of hedging, no assurance that futures contracts transactions can
be offset at favorable prices, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuation, imperfect correlation between the contract
and the securities being hedged, and potential losses in excess of the amount
invested in the futures contracts themselves. In instances involving the
purchase of futures contracts by the Fund, an amount of cash, U.S. Government
obligations or other liquid, high-grade debt securities, equal to the market
value of the futures contracts (less any related margin deposits), will be
deposited in a segregated account with the Custodian to cover the position, or
alternative cover will be employed thereby insuring that the use of such futures
contracts is unleveraged. Futures transactions will only be used for bona fide
hedging purposes.
OPTIONS. The Fund may write covered call options and purchase covered put
options on its portfolio securities or on bond market indices. The aggregate
market value of the Fund's portfolio securities covering call options or subject
to put options will not exceed 25% of the Fund's net assets. Such options may be
exchange-traded or traded over-the-counter. Over-the-counter options and the
assets used to secure the options are considered illiquid. An option gives the
owner the right to buy or sell securities at a predetermined exercise price for
a given period of time. Although options will primarily be used to minimize
principal fluctuations or to generate additional income, they do involve certain
risks. Writing covered call options involves the risk of not being able to
effect closing transactions at a favorable price or participate in the
appreciation of the underlying securities above the exercise price. Purchasing
put options involves the risk of losing the
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<PAGE> 11
entire purchase price of the option. The Fund will only write a call option or
purchase a put option on a security which the Fund already owns.
INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS APPLICABLE TO BOTH FUNDS
The Funds may also engage in the following investment techniques, each of which
may involve certain risks:
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a Fund
purchases a security and simultaneously commits to resell that security to the
seller at an agreed upon time and price, thereby determining the yield during
the term of the agreement. In the event of a bankruptcy or other default of the
seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
banks having assets in excess of $10 billion and the largest and, in the
Adviser's judgment, most creditworthy primary U.S. Government securities
dealers. Repurchase agreements entered into by a Fund will be collateralized by
high-grade debt obligations. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. At the time a Fund enters into a repurchase agreement, the value
of the collateral, including accrued interest, will equal or exceed the value of
the repurchase agreement and, in the case of a repurchase agreement exceeding
one day, the seller agrees to maintain sufficient collateral so that the value
of the underlying collateral, including accrued interest, will at all times
equal or exceed the value of the repurchase agreement. A Fund will not enter
into a repurchase agreement not terminable within seven days if, as a result
thereof, more than 10% of the value of the net assets of the Fund would be
invested in such securities and other illiquid securities.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one to
two hundred seventy days) unsecured promissory notes issued by corporations in
order to finance their current operations. The Funds will only invest in
commercial paper within the top three ratings of either Moody's Investors
Service, Inc. (Prime-1, Prime-2 or Prime-3) or Standard & Poor's Ratings Group
(A-1, A-2 or A-3), or which, in the opinion of the Adviser, is of equivalent
investment quality. Certain notes may have floating or variable rates. Variable
and floating rate notes with a demand notice period exceeding seven days will be
subject to each Fund's restriction on illiquid investments unless, in the
judgment of the Adviser, such note is liquid.
LENDING PORTFOLIO SECURITIES. Each Fund may, from time to time, lend securities
on a short-term basis (i.e., for up to seven days) to banks, brokers and dealers
and receive as collateral cash, U.S. Government obligations or irrevocable bank
letters of credit (or any combination thereof), which collateral will be
required to be maintained at all times in an amount equal to at least 100% of
the current value of the loaned securities plus accrued interest. Although each
Fund does have the ability to make loans of all of its portfolio securities, it
is the present intention of the Trust, which may be changed without shareholder
approval, that such loans will not be made with respect to a Fund if as a result
the aggregate of all outstanding loans exceeds one-third of the value of the
Fund's total assets. Securities lending will afford a Fund the opportunity to
earn additional income because the Fund will continue to be entitled to the
interest payable on the loaned securities and also will either receive as income
all or a portion of the interest on the investment of any cash loan collateral
or, in the case of collateral other than cash, a fee negotiated with the
borrower. Such loans will be terminable at any time. Loans of securities involve
risks of delay in receiving additional collateral or in recovering the
securities lent or even loss of rights in the collateral in the event of the
insolvency of the borrower of the securities. A Fund will have the right to
regain record ownership of loaned securities in order to exercise beneficial
rights. A Fund may pay reasonable fees in connection with arranging such loans.
BORROWING AND PLEDGING. Each Fund may borrow money from banks (provided there is
300% asset coverage) or from banks or other persons for temporary purposes (in
an amount not exceeding 5% of a Fund's total assets). Each Fund will not make
any borrowing which would cause its outstanding borrowings to exceed one-third
of its total assets. Each Fund may pledge assets in connection with borrowings
but will not pledge more than one-third of its total assets. Borrowing magnifies
the potential for gain or loss on the portfolio securities of the Funds and,
therefore, if employed, increases the
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<PAGE> 12
possibility of fluctuation in a Fund's net asset value. This is the speculative
factor known as leverage. A Fund's policies on borrowing and pledging are
fundamental policies which may not be changed without the affirmative vote of a
majority of its outstanding shares. It is each Fund's present intention, which
may be changed by the Board of Trustees without shareholder approval, to borrow
only for emergency or extraordinary purposes and not for leverage.
PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading as a
primary means of achieving their investment objectives. However, each Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. Although the annual portfolio turnover rate of each
Fund cannot be accurately predicted, it is not expected to exceed 100%, but may
be either higher or lower. A 100% turnover rate would occur, for example, if all
the securities of a Fund were replaced once in a one-year period. High turnover
involves correspondingly greater commission expenses and transaction costs and
increases the possibility that the Funds would not qualify as regulated
investment companies under Subchapter M of the Internal Revenue Code. A Fund
will not qualify as a regulated investment company if it derives 30% or more of
its gross income from gains (without offset for losses) from the sale or other
disposition of securities held for less than three months. High turnover may
result in a Fund recognizing greater amounts of income and capital gains, which
would increase the amount of income and capital gains which the Fund must
distribute to shareholders in order to maintain its status as a regulated
investment company and to avoid the imposition of federal income or excise taxes
(see "Taxes").
HOW TO PURCHASE SHARES
================================================================================
Your initial investment in either Fund ordinarily must be at least $1,000 ($250
for tax-deferred retirement plans). Shares of each Fund are sold on a continuous
basis at the net asset value next determined after receipt of a purchase order
by the Trust. Purchase orders received by dealers prior to 4:00 p.m., Eastern
time, on any business day and transmitted to the Trust's transfer agent, MGF
Service Corp., by 5:00 p.m., Eastern time, that day are confirmed at the net
asset value determined as of the close of the regular session of trading on the
New York Stock Exchange on that day. It is the responsibility of dealers to
transmit properly completed orders so that they will be received by MGF Service
Corp. by 5:00 p.m., Eastern time. Dealers may charge a fee for effecting
purchase orders. Direct purchase orders received by MGF Service Corp. by 4:00
p.m., Eastern time, are confirmed at that day's net asset value. Direct
investments received by MGF Service Corp. after 4:00 p.m. and orders received
from dealers after 5:00 p.m. are confirmed at the net asset value next
determined on the following business day.
You may open an account and make an initial investment in either Fund by sending
a check and a completed account application form to MGF Service Corp., P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the "Growth
& Income Fund" or the "Short/Intermediate Term Fixed-Income Fund," whichever is
applicable. An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of shares of
the Funds. Certificates representing shares are not ordinarily issued, but you
may receive a certificate without charge by sending a written request to MGF
Service Corp. Certificates for fractional shares will not be issued. If a
certificate has been issued to you, you will not be permitted to redeem shares
by check or to redeem or exchange shares by telephone, or to use the automatic
withdrawal plan as to those shares. The Trust and the Underwriter reserve the
rights to limit the amount of investments and to refuse to sell to any person.
Investors should be aware that the Funds' account application contains
provisions in favor of the Trust, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone redemptions and exchanges and check
redemptions) made available to investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or MGF Service Corp. in the transaction.
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<PAGE> 13
You may also purchase shares of the Funds by wire. Please telephone MGF Service
Corp. (Nationwide call toll-free 800-320-2212; in Cincinnati call 629-2070) for
instructions. You should be prepared to give the name in which the account is to
be established, the address, telephone number and taxpayer identification number
for the account, and the name of the bank which will wire the money.
Your investment will be made at the net asset value next determined after your
wire is received together with the account information indicated above. If the
Trust does not receive timely and complete account information, there may be a
delay in the investment of your money and any accrual of dividends. To make your
initial wire purchase, you are required to mail a completed account application
to MGF Service Corp. Your bank may impose a charge for sending your wire. There
is presently no fee for receipt of wired funds, but MGF Service Corp. reserves
the right to charge shareholders for this service upon thirty days' prior notice
to shareholders.
You may purchase and add shares to your account by mail or by bank wire. Checks
should be sent to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354.
Checks should be made payable or endorsed to the applicable Fund. Bank wires
should be sent as outlined above. You may also make additional investments at
the Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202.
Each additional purchase request must contain the name of your account and your
account number to permit proper crediting to your account. While there is no
minimum amount required for subsequent investments, the Trust reserves the right
to impose such requirement.
SHAREHOLDER SERVICES
================================================================================
Contact MGF Service Corp. (Nationwide call toll-free 800-320-2212; in Cincinnati
call 629-2070) for additional information about the shareholder services
described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in your account have a value of at least $5,000, you may elect to
receive, or may designate another person to receive, monthly or quarterly
payments in a specified amount of not less than $50 each. There is no charge for
this service.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Funds are available for purchase in connection with the following
tax-deferred retirement plans:
- -- Keogh Plans for self-employed individuals
- -- Individual retirement account (IRA) plans for individuals and their
non-employed spouses
- -- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
- -- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
DIRECT DEPOSIT PLANS
Shares of either Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Funds.
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<PAGE> 14
AUTOMATIC INVESTMENT PLAN
You may make automatic monthly investments in either Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Funds.
HOW TO REDEEM SHARES
===============================================================================
You may redeem shares of either Fund on each day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by MGF Service Corp. of your redemption request in the form described
below. Payment is normally made within seven days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Funds by certified check or wire.
BY TELEPHONE. You may redeem shares by telephone. The proceeds will be sent by
mail to the address designated on your account or wired directly to your
existing account in any commercial bank or brokerage firm in the United States
as designated on your application. To redeem by telephone, call MGF Service
Corp. (Nationwide call toll-free 800-320-2212; in Cincinnati call 629-2070). The
redemption proceeds from your Growth & Income Fund account will normally be sent
by mail or by wire within seven days after receipt of your telephone
instructions. The redemption proceeds from your Short/Intermediate Term
Fixed-Income Fund account will normally be wired within two days (but not later
than seven days) after receipt of your telephone instructions. IRA accounts are
not redeemable by telephone.
The telephone redemption privilege is automatically available to all
shareholders. You may change the bank or brokerage account which you have
designated under this procedure at any time by writing to MGF Service Corp. with
your signature guaranteed by any eligible guarantor institution (including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations)
or by completing a supplemental telephone redemption authorization form. Contact
MGF Service Corp. to obtain this form. Further documentation will be required to
change the designated account if shares are held by a corporation, fiduciary or
other organization.
Neither the Trust, MGF Service Corp., nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or MGF Service Corp., or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or MGF
Service Corp. do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
BY MAIL. You may redeem any number of shares from your account by sending a
written request to MGF Service Corp. The request must state the number of shares
or the dollar amount to be redeemed and your account number. The request must be
signed exactly as your name appears on the Trust's account records. If the
shares to be redeemed have a value of $5,000 or more, your signature must be
guaranteed by any of the eligible guarantor institutions outlined above.
Written redemption requests may also direct that the proceeds be deposited
directly in the bank account or brokerage account designated on your account
application for telephone redemptions. Proceeds of redemptions requested by mail
are mailed within seven days following receipt of instructions in proper form.
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<PAGE> 15
BY CHECK (SHORT/INTERMEDIATE TERM FIXED-INCOME FUND ONLY). You may establish a
special checking account with the Short/Intermediate Term Fixed-Income Fund for
the purpose of redeeming shares by check. Checks may be made payable to anyone
for any amount, but checks may not be certified.
When a check is presented to the Custodian for payment, MGF Service Corp., as
your agent, will cause the Fund to redeem a sufficient number of full and
fractional shares in your account to cover the amount of the check. Checks will
be processed at the net asset value on the day the check is presented to the
Custodian for payment.
If the amount of a check is greater than the value of the shares held in your
account, the check will be returned. Shareholders of the Short/Intermediate Term
Fixed-Income Fund should consider potential fluctuations in the net asset value
of the Fund's shares when writing checks. A check representing a redemption
request will take precedence over any other redemption instructions issued by a
shareholder.
MGF Service Corp. will charge you $.50 per check. This charge is imposed at the
time you order checks; there is no additional charge at the time a redemption
check is processed. MGF Service Corp. charges shareholders its costs for each
stop payment and each check returned for insufficient funds. In addition, MGF
Service Corp. reserves the right to make additional charges to recover the costs
of providing the check redemption service. All charges will be deducted from
your account by redemption of shares in your account. The check redemption
procedure may be suspended or terminated at any time upon written notice by the
Trust or MGF Service Corp.
Shareholders should be aware that writing a check (a redemption of shares) is a
taxable event. Shares for which certificates have been issued may not be
redeemed by check.
THROUGH BROKER-DEALERS. You may also redeem shares by placing a wire redemption
request through a securities broker or dealer. Unaffiliated broker-dealers may
impose a fee on the shareholder for this service. You will receive the net asset
value per share next determined after receipt by the Trust or its agent of your
wire redemption request. It is the responsibility of broker-dealers to promptly
transmit wire redemption orders.
ADDITIONAL REDEMPTION INFORMATION. For each wire redemption you will be charged
an $8 processing fee by MGF Service Corp. MGF Service Corp. reserves the right,
upon thirty days' written notice, to change the processing fee. All charges will
be deducted from your account by redemption of shares in your account. Your bank
or brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds by deposited directly in your
account with a commercial bank or other depository institution via an Automated
Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact MGF Service Corp. for more information about ACH
transactions. If a certificate for the shares was issued, it must be delivered
to MGF Service Corp., or the dealer in the case of a wire redemption, duly
endorsed or accompanied by a duly endorsed stock power, with the signature
guaranteed by any of the eligible guarantor institutions outlined above.
At the discretion of the Trust or MGF Service Corp., corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account if at any time the value of your
shares is less than $1,000 (based on actual amounts invested, unaffected by
market fluctuations), or $250 in the case of tax-deferred retirement plans, or
such other minimum amount as the Trust may determine from time to time. After
notification to you of the Trust's intention to close your account, you will be
given sixty days to increase the value of your account to the minimum amount.
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<PAGE> 16
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than seven days under unusual circumstances as
determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
===============================================================================
Shares of the Funds may be exchanged for each other at net asset value. Shares
of either Fund may also be exchanged for the following money market funds:
Short Term Government Income Fund (a series of Midwest Trust) -- invests in
short-term U.S. Government obligations backed by the "full faith and credit" of
the United States and seeks high current income consistent with protection of
capital.
Tax-Free Money Fund (a series of Midwest Group Tax Free Trust) -- invests in
high quality, short-term municipal obligations and seeks the highest level of
interest income that is exempt from federal income tax, consistent with
protection of capital.
Shares of the Short Term Government Income Fund and the Tax-Free Money Fund
acquired via exchange may be reexchanged for shares of either Fund at net asset
value.
You may request an exchange by sending a written request to MGF Service Corp.
The request must be signed exactly as your name appears on the Trust's account
records. Exchanges may also be requested by telephone. If you are unable to
execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An
exchange will be effected at the next determined net asset value after receipt
of a request by MGF Service Corp.
Exchanges may only be made for shares of funds then offered for sale in your
state of residence and are subject to the applicable minimum initial investment
requirements. The exchange privilege may be modified or terminated by the Board
of Trustees upon 60 days' prior notice to shareholders. An exchange results in a
sale of fund shares, which may cause you to recognize a capital gain or loss.
Before making an exchange for shares of the Short Term Government Income Fund or
the Tax-Free Money Fund, contact MGF Service Corp. to obtain a current
prospectus and more information about exchanges among the funds.
DIVIDENDS AND DISTRIBUTIONS
===============================================================================
The Growth & Income Fund expects to distribute substantially all of its net
investment income, if any, on a quarterly basis. All of the net investment
income of the Short/Intermediate Term Fixed-Income Fund is declared as a
dividend to shareholders of record on each business day of the Trust and paid
monthly.
Each Fund expects to distribute any net realized long-term capital gains at
least once each year. Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option -- income distributions and capital gains distributions
reinvested in additional shares.
Income Option -- income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option -- income distributions and capital gains distributions
paid in cash.
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<PAGE> 17
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for six months,
your dividends may be reinvested in your account at the then-current net asset
value and your account will be converted to the Share Option.
TAXES
===============================================================================
Each Fund has qualified in all prior years and intends to continue to qualify
for the special tax treatment afforded a "regulated investment company" under
Subchapter M of the Internal Revenue Code so that it does not pay federal taxes
on income and capital gains distributed to shareholders. Each Fund intends to
distribute substantially all of its net investment income and any realized
capital gains to its shareholders. Distributions of net investment income as
well as from net realized short-term capital gains, if any, are taxable to
investors as ordinary income. Dividends distributed by the Growth & Income Fund
from net investment income may be eligible, in whole or in part, for the
dividends received deduction available to corporations. Since the investment
income of the Short/Intermediate Term Fixed-Income Fund is derived from interest
rather than dividends, no portion of such distributions is eligible for the
dividends received deduction available to corporations. Distributions of net
realized long-term capital gains are taxable as long-term capital gains
regardless of how long you have held your Fund shares.
The Funds will mail to each of their shareholders a statement indicating the
amount and federal income tax status of all distributions made during the year.
In addition to federal taxes, shareholders of the Funds may be subject to state
and local taxes on distributions. Shareholders should consult their tax advisors
about the tax effect of distributions and withdrawals from the Funds and the use
of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUNDS
===============================================================================
The Funds are diversified series of Brundage, Story and Rose Investment Trust,
an open-end management investment company organized as an Ohio business trust on
October 3, 1990. The Board of Trustees supervises the business activities of the
Trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Funds.
The Trust retains Brundage, Story and Rose, One Broadway, New York, New York
(the "Adviser"), to manage the Funds' investments. The Adviser is an independent
investment counsel firm that has advised individual and institutional clients
since 1932. The Growth & Income Fund and the Short/Intermediate Term
Fixed-Income Fund pay the Adviser a fee at the annual rate of .65% and .50%,
respectively, of the average value of their daily net assets. The Adviser may be
deemed to control the Growth & Income Fund by virtue of the fact that the
Adviser, partners of the Adviser and employee benefit plans sponsored by the
Adviser owned of record 30.25% of the Fund's outstanding shares as of March 10,
1995.
Charles G. Watson, a partner of the Adviser, is primarily responsible for
managing the portfolio of the Growth & Income Fund. Mr. Watson has been employed
by the Adviser since November 1964 and has been managing the Growth & Income
Fund since June 1992. H. Dean Benner, a partner of the Adviser, is primarily
responsible for managing the portfolio of the Short/Intermediate Term
Fixed-Income Fund. Mr. Benner has been employed by the Adviser since January
1990 and has been managing the Short/Intermediate Term Fixed-Income Fund since
January 1991.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio, to
serve as the Funds' transfer agent, dividend paying agent and shareholder
service agent. MGF Service Corp. is a subsidiary of Leshner Financial, Inc., of
which Robert H. Leshner is the controlling shareholder.
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<PAGE> 18
MGF Service Corp. also provides accounting and pricing services to the Funds.
MGF Service Corp. receives $3,400 per month from the Growth & Income Fund and
$3,700 per month from the Short/Intermediate Term Fixed-Income Fund for
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable it to perform its duties.
In addition, MGF Service Corp. has been retained to provide administrative
services to the Funds. In this capacity, MGF Service Corp. supplies executive,
administrative and regulatory services, supervises the preparation of tax
returns, and coordinates the preparation of reports to shareholders and reports
to and filings with the Securities and Exchange Commission and state securities
authorities. Each Fund pays MGF Service Corp. a fee for these administrative
services at the annual rate of .2% of the average value of its daily net assets
up to $50,000,000, .175% of such assets from $50,000,000 to $100,000,000 and
.15% of such assets in excess of $100,000,000; provided, however, that the
minimum fee is $1,000 per month with respect to each Fund.
Midwest Group Financial Services, Inc., 312 Walnut Street, Cincinnati, Ohio (the
"Underwriter"), serves as principal underwriter for the Funds and, as such, is
the exclusive agent for the distribution of shares of the Funds. The Underwriter
is a subsidiary of Leshner Financial, Inc. Robert G. Dorsey, Treasurer of the
Underwriter, is Vice President of the Trust. John F. Splain, Secretary and
General Counsel of the Underwriter, is Secretary of the Trust.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, the Adviser may give consideration to sales of shares
of the Funds as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Funds.
Shares of each Fund have equal voting rights and liquidation rights, and are
voted in the aggregate and not by Fund except in matters where a separate vote
is required by the Investment Company Act of 1940 or when the matter affects
only the interest of a particular Fund. When matters are submitted to
shareholders for a vote, each shareholder is entitled to one vote for each full
share owned and fractional votes for fractional shares owned. The Trust does not
normally hold annual meetings of shareholders. The Trustees shall promptly call
and give notice of a meeting of shareholders for the purpose of voting upon
removal of any Trustee when requested to do so in writing by shareholders
holding 10% or more of the Trust's outstanding shares. The Trust will comply
with the provisions of Section 16(c) of the Investment Company Act of 1940 in
order to facilitate communications among shareholders.
DISTRIBUTION PLAN
================================================================================
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Funds have
adopted a plan of distribution (the "Plan") under which the Funds may directly
incur or reimburse the Adviser for certain distribution-related expenses,
including payments to securities dealers and others, including the Underwriter
and its affiliates, who are engaged in the sale of shares of the Funds and who
may be advising investors regarding the purchase, sale or retention of such
shares; expenses of maintaining personnel who engage in or support distribution
of shares or who render shareholder support services not otherwise provided by
MGF Service Corp.; expenses of formulating and implementing marketing and
promotional activities, including direct mail promotions and mass media
advertising; expenses of preparing, printing and distributing sales literature
and prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Funds; expenses of obtaining
such information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Funds' shares.
The annual limitation for payment of expenses pursuant to the Plan is .25% of
each Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. In the event the Plan is terminated by a Fund in
accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Adviser after the date the Plan terminates.
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<PAGE> 19
Pursuant to the Plan, the Funds may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Funds or their shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by regulatory authorities, and the
overall return to those shareholders availing themselves of the bank services
will be lower than to those shareholders who do not. The Funds may from time to
time purchase securities issued by banks which provide such services; however,
in selecting investments for the Funds, no preference will be shown for such
securities.
CALCULATION OF SHARE PRICE
================================================================================
On each day that the Trust is open for business, the share price (net asset
value) of the shares of each Fund is determined as of the close of the regular
session of trading on the New York Stock Exchange, currently 4:00 p.m., Eastern
time. The Trust is open for business on each day the New York Stock Exchange is
open for business and on any other day when there is sufficient trading in a
Fund's investments that its net asset value might be materially affected. The
net asset value per share of each Fund is calculated by dividing the sum of the
value of the securities held by the Fund plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of shares
outstanding of the Fund, rounded to the nearest cent.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (i) securities which are traded on
stock exchanges are valued at the last sale price as of the close of the regular
session of trading on the New York Stock Exchange on the day the securities are
being valued, or, if not traded on a particular day, at the closing bid price,
(ii) securities traded in the over-the-counter market are valued at the last
sale price (or, if the last sale price is not readily available, at the last bid
price as quoted by brokers that make markets in the securities) as of the close
of the regular session of trading on the New York Stock Exchange on the day the
securities are being valued, (iii) securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market and (iv) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.
PERFORMANCE INFORMATION
================================================================================
From time to time, each Fund may advertise its "average annual total return."
Each Fund may also advertise "yield." Both yield and average annual total return
figures are based on historical earnings and are not intended to indicate future
performance.
The "average annual total return" of a Fund refers to the average annual
compounded rates of return over the most recent 1, 5 and 10 year periods or,
where the Fund has not been in operation for such period, over the life of the
Fund (which periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions. A Fund may
also advertise total return (a "nonstandardized quotation") which is calculated
differently from "average annual total return." A nonstandardized quotation of
total return may be a cumulative return which measures the percentage change in
the value of an account between the beginning and end of
18
<PAGE> 20
a period, assuming no activity in the account other than reinvestment of
dividends and capital gains distributions. A nonstandardized return may also
indicate average annual compounded rates of return over periods other than those
specified for "average annual total return." A nonstandardized quotation of
total return will always be accompanied by a Fund's "average annual total
return" as described above.
The "yield" of a Fund is computed by dividing the net investment income per
share earned during a thirty-day (or one month) period stated in the
advertisement by the net asset value per share on the last day of the period
(using the average number of shares entitled to receive dividends). The yield
formula assumes that net investment income is earned and reinvested at a
constant rate and annualized at the end of a six-month period.
From time to time the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc.("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index. In connection with a ranking, the Funds may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Funds may also present their performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.
Further information about the Funds' performance is contained in the Trust's
annual report which can be obtained by shareholders at no charge by calling MGF
Service Corp. (Nationwide call toll-free 800-320-2212; in Cincinnati call
629-2070) or by writing to the Trust at the address on the front of this
Prospectus.
19
<PAGE> 21
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
- --------------------------------------------------------------------------------
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
Francis S. Branin, Jr.
Donald F. Daly
Cheryl L. Grandfield
Antoinette Geyelin Hoar
Jerome B. Lieber
William M.R. Mapel
James G. Pepper
Crosby R. Smith
Charles G. Watson
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
BRUNDAGE, STORY AND ROSE
One Broadway
New York, New York 10004
UNDERWRITER
- --------------------------------------------------------------------------------
MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
- --------------------------------------------------------------------------------
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-320-2212
Cincinnati: 513-629-2070
Rate Line
Nationwide: (Toll-Free) 800-852-4052
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Expense Information ................................................... 2
Financial Highlights .................................................. 3
Investment Objectives, Investment Policies and
Risk Considerations ................................................. 5
How to Purchase Shares ................................................ 11
Shareholder Services .................................................. 12
How to Redeem Shares .................................................. 13
Exchange Privilege .................................................... 15
Dividends and Distributions ........................................... 15
Taxes ................................................................. 16
Operation of the Funds ................................................ 16
Distribution Plan ..................................................... 17
Calculation of Share Price ............................................ 18
Performance Information ............................................... 18
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
BRUNDAGE
STORY AND ROSE
INVESTMENT TRUST
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Prospectus
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April 1, 1995
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Growth & Income Fund
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Short/Intermediate Term
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Fixed-Income Fund
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