U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 9
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 9
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(Check appropriate box or boxes)
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
312 Walnut Street, 21st Floor
Cincinnati, OH 45202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (513) 629-2000
Malcolm D. Clarke, Jr.
Brundage, Story and Rose LLC
One Broadway
New York, New York 10004
(Name and Address of Agent for Service)
Copies to:
John A. Dudley, Esq.
Sullivan & Worcester
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant has registered an indefinite number of shares of beneficial
interest of its Brundage, Story and Rose Equity Fund and its Brundage, Story and
Rose Short/Intermediate Term Fixed-Income Fund under the Securities Act of 1933
pursuant to Rule 24f-2 under the Investment Company Act of 1940. Registrant's
Rule 24f-2 Notice for the fiscal year ended November 30, 1997 was filed with the
Commission on January 30, 1998.
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BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
PART A
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Item No. Registration Statement Caption Caption in Prospectus
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1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Financial Highlights;
Performance Information
4. General Description of Registrant Operation of the Funds;
Investment Objectives,
Investment Policies and
Risk Considerations
5. Management of the Fund Operation of the Funds;
Financial Highlights
6. Capital Stock and Other Securities Cover Page; Operation of
the Funds; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Calculation of Share
Price; Exchange
Privilege; Operation of
the Funds; Distribution
Plan; Application
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services
9. Pending Legal Proceedings Inapplicable
PART B
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Caption in Statement
of Additional
Item No. Registration Statement Caption Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
(i)
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12. General Information and History The Trust
13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations;
Quality Ratings of
Corporate Bonds and
Preferred Stocks;
Investment Limitations;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Principal Security
of Security Holders
16. Investment Advisory and Other Services The Investment Adviser;
Distribution Plan;
Custodian; Auditors;
Countrywide Fund
Services, Inc.
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind
20. Tax Status Taxes
21. Underwriters The Underwriter
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Annual Report
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(ii)
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Brundage,
Story and Rose
Investment Trust
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Prospectus
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April 1, 1998
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Equity Fund
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Short/Intermediate Term
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Fixed-Income Fund
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[LOGO]
Brundage, Story and Rose
Investment Trust
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312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
Board of Trustees
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Malcolm D. Clarke, Jr.
Francis S. Branin, Jr.
Cheryl L. Grandfield
Antoinette Geyelin Hoar
Jerome B. Lieber
William M.R. Mapel
James G. Pepper
Crosby R. Smith
Charles G. Watson
Investment Adviser
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Brundage, Story and Rose LLC
One Broadway
New York, New York 10004
Underwriter
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CW FUND DISTRIBUTORS, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Transfer Agent
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Countrywide Fund Services, Inc.
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
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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 ............. 18
Calculation of Share Price .... 18
Performance Information ....... 19
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.
<PAGE>
PROSPECTUS
April 1, 1998
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
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Brundage, Story and Rose Investment Trust currently offers two separate series
of shares to investors, the Brundage, Story and Rose Equity 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 Equity Fund seeks to provide protection and
enhancement of capital. 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 LLC (the "Adviser"), One Broadway, New York, New York,
manages the Funds' investments. Brundage, Story and Rose LLC 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, 1998 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.
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For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)............................................ 800-320-2212
Cincinnati........................................................ 513-629-2070
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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.
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1
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EXPENSE INFORMATION
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Shareholder Transaction Expenses
Sales Load Imposed on Purchases .................................. None
Sales Load Imposed on Reinvested Dividends ....................... None
Exchange Fee ..................................................... None
Redemption Fee ................................................... None*
Check Redemption Processing Fee (per check) ...................... $0.50
* A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently $8.
See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Short/Inter.
Equity Term Fixed-
Fund Income Fund
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Management Fees ................................... .65% .08%(A)
12b-1 Fees(B) ..................................... .01% .01%
Other Expenses .................................... .53% .56%
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Total Fund Operating Expenses ..................... 1.19% .65%(C)
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(A) Absent waivers of management fees, such fees would have been .50% for the
fiscal year ended November 30, 1997.
(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, total Fund operating expenses would have
been 1.07% for the fiscal year ended November 30, 1997.
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. 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:
Equity Short/Inter. Term
Fund Fixed-Income Fund
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1 Year $ 12 $ 7
3 Years 38 21
5 Years 65 36
10 Years 144 81
2
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FINANCIAL HIGHLIGHTS
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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, 1997 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 Countrywide Fund Services, Inc. (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.
Equity Fund Per Share Data for a Share Outstanding Throughout Each Period
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<TABLE>
<CAPTION>
From Date
of Public
Offering
Year Year Year Year Year Year (Jan. 2, 1991)
Ended Ended Ended Ended Ended Ended Through
Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 1996 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ......... $ 17.18 $ 14.91 $ 12.43 $ 12.70 $ 12.26 $ 10.85 $ 10.00
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ....................... 0.06 0.06 0.07 0.06 0.09 0.12 0.15
Net realized and unrealized gains on
investments ................................ 3.65 2.97 3.02 0.11 0.76 1.40 0.92
------- ------- ------- ------- ------- ------- -------
Total from investment operations ............... 3.71 3.03 3.09 0.17 0.85 1.52 1.07
------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ........ (0.06) (0.07) (0.06) (0.06) (0.10) (0.11) (0.15)
Distributions from net realized gains ....... (1.43) (0.69) (0.55) (0.38) (0.31) -- (0.07)
------- ------- ------- ------- ------- ------- -------
Total distributions ............................ (1.49) (0.76) (0.61) (0.44) (0.41) (0.11) (0.22)
------- ------- ------- ------- ------- ------- -------
Net asset value at end of period ............... $ 19.40 $ 17.18 $ 14.91 $ 12.43 $ 12.70 $ 12.26 $ 10.85
======= ======= ======= ======= ======= ======= =======
Total return ................................... 23.98% 21.27% 26.08% 1.35% 6.83% 14.39% 11.64%(B)
======= ======= ======= ======= ======= ======= =======
Net assets at end of period (000's) ............ $35,343 $27,540 $24,191 $18,821 $19,150 $15,081 $ 9,103
======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets(A) ..... 1.19% 1.30% 1.45% 1.50% 1.50% 1.50% 1.48%(B)
Ratio of net investment income to
average net assets ........................... 0.34% 0.42% 0.52% 0.51% 0.74% 1.05% 1.51%(B)
Portfolio turnover rate ........................ 49% 44% 42% 44% 45% 44% 37%(B)
Average commission rate per share(C) ........... $0.0499 $0.0490 -- -- -- -- --
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</TABLE>
(A) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.58%, 1.78% and 2.35%(B) for the periods ended
November 30, 1993, 1992 and 1991, respectively.
(B) Annualized.
(C) Beginning with the year ended November 30, 1996, the Fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged.
3
<PAGE>
Short/Intermediate Term Fixed-Income Fund
Per Share Data for a Share Outstanding Throughout Each Period
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<TABLE>
<CAPTION>
From Date
of Public
Offering
Year Year Year Year Year Year (Jan. 2, 1991)
Ended Ended Ended Ended Ended Ended Through
Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 1996 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ........ $ 10.69 $ 10.73 $ 9.94 $ 10.77 $ 10.49 $ 10.43 $ 10.00
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ...................... 0.62 0.62 0.64 0.59 0.64 0.69 0.62
Net realized and unrealized
gains (losses) on investments ............. -- (0.04) 0.79 (0.79) 0.28 0.06 0.43
------- ------- ------- ------- ------- ------- -------
Total from investment operations .............. 0.62 0.58 1.43 (0.20) 0.92 0.75 1.05
------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ....... (0.62) (0.62) (0.64) (0.59) (0.64) (0.69) (0.62)
Distributions from net realized gains ...... -- -- -- (0.04) -- -- --
------- ------- ------- ------- ------- ------- -------
Total distributions ........................... (0.62) (0.62) (0.64) (0.63) (0.64) (0.69) (0.62)
------- ------- ------- ------- ------- ------- -------
Net asset value at end of period .............. $ 10.69 $ 10.69 $ 10.73 $ 9.94 $ 10.77 $ 10.49 $ 10.43
======= ======= ======= ======= ======= ======= =======
Total return .................................. 6.03% 5.65% 14.84% (1.98%) 9.00% 7.38% 11.87%(B)
======= ======= ======= ======= ======= ======= =======
Net assets at end of period (000's) ........... $36,653 $33,377 $35,272 $35,390 $43,272 $32,025 $12,871
======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets(A)..... 0.65% 0.65% 0.60% 0.50% 0.50% 0.50% 0.50%(B)
Ratio of net investment income to
average net assets ........................... 5.88% 5.90% 6.21% 5.67% 5.95% 6.50% 7.05%(B)
Portfolio turnover rate ....................... 46% 40% 39% 57% 29% 24% 12%(B)
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</TABLE>
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.07%, 1.09%, 1.09%,
1.06%, 1.11%, 1.30% and 2.54%(B) for the periods ended November 30, 1997,
1996, 1995, 1994, 1993, 1992 and 1991, respectively.
(B) Annualized.
4
<PAGE>
INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK CONSIDERATIONS
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Brundage, Story and Rose Investment Trust (the "Trust") is comprised of two
Funds, each with its own portfolio and investment 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 Equity Fund
The Equity Fund seeks to provide protection and enhancement of capital. 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 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, assets and long-term opportunities. Once approved as
appropriate for investment, companies remain under continuous review by the
Adviser.
The Fund invests both in securities currently paying dividends and in 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
5
<PAGE>
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.
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, bankers' acceptances and time deposits),
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.
6
<PAGE>
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 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. Agencies and
instrumentalities established by the United States Government include the
Federal Home Loan Banks, the Federal Land Bank, the Government National Mortgage
Association, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, the Student Loan Marketing Association, the Small Business
Administration, the Bank for Cooperatives, the Federal Intermediate Credit Bank,
the Federal Financing Bank, the Federal Farm Credit Banks, the Federal
Agricultural Mortgage Corporation, the Resolution Funding Corporation, the
Financing Corporation of America and the Tennessee Valley Authority. Some of
these securities are supported by the full faith and credit of the United States
Government while others are supported only by the credit of the agency or
instrumentality, which may include the right of the issuer to borrow from the
United States Treasury.
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
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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, 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. The Fund may invest more than 10% of its net assets in stripped
mortgage-backed securities and CMOs deemed to be liquid if the Adviser
determines, under the direction of the Board of Trustees, that the security can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's net asset value per share.
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
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issuers and in 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 liquid 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 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,
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<PAGE>
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 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. The Funds will enter into repurchase agreements which are
collateralized by U.S. Government obligations or other liquid 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. 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
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total assets. Borrowing magnifies the potential for gain or loss on the
portfolio securities of the Funds and, therefore, if employed, increases the
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. High turnover involves correspondingly greater
commission expenses and transaction costs and 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
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Your initial investment in either Fund ordinarily must be at least $1,000 ($250
for tax-deferred retirement plans). The Trust may, in the Adviser's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. 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, Countrywide Fund Services, Inc.
(the "Transfer Agent"), 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 the
Transfer Agent by 5:00 p.m., Eastern time. Dealers may charge a fee for
effecting purchase orders. Direct purchase orders received by the Transfer Agent
by 4:00 p.m., Eastern time, are confirmed at that day's net asset value. Direct
investments received by the Transfer Agent after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, 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 Countrywide Fund Services,
Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made payable
to the "Equity 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 Fund
shares. Certificates representing shares are not issued. 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, the Transfer Agent 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 the Transfer Agent in the transaction.
You may also purchase shares of the Funds by bank wire. Please telephone the
Transfer Agent (Nationwide call toll-free 800-320-2212; in Cincinnati call
629-2070) for instructions. You should be prepared to give the name in
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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 the Transfer Agent. Your bank may impose a charge for sending your wire.
There is presently no fee for receipt of wired funds, but the Transfer Agent
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 Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati,
Ohio 45201-5354. Checks should be made payable 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
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Contact the Transfer Agent (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, including Roth IRAs and Education IRAs
- -- 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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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. The Transfer Agent 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 the Transfer Agent of your redemption request in the form described
below. Payment is normally made within three business 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 the Transfer
Agent (Nationwide call toll-free 800-320-2212; in Cincinnati call 629-2070). The
redemption proceeds will normally be sent by mail or by wire within three
business 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 the Transfer Agent
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
the Transfer Agent 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, the Transfer Agent, 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 the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent 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 the Transfer Agent. 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 $25,000 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 normally mailed within three business days following receipt of instructions
in proper form.
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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, the Transfer Agent, 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.
The Transfer Agent 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. The Transfer Agent charges shareholders its costs for each
stop payment and each check returned for insufficient funds. In addition, the
Transfer Agent 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 the Transfer Agent.
Shareholders should be aware that writing a check (a redemption of shares) is a
taxable event.
Through Broker-Dealers. You may also redeem shares of either Fund 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. If your instructions request a redemption by
wire, you will be charged an $8 processing fee by the Funds' Custodian. The
Trust 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 be 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 the Transfer Agent for more information about ACH
transactions.
At the discretion of the Trust or the Transfer Agent, 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 thirty days to increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
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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 Countrywide Investment 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 Countrywide 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 the Transfer Agent.
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 the Transfer Agent.
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 the Transfer Agent to obtain a current
prospectus and more information about exchanges among the funds.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Equity 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.
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.
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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. No interest will
accrue on amounts represented by uncashed distribution checks.
TAXES
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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 Equity
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 capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by the Fund to its shareholders are
taxable to the recipient shareholders as capital gains, without regard to the
length of time a shareholder has held Fund shares. The maximum capital gains
rate for individuals is 28% with respect to assets held for more than 12 months,
but not more than 18 months, and 20% with respect to assets held more than 18
months. The maximum capital gains rate for corporate shareholders is the same as
the maximum tax rate for ordinary income. Redemptions of shares of the Fund are
taxable events on which a shareholder may realize a gain or loss.
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 LLC, One Broadway, New York, New York
10004 (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 Equity 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.
Gregory E. Ratte, a principal of the Adviser, is primarily responsible for
managing the portfolio of the Equity Fund. Mr. Ratte has been employed by the
Adviser since 1989 and has been managing the Equity Fund's portfolio since
November 1994. H. Dean Benner, a principal 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 1990 and
has been managing the Short/Intermediate Term Fixed-Income Fund's portfolio
since January 1991.
16
<PAGE>
The Funds are responsible for the payment of all operating expenses, including
fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Funds' shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Funds, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Funds may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio (the "Tranfer Agent"), to serve as the Funds' transfer agent,
dividend paying agent and shareholder service agent. The Transfer Agent is an
indirect wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New
York Stock Exchange listed company principally engaged in the business of
residential mortgage lending.
The Transfer Agent also provides accounting and pricing services to the Funds.
The Transfer Agent receives a monthly fee from each 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, the Transfer Agent has been retained to provide administrative
services to the Funds. In this capacity, the Transfer Agent 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 the Transfer Agent 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.
CW Fund Distributors, Inc., 312 Walnut Street, Cincinnati, Ohio 45202 (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 an indirect wholly-owned subsidiary of Countrywide Credit Industries, Inc.
Robert G. Dorsey and John F. Splain are officers of both the Trust and the
Underwriter.
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.
17
<PAGE>
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 who are engaged in the sale
of shares of the Funds and who may be advising investors regarding the purchase,
sale or retention of Fund shares; expenses of maintaining personnel who engage
in or support distribution of shares or who render shareholder support services
not otherwise provided by the Transfer Agent; 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.
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 or are quoted by NASDAQ are valued at the last reported 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, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
18
<PAGE>
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 a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation of total 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 the
Transfer Agent (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>
Account Application (check appropriate Fund)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
o Equity Fund $
-----------
o Short/Intermediate Term Fixed-Income Fund $
-----------
Total $
-----------
ACCOUNT NO.
-----------------------------------
(For Fund Use Only)
FOR BROKER/DEALER USE ONLY
Firm Name:
-----------------------------------------------------
Home Office Address:
-------------------------------------------
Branch Address:
------------------------------------------------
Rep Name & No.:
------------------------------------------------
Rep Signature:
-------------------------------------------------
- --------------------------------------------------------------------------------
o Check or draft enclosed payable to the Fund(s) designated above.
o Bank Wire From:
--------------------------------------------------------------
o Exchange From:
---------------------------------------------------------------
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax l.D.#
- ------------------------------------------------- -----------------------------
Name of Individual, Corporation, Organization, (In case of custodial account
or Minor, etc. please list minor's S.S.#)
Citizenship: o U.S.
- ------------------------------------------------- o Other
Name of Joint Tenant, Partner, Custodian
---------------------
Address Phone
( )
- ------------------------------------------------- -----------------------------
Street or P.O. Box Business Phone
( )
- ------------------------------------------------- -----------------------------
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant (Right of survivorship presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other
Occupation and Employer Name/Address
-------------------------------------------
Are you an associated person of an NASD member? o Yes o No
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER-- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. The Internal
Revenue Service does not require my consent to any provision of this document
other than the certifications required to avoid backup withholding. Check box if
appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
- --------------------------------------------------------------------------------
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains distributions reinvested
in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid in
cash.
o By Check o By ACH to my bank checking or savings account.
Please attach a voided check.
- --------------------------------------------------------------------------------
REDEMPTION OPTIONS
I (we) authorize the Trust or Countrywide Fund Services, Inc. to act upon
instructions received by telephone, or upon receipt of and in the amounts of
checks as described below (if checkwriting is selected), to have amounts
withdrawn from my (our) account in any fund of the Trust (see prospectus for
limitations on this option) and:
o WIRED ($1,000 minimum) OR MAILED to my (our) bank account designated below.
I (we) further authorize the use of automated cash transfers to and from the
account designated below.
NOTE: For wire redemptions, the indicated bank should be a commercial bank.
Please attach a voided check for the account.
Bank Account Number Bank Routing Transit Number
-------------- -----------------
Name of Account Holder
---------------------------------------------------------
Bank Name Bank Address
------------------------ --------------------------------
City State
o CHECKWRITING (A signature card must be completed) -- Short/Intermediate Term
Fixed-Income Fund only
...to deposit the proceeds of such redemptions in the Brundage, Story & Rose
Investment Trust Pay Through Draft Account (PTDA) or otherwise arrange for
application of such proceeds to payment of said checks. I (we) authorize the
persons whose signatures appear on the PTDA signature card to draw checks on the
PTDA and to cause the redemption of my (our) shares of the Trust. I (we) agree
to be bound by the Rules and Regulations for the PTDA as such Rules and
Regulations may be amended from time to time
- --------------------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Trust's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions
for automatic reinvestment in additional shares of the Trust for credit to the
investor's account and to surrender for redemption shares held in the investor's
account in accordance with any of the procedures elected above or for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release the Trust,
Brundage, Story and Rose LLC, Countrywide Fund Services,Inc., Countrywide
Investments, Inc., and their respective officers, employees, agents and
affiliates from any and all liability in the performance of the acts instructed
herein. Neither the Trust, Countrywide Fund Services, Inc., nor their respective
affiliates will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost or expense in
acting on such telephone instructions. The investor(s) will bear the risk of any
such loss. The Trust or Countrywide Fund Services, Inc., or both, will employ
reasonable procedures to determine that telephone instructions are genuine. If
the Trust and/or Countrywide Fund Services, Inc. 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.
- ------------------------------------- ---------------------------------------
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
- ------------------------------------- ---------------------------------------
Title of Corporate Officer, Date
Trustee, etc.
NOTE: Corporations, trusts and other organizations must complete the
resolution form on the reverse side. Unless otherwise specified, each
joint owner shall have full authority to act on behalf of the account.
<PAGE>
AUTOMATIC INVESTMENT PLAN (Complete for Investments into the Fund(s))
The Automatic Investment Plan is available for all established accounts of
Brundage, Story and Rose Investment Trust. There is no charge for this service,
and it offers the convenience of automatic investing on a regular basis. The
minimum investment is $50.00 per month. For an account that is opened by using
this Plan, the minimum initial and subsequent investments must be $50.00. Though
a continuous program of 12 monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.
Please invest $ per month in (Check applicable Fund)
-----------------
ABA Routing Number
-------------------------------------------------------------
o Equity Fund o Short/Intermediate Term Fixed-Income Fund
FI Account Number
--------------------------------------------------------------
o Checking Account o Savings Account
- --------------------------------------------------------------------------------
Name of Financial Institution (FI)
- --------------------------------------------------------------------------------
City State
Please make my automatic investment on:
o the last business day of each month
o the 15th day of each month
o both the 15th and last business day
X
- --------------------------------------------------------------------------------
(Signature of Depositor EXACTLY as it appears on FI Records)
X
- --------------------------------------------------------------------------------
(Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign
exactly as signature appears on your FI's records.)
Please attach a voided check for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("CFS") has put into effect, by which amounts, determined by your
depositor, payable to the applicable Fund designated above, for purchase of
shares of said Fund, are collected by CFS, CFS hereby agrees:
CFS will indemnify and hold you harmless from any liability to any person or
persons whatsoever arising out of the payment by you of any amount drawn by the
Funds to their own order on the account of your depositor or from any liability
to any person whatsoever arising out of the dishonor by you whether with or
without cause or intentionally or inadvertently, of any such amount. CFS will
defend, at its own cost and expense, any action which might be brought against
you by any person or persons whatsoever because of your actions taken pursuant
to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously
paid by you to the Funds if the claim for the amount of such erroneous payment
is made by you within six (6) months from the date of such erroneous payment;
your participation in this arrangement and that of the Funds may be terminated
by thirty (30) days written notice from either party to the other.
- --------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $ from my mutual fund
--------------
account beginning the last business day of the month of .
-------------
Please Indicate Withdrawal Schedule (Check One):
o Monthly -- Withdrawals will be made on the last business day of each month.
o Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o Annually -- Please make withdrawals on the last business day of the month of:
.
--------------
Please indicate which Fund:
o Equity Fund
o Short/Intermediate Term Fixed-Income Fund
Please Select Payment Method (Check One):
o Exchange: Please exchange the withdrawal proceeds into another account
number: ____ ____ -- ____ ____ ____ ____ ____ ____ -- ____
o Check: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is no
charge.
o Bank Wire: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is an $8.00 fee.
Please attach a voided -------------------------------------------------
check for ACH or bank wire Bank Name Bank Address
-------------------------------------------------
Bank ABA# Account # Account Name
o Send to special payee (other than applicant): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee
------------------------------------------------------------------
Please send to:
-----------------------------------------------------------------
Street address City State Zip
- --------------------------------------------------------------------------------
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Brundage, Story and Rose Investment Trust (the Trust) and that
- --------------------------------------------------------------------------------
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Trust,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign
any documents necessary or appropriate to appoint Countrywide Fund Services,
Inc. as redemption agent of the corporation or organization for shares of the
applicable series of the Trust, to establish or acknowledge terms and conditions
governing the redemption of said shares and to otherwise implement the
privileges elected on the Application, and it is (If checkwriting privilege is
not desired, please cross out the following resolution.)
FURTHER RESOLVED: That the corporation or organization participate in the
Brundage, Story and Rose Investment Pay Through Draft Account (PTDA) and that
until otherwise ordered in writing, Countrywide Fund Services, Inc. is
authorized to make redemptions of shares held by the corporation or
organization, and to make payment from PTDA upon and according to the check,
draft, note or order of this corporation or organization when signed by
- --------------------------------------------------------------------------------
and to receive the same when so signed to the credit of, or payment to, the
payee or any other holder without inquiry as to the circumstances of issue or
the disposition or proceeds, whether drawn to the individual order or tendered
in payment of individual obligations of the persons above named or other
officers of this corporation or organization or otherwise.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
- --------------------------------------------------------------------------------
(Name of Organization)
incorporated or formed under the laws of
---------------------------------------
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on at which a quorum was
present and acting throughout, and that the same are now in full force and
effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
Witness my hand and seal of the corporation or organization this ______ day of
__________, 19____
- ------------------------------------- ---------------------------------------
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
-----------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
April 1, 1998
Brundage, Story and Rose Equity Fund
Brundage, Story and Rose Short/Intermediate Term Fixed-Income Fund
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of Brundage, Story and Rose Investment
Trust dated April 1, 1998. A copy of the Prospectus can be obtained by writing
the Trust at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202-4094, or by
calling the Trust nationwide toll-free 800-320-2212, in Cincinnati 629-2070.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Brundage, Story and Rose Investment Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
-----------------
PAGE
----
THE TRUST ................................................................. 3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS ............................. 3
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS ................... 22
INVESTMENT LIMITATIONS .................................................... 24
TRUSTEES AND OFFICERS ..................................................... 27
THE INVESTMENT ADVISER .................................................... 29
DISTRIBUTION PLAN ......................................................... 30
THE UNDERWRITER ........................................................... 32
SECURITIES TRANSACTIONS ................................................... 32
PORTFOLIO TURNOVER ........................................................ 34
CALCULATION OF SHARE PRICE ................................................ 34
TAXES ..................................................................... 35
REDEMPTION IN KIND ........................................................ 36
HISTORICAL PERFORMANCE INFORMATION ........................................ 36
PRINCIPAL SECURITY HOLDERS ................................................ 39
CUSTODIAN ................................................................. 40
AUDITORS .................................................................. 40
COUNTRYWIDE FUND SERVICES, INC ............................................ 40
ANNUAL REPORT ............................................................. 41
-2-
<PAGE>
THE TRUST
- ---------
Brundage, Story and Rose Investment Trust (the "Trust") was organized as an
Ohio business trust on October 3, 1990. The Trust currently offers two series of
shares to investors, the Brundage, Story and Rose Equity Fund (formerly the
Brundage, Story and Rose Growth & Income Fund) and the Brundage, Story and Rose
Short/Intermediate Term Fixed-Income Fund (referred to individually as a "Fund"
and collectively as the "Funds"). Each Fund has its own investment objective and
policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objectives, Investment
Policies and Risk Considerations") appears below:
Majority. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
either Fund) means the lesser of (1) 67% or more of the outstanding shares of
the Trust (or the applicable Fund) present at a meeting, if the holders of more
than 50% of the outstanding shares of the Trust (or the applicable Fund) are
present or represented at such meeting or (2) more than 50% of the outstanding
shares of the Trust (or the applicable Fund).
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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. Each Fund will only invest in
commercial paper rated in one of the three highest categories by 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
(see "Investment Limitations") unless, in the judgment of the Adviser, such note
is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. These factors are all considered in
determining whether the commercial paper is rated Prime-1, Prime-2 or Prime-3.
Commercial paper rated A (highest quality) by Standard & Poor's Ratings Group
has the following characteristics: liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed; the issuer has access to at least two
additional channels of borrowing; basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and the reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2, or A-3.
Bank Debt Instruments. Bank debt instruments in which the Funds may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or of banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments
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evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Each Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 10%
of the value of its net assets would be invested in such securities and other
illiquid securities.
Mortgage-Backed and Asset-Backed Securities. The average life of
mortgage-backed securities varies with the maturities of the underlying mortgage
instruments (generally up to 30 years) and with the extent of prepayments of the
mortgages themselves. Any such prepayments are passed through to the certificate
holder, reducing the stream of future payments. Prepayments tend to rise in
periods of falling interest rates, decreasing the average life of the
certificate and generating cash which must be invested in a lower interest rate
environment. This could limit the appreciation potential of the certificates
when compared to similar debt obligations which may not be paid down at will.
The coupon rates of mortgage-backed securities are lower than the interest rate
on the underlying mortgages by the amount of fees paid to the issuing agencies,
usually approximately 1/2 of 1%. When prevailing interest rates increase, the
value of the mortgage-backed securities may decrease, as do other non-redeemable
debt securities. However, when interest rates decline, the value of
mortgage-backed securities may not rise on a comparable basis with other
non-redeemable debt securities.
Mortgage-backed securities include certificates issued by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Government National Mortgage Association. The Federal National Mortgage
Association ("FNMA") is a government sponsored corporation owned entirely by
private stockholders. The guarantee of payments under these instruments is that
of FNMA only. They are not backed by the full faith and credit of the U.S.
Treasury but the U.S. Treasury may extend credit to FNMA through discretionary
purchases of its securities. The average life of the mortgages backing newly
issued FNMA Certificates is approximately 10 years. The Federal Home Loan
Mortgage Corporation ("FHLMC") is a corporate instrumentality of the U.S.
Government whose stock is owned by the Federal Home Loan Banks. Certificates
issued by FHLMC represent interests in mortgages from its portfolio. FHLMC
guarantees payments under its certificates but this guarantee is not backed by
the full faith and credit of the United States and FHLMC does not have authority
to borrow from the U.S. Treasury. The average life of the mortgages backing
newly issued FHLMC Certificates is approximately 10 years. The Government
National Mortgage
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Association ("GNMA") Certificates represent pools of mortgages insured by the
Federal Housing Administration or the Farmers Home Administration or guaranteed
by the Veterans Administration. The guarantee of payments under GNMA
Certificates is backed by the full faith and credit of the United States. The
average life of the mortgages backing newly issued GNMA Certificates is
approximately 12 years.
The Short/Intermediate Term Fixed-Income Fund may also purchase
mortgage-backed securities issued by financial institutions, mortgage banks, and
securities broker-dealers (or affiliates of such institutions established to
issue these securities) in the form of collateralized mortgage obligations
("CMOs"). CMOs are obligations fully collateralized directly or indirectly by a
pool of mortgages on which payments of principal and interest are passed through
to the holders of the CMOs, although not necessarily on a pro rata basis, on the
same schedule as they are received. The most common structure of a CMO contains
four classes of securities; the first three pay interest at their stated rates
beginning with the issue date, the final one is typically an accrual class (or Z
bond). The cash flows from the underlying mortgage collateral are applied first
to pay interest and then to retire securities. The classes of securities are
retired sequentially. All principal payments are directed first to the
shortest-maturity class (or A bonds). When those securities are completely
retired, all principal payments are then directed to the next-shortest-maturity
security (or B bond). This process continues until all of the classes have been
paid off. Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors in
the longer-maturity classes receive no principal paydowns.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage banks, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. In addition, such
issuers may be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-backed securities. Pools created by
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because of the absence of direct or
indirect government or agency guarantees. Timely payment of interest and
principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance,
guarantees, and the creditworthiness of the issuers thereof will be considered
in determining whether a mortgage-backed security meets the Fund's
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investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Fund may buy mortgage-backed securities without
insurance or guarantees, if the Adviser determines that the securities meet the
Fund's quality standards. The Fund will not purchase mortgage-backed securities
or any other assets which, in the opinion of the Adviser, are illiquid if, as a
result, more than 10% of the value of the Fund's net assets will be illiquid.
The Adviser will, consistent with the Fund's investment objectives, policies,
and quality standards, consider making investments in new types of
mortgage-backed securities as such securities are developed and offered to
investors.
The Short/Intermediate Term Fixed-Income Fund may also purchase other
asset-backed securities (unrelated to mortgage loans) such as Certificates for
Automobile ReceivablesSM ("CARS"SM) and Credit Card Receivable Securities. CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARS are "passed-through" monthly to certificate holders, and are guaranteed up
to certain amounts by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. 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 on CARS if the full amounts due on underlying sales contracts are not
realized by the trust because of unanticipated legal or administrative 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.
Credit balances on revolving credit card agreements ("Accounts") are generally
paid down more rapidly than are automobile contracts. Most of the Credit Card
Receivable Securities issued publicly to date have been pass-through
certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets supporting the securities of additional credit
card charges made on an Account. The initial fixed period usually may be
shortened upon the occurrence of specified events which signal a potential
deterioration in the quality of the assets backing the security, such as the
imposition of a cap on interest rates. The ability of the issuer to extend the
life of an issue of Credit Card Receivable Securities thus depends upon the
continued generation of additional principal amounts in the underlying Accounts
and the non-occurrence of specified events. The Internal Revenue Code of 1986,
which phased out the deduction for consumer
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interest, as well as competitive and general economic factors, could adversely
affect the rate at which new receivables are created in an Account and conveyed
to an issuer, shortening the expected weighted average life of the related
security, and reducing its yield. An acceleration in cardholders' payment rates
or any other event which shortens the period during which additional credit card
charges on an Account may be transferred to the pool of assets supporting the
related security could have a similar effect on the weighted average life and
yield. Credit card holders are entitled to the protection of state and federal
consumer credit laws, many of which give such holder the right to set off
certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the cardholder.
When-Issued Securities and Securities Purchased On a To-Be-Announced Basis.
The Short/Intermediate Term Fixed-Income Fund may purchase debt securities on a
"when-issued" or "to-be-announced" basis. The Fund will only make commitments to
purchase securities on a when-issued or to-be-announced ("TBA") basis with the
intention of actually acquiring the securities. In addition, the Fund may
purchase securities on a when-issued or TBA basis only if delivery and payment
for the securities takes place within 120 days after the date of the
transaction. In connection with these investments, the Fund will direct the
Custodian to place cash, U.S. Government obligations or other liquid securities
in a segregated account in an amount sufficient to make payment for the
securities to be purchased. When a segregated account is maintained because the
Fund purchases securities on a when-issued or TBA basis, the assets deposited in
the segregated account will be valued daily at market for the purpose of
determining the adequacy of the securities in the account. If the market value
of such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of the Fund's commitments to purchase securities on a when-issued or TBA
basis. To the extent funds are in a segregated account, they will not be
available for new investment or to meet redemptions. Securities purchased on a
when-issued or TBA basis and the securities held in the Fund's portfolio are
subject to changes in market value based upon changes in the level of interest
rates (which will generally result in all of those securities changing in value
in the same way, i.e., all those securities experiencing appreciation when
interest rates decline and depreciation when interest rates rise). Therefore, if
in order to achieve higher returns, the Fund remains substantially fully
invested at the same time that it has purchased securities on a when-issued or
TBA basis, there will be a possibility that the market value of the Fund's
assets will experience greater fluctuation. The purchase of securities on a
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when-issued or TBA basis may involve a risk of loss if the broker-dealer selling
the securities fails to deliver after the value of the securities has risen.
When the time comes for the Fund to make payment for securities purchased
on a when-issued or TBA basis, the Fund will do so by using then available cash
flow, by sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued or TBA basis themselves (which
may have a market value greater or less than the Fund's payment obligation).
Although the Fund will only make commitments to purchase securities on a
when-issued or TBA basis with the intention of actually acquiring the
securities, the Fund may sell these securities before the settlement date if it
is deemed advisable by the Adviser as a matter of investment strategy.
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
by 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,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. 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 its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, 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 will
agree that the value of the underlying security, including accrued interest,
will at all
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times equal or exceed the value of the repurchase agreement. The collateral
securing the seller's obligation must be of a credit quality at least equal to a
Fund's investment criteria for portfolio securities and will be held by the
Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from a Fund to the seller subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by a Fund subject to a repurchase agreement as being owned
by that Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the securities before repurchase of the security under a
repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the security. If a court characterized the transaction as a loan and a
Fund has not perfected a security interest in the security, that Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case a Fund may
incur a loss if the proceeds to that Fund of the sale of the security to a third
party are less than the repurchase price. However, if the market value of the
securities subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund involved will direct the seller of the
security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
enforce the seller's contractual obligation to deliver additional securities.
Loans of Portfolio Securities. Each Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral must,
on each business day, at least equal the value of the loaned securities. To be
acceptable as collateral, letters of credit must obligate a bank to pay amounts
demanded by a Fund if the demand meets the terms of the letter. Such terms and
the issuing bank must be satisfactory to the Fund. The Funds receive amounts
equal to the
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dividends or interest on loaned securities and also receive one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, or (c)
interest on short-term debt securities purchased with such collateral; either
type of interest may be shared with the borrower. The Funds may also pay fees to
placing brokers as well as custodian and administrative fees in connection with
loans. Fees may only be paid to a placing broker provided that the Trustees
determine that the fee paid to the placing broker is reasonable and based solely
upon services rendered, that the Trustees separately consider the propriety of
any fee shared by the placing broker with the borrower, and that the fees are
not used to compensate the Adviser or any affiliated person of the Trust or an
affiliated person of the Adviser or other affiliated person. The terms of the
Funds' loans must meet applicable tests under the Internal Revenue Code and
permit the Funds to reacquire loaned securities on five days' notice or in time
to vote on any important matter.
Interest Rate Futures Contracts. Interest rate futures contracts ("futures"
or "futures contracts") may be used as a hedge against changes in prevailing
levels of interest rates in order to establish more definitely the effective
return on securities held or intended to be acquired by the Short/ Intermediate
Term Fixed-Income Fund. In this regard, the Fund could sell interest rate
futures as an offset against the effect of expected increases in interest rates
and purchase such futures as an offset against the effect of expected declines
in interest rates. The Fund will enter into futures contracts which are traded
on national futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal interest rate futures exchanges
in the United States are the Board of Trade of the City of Chicago and the
Chicago Mercantile Exchange. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission. Although
techniques other than sale and purchase of futures contracts could be used for
these purposes, futures contracts offer an effective and relatively low cost
means of implementing the Fund's objectives in these areas.
The Fund will not enter into a futures contract if, as a result thereof,
(i) the then current aggregate futures market prices of financial instruments
required to be delivered under open futures contract sales plus the then current
aggregate purchase prices of financial instruments required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits on such
futures contracts. In instances involving the purchase of futures contracts by
the Fund, an amount of cash, U.S. Government
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obligations or other liquid 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.
As an alternative to bona fide hedging as defined by the CFTC, the Fund may
comply with a different standard established by CFTC rules with respect to
futures contracts purchased by the Fund incidental to the Fund's activities in
the securities markets, under which the value of the assets underlying such
positions will not exceed the sum of (a) cash set aside in an identifiable
manner or short-term U.S. Government obligations or other U.S.
dollar-denominated high-grade short-term debt securities segregated for this
purpose, (b) cash proceeds on existing investments due within thirty days and
(c) accrued profits on the particular futures contract or option thereon. In
addition, CFTC regulations may impose limitations on the Fund's ability to
engage in certain yield enhancement and risk management strategies. If the CFTC
or other regulatory authorities adopt different (including less stringent) or
additional restrictions, the Fund would comply with such new restrictions.
A futures contract provides for the future sale by one party and purchase
by another party of a specified amount of a specific financial instrument for a
specified price, date, time and place designated at the time the contract is
made. Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position. Unlike when the Fund purchases or sells a security,
no price would be paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a futures contract, and to maintain the
Fund's open positions in futures contracts, the Fund would be required to
deposit with the Custodian in a segregated account in the name of the futures
broker an amount of cash, U.S. Government obligations, suitable money market
instruments or other liquid securities, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the
value of the contract being traded.
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If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund. These subsequent payments, called
"variation margin," to and from the futures broker, are made on a daily basis as
the price of the underlying assets fluctuate making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market." The Fund expects to earn interest income on its margin deposits.
Although futures contracts typically require actual future delivery of and
payment for financial instruments, in practice most futures contracts are
usually closed out before the delivery date. Closing out an open futures
contract sale or purchase is effected by entering into an offsetting futures
contract purchase or sale, respectively, for the same aggregate amount of the
identical type of financial instrument and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that the Fund will be able to enter into an offsetting transaction with respect
to a particular contract at a particular time. If the Fund is not able to enter
into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the contract. As an example of an offsetting
transaction in which the financial instrument is not delivered, the contractual
obligations arising from the sale of one contract of September Treasury Bills on
an exchange may be fulfilled at any time before delivery of the contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of one contract of September Treasury Bills on the same exchange. In
such instance, the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in interest rates, which in turn
are affected by fiscal and monetary policies and national and international
political and economic events. Most United States futures exchanges limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or
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down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor. For example, if at the time of purchase, 10% of the value
of the futures contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that the Fund
has sufficient assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract liquid securities equal in value to the
current value of the underlying instrument less the margin deposit.
The Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The Fund would do so to reduce exposure
represented by long futures positions or increase exposure represented by short
futures positions. The Fund may close its positions by taking opposite positions
which would operate to terminate the Fund's position in the futures contracts.
Final determinations of variation margin would then be made, additional cash
would be required to be paid by or released to the Fund, and the Fund would
realize a loss or a gain. Futures contracts may be closed out only on the
exchange or board of trade where the contracts were initially traded. Although
the Fund intends to purchase or sell futures contracts only on exchange or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract at any particular time. In such event, it might not be
possible to close a futures contract, and in the event of adverse price
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movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, the Fund would continue to hold securities subject
to the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of the securities, if any, might
partially or completely offset losses on the futures contract. However, as
described below, there is no guarantee that the price of the securities will, in
fact, correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
A decision of whether, when and how to hedge involves skill and judgment,
and even a well-conceived hedge may be unsuccessful to some degree because of
interest rate trends. There are several risks in connection with the use by the
Fund of futures contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the futures contracts
and movements in the prices of securities which are the subject of the hedge.
The Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Fund's portfolio securities sought to be
hedged. Successful use of futures contracts by the Fund for hedging purposes is
also subject to the Adviser's ability to correctly predict movements in the
direction of the market. It is possible that, when the Fund has sold futures to
hedge its portfolio against decline in the securities on which the futures are
written might advance and the value of securities held in the Fund's portfolio
might decline. If this were to occur, the Fund would lose money on the futures
and also would experience a decline in value in its portfolio securities.
However, while this might occur to a certain degree, the Adviser believes that
over time the value of the Fund's portfolio will tend to move in the same
direction as the securities underlying the futures, which are intended to
correlate to the price movements of the portfolio securities sought to be
hedged. It is also possible that if the Fund were to hedge against the
possibility of a decline in the market (adversely affecting securities held in
its portfolio) and prices instead increased, the Fund would lose part or all of
the benefit of increased value of those securities that it has hedged, because
it would have offsetting losses in its futures positions. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell securities
to meet daily variation margin requirements. Such sales of securities might be,
but would not necessarily be, at increased prices (which would reflect the
rising market). The Fund might have to sell securities at a time when it would
be disadvantageous to do so.
-15-
<PAGE>
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying security due to certain market distortions. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by the Adviser might
not result in a successful hedging transaction over a very short time period.
Generally, the Fund is required, for federal income tax purposes, to
recognize as income for each taxable year its net unrealized gains and losses on
futures contracts as of the end of the year as well as those actually realized
during the year. Gain or loss recognized with respect to a futures contract will
generally be 60% long-term capital gain or loss and 40% short-term capital gain
or loss, without regard to the holding period of the contract. Futures contracts
which are intended to hedge against a change in the value of securities may be
classified as "mixed straddles," in which case the recognition of losses may be
deferred to a later year. In addition, sales of such futures contracts on
securities may affect the holding period of the hedged security and,
consequently, the nature of the gain or loss on such security on disposition. In
order for the Fund to continue to qualify for federal income tax treatment as a
regulated investment company, at least 90% of its gross income for a taxable
year must be derived from qualifying income; i.e., dividends, interest, income
derived from loans of securities, and gains from the sale of securities.
The Fund will distribute to shareholders annually any net gains which have
been recognized for federal income tax purposes from futures transactions
(including unrealized gains at the end of the Fund's fiscal year). Such
distributions will be combined with distributions of ordinary income or capital
gains realized on the Fund's other investments. Shareholders will be advised of
the nature of the payments.
-16-
<PAGE>
Covered Call and Put Options. The Short/Intermediate Term Fixed-Income Fund
may write (sell) "covered" call options and purchase covered put options, and
purchase call and write put options to close out options previously entered into
by the Fund. The purpose of writing covered call options and purchasing covered
put options will be to reduce the effect of price fluctuations of the securities
owned by the Fund (and involved in the options) on the Fund's net asset value
per share. Although additional revenue may be generated through the use of
covered call options, the Adviser does not consider the additional revenues
which may be generated as the primary reason for writing covered call options.
A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by repurchasing an option identical to that
previously sold. To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the clearing
corporation and of the Exchanges. A put option gives the holder (buyer) the
"right to sell" a security at a specified price (the exercise price) at any time
until a certain date (the expiration date). The Fund will only write covered
call options and purchase covered put options. This means that the Fund will
only write a call option or purchase a put option on a security which the Fund
already owns. The Fund will not write call options on when-issued securities.
The Fund will not write a covered call option or purchase a put option if, as a
result, the aggregate market value of all portfolio securities covering call
options or subject to put options exceeds 25% of the market value of the Fund's
net assets.
Portfolio securities on which put options will be purchased and call
options may be written will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objective. The writing of
covered call options is a conservative investment technique believed to involve
relatively little risk (in contrast to the writing of naked or uncovered
options, which the Fund will not do), but capable of enhancing the Fund's total
return. When writing a covered call option, the Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
security above the exercise price, but conversely retains the risk of loss
should
-17-
<PAGE>
the price of the security decline. Unlike one who owns securities not subject to
an option, the Fund has no control over when it may be required to sell the
underlying securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer. If a call option which
the Fund has written expires, the Fund will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security during the option period. If the call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security. The Fund will purchase put options involving portfolio securities only
when the Adviser believes that a temporary defensive position is desirable in
light of market conditions, but does not desire to sell the portfolio security.
Therefore, the purchase of put options will be utilized to protect the Fund's
holdings in an underlying security against a substantial decline in market
value. Such protection is, of course, only provided during the life of the put
option when the Fund, as the holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. By using put options in this manner, the
Fund will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs. The
security covering the call or put option will be maintained in a segregated
account with the Fund's custodian. The Fund does not consider a security covered
by a call or put option to be "pledged" as that term is used in the Fund's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the Fund
will receive from writing a call option, or which the Fund will pay when
purchasing a put option, will reflect, among other things, the current market
price of the underlying security, the relationship of the exercise price to such
market price, the historical price volatility of the underlying security, the
length of the option period, the general supply of and demand for credit, and
the general interest rate environment. Once the decision to write a call option
has been made, the Adviser, in determining whether a particular call option
should be written on a particular security, will consider the reasonableness of
the anticipated premium and the likelihood that a liquid secondary market will
exist for those options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of the regular session of trading on the New York Stock
Exchange) or, in the absence of such sale, the latest asked price. The option
will be terminated upon expiration of the option, the purchase of an
-18-
<PAGE>
identical option in a closing transaction, or delivery of the underlying
security upon the exercise of the option. The premium paid by the Fund when
purchasing a put option will be recorded as an asset of the Fund. This asset
will be adjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of the Fund
is computed (close of the regular session of trading on the New York Stock
Exchange) or, in the absence of such sale, the latest bid price. The assets will
be terminated upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the underlying
security upon the exercise of the option.
The Fund will only purchase a call option to close out a covered call
option it has written. The Fund will only write a put option to close out a put
option it has purchased. Such closing transactions will be effected in order to
realize a profit on an outstanding call or put option, to prevent an underlying
security from being called or put, or to permit the sale of the underlying
security. Furthermore, effecting a closing transaction will permit the Fund to
write another call option, or purchase another put option, on the underlying
security with either a different exercise price or expiration date or both. If
the Fund desires to sell a particular security from its portfolio on which it
has written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is, of course, no assurance that the Fund will be able to effect such
closing transactions at a favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold. When the Fund writes a covered call option, or purchases a put option, it
runs the risk of not being able to participate in the appreciation of the
underlying security above the exercise price, as well as the risk of being
required to hold onto securities that are depreciating in value. The Fund will
pay transaction costs in connection with the writing or purchasing of options to
close out previously written options. Such transaction costs are normally higher
than those applicable to purchases and sales of portfolio securities.
Options written by the Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, the Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional costs will be incurred. The Fund will realize a profit
or loss from a closing purchase transaction if the cost of
-19-
<PAGE>
the transaction is less or more than the premium received from the writing of
the option; however, any loss so incurred in a closing purchase transaction may
be partially or entirely offset by the premium received from a simultaneous or
subsequent sale of a different call or put option. Also, because increases in
the market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
The Fund may engage in transactions involving dealer options. Certain risks
are specific to dealer options. While the Fund would look to the Clearing
Corporation to exercise exchange-traded options, if the Fund were to purchase a
dealer option, it would rely on the dealer from whom it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of premium paid by the Fund as well as loss of the expected
benefit of the transaction. Exchange-traded options generally have a continuous
liquid market while dealer options have none. Consequently, the Fund will
generally be able to realize the value of a dealer option it has purchased only
by exercising it or reselling it to the dealer who issued it. Similarly, when
the Fund writes a dealer option, it generally will be able to close out the
option transaction with the dealer to which the Fund originally wrote the
option. While the Fund will seek to enter into dealer options only with dealers
who will agree to and which are expected to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate a dealer option at a favorable price at any time prior to
expiration. Until the Fund, as a covered dealer call option writer, is able to
effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used as cover until the option expires or is
exercised. In the event of insolvency of the contra party, the Fund may be
unable to liquidate a dealer option. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, since the Fund must maintain a secured position
with respect to any call option on a security it writes, the Fund may not sell
the assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such a sale might be advantageous. The Staff
of the Securities and Exchange Commission has taken the position that purchased
dealer options and the assets used to secure written dealer options are illiquid
securities. Accordingly, the Fund will treat dealer options as subject to the
Fund's limitation on investments in illiquid securities. If the Commission
changes its position on the liquidity of dealer options, the Fund will change
its treatment of such instruments accordingly.
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<PAGE>
Certain option transactions have special tax results for the Fund. Listed
non-equity options will be considered to have been closed out at the end of the
Fund's fiscal year and any gains or losses will be recognized for tax purposes
at that time. Such gains or losses would be characterized as 60% long-term
capital gain or loss and 40% short-term capital gain or loss regardless of the
holding period of the option. In addition, losses on purchased puts and written
covered calls, to the extent they do not exceed the unrealized gains on the
securities covering the options, may be subject to deferral until the securities
covering the options have been sold. The holding period of the securities
covering these options will be deemed not to begin until the option is
terminated. Losses on written covered calls and purchased puts on securities may
be long-term capital losses, if the security covering the option was held for
more than twelve months prior to the writing of the option.
Foreign Securities. Subject to each Fund's investment policies and quality
and maturity standards, the Funds may invest in the securities (payable in U.S.
dollars) of foreign issuers and in the securities of foreign branches of U.S.
banks such as negotiable certificates of deposit (Eurodollars). The Equity Fund
may also invest up to 10% of its net assets in non-U.S. dollar-denominated
securities principally traded in financial markets outside the United States.
Because the Funds may invest in foreign securities, investment in the Funds
involves risks that are different in some respects from an investment in a fund
which invests only in securities of U.S. domestic issuers. Foreign investments
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. There may be less
governmental supervision of securities markets, brokers and issuers of
securities. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Settlement
practices may include delays and may differ from those customary in United
States markets. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
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<PAGE>
Warrants and Rights. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but normally have a short duration and are distributed by the
issuer to its shareholders. The Equity Fund may purchase warrants and rights,
provided that the Fund does not invest more than 5% of its net assets at the
time of purchase in warrants and rights other than those that have been acquired
in units or attached to other securities. Of such 5%, no more than 2% of the
Fund's assets at the time of purchase may be invested in warrants which are not
listed on either the New York Stock Exchange or the American Stock Exchange.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
- -------------------------------------------------------
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
-22-
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
-23-
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Funds. These limitations may not be
changed with respect to either Fund without the affirmative vote of a majority
of the outstanding shares of that Fund.
The limitations applicable to each Fund are:
1. Borrowing Money. The Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
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<PAGE>
3. Margin Purchases. The Fund will not purchase any securities on "margin"
(except such short-term credits as are necessary for the clearance of
transactions). The deposit of funds in connection with transactions in options,
futures contracts, and options on such contracts will not be considered a
purchase on "margin."
4. Short Sales. The Fund will not make short sales of securities other than
short sales "against the box."
5. Commodities. The Fund will not purchase or sell commodities or
commodities futures except that the Fund may purchase or sell financial futures
contracts and related options.
6. Mineral Leases. The Fund will not purchase oil, gas or other mineral
leases, rights or royalty contracts.
7. Underwriting. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities, a Fund may be deemed an
underwriter under certain federal securities laws.
8. Illiquid Investments. The Fund will not purchase securities for which no
readily available market exists or engage in a repurchase agreement maturing in
more than 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.
9. Real Estate. The Fund will not purchase, hold or deal in real estate or
real estate mortgage loans, except that the Fund may purchase (a) securities of
companies (other than limited partnerships) which deal in real estate or (b)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
10. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
marketable bonds, debentures, commercial paper or corporate notes, and similar
marketable evidences of indebtedness which are part of an issue for the public.
11. Investing for Control. The Fund will not invest in companies for the
purpose of exercising control.
12. Other Investment Companies. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.
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<PAGE>
13. Amount Invested in One Issuer. The Fund will not invest more than 5% of
its total assets in the securities of any issuer; provided, however, that there
is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
14. Voting Securities of Any Issuer. The Fund will not purchase more than
10% of the outstanding voting securities of any issuer.
15. Securities Owned by Affiliates. The Fund will not purchase or retain
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or partners of its Adviser, owning individually more than
one-half of 1% of the securities of such issuer, own in the aggregate more than
5% of the securities of such issuer.
16. Industry Concentration. The Fund will not invest more than 25% of its
total assets in any particular industry.
17. Senior Securities. The Fund will not issue or sell any senior security
as defined by the Investment Company Act of 1940 except in so far as any
borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
With respect to the percentages adopted by the Trust as maximum limitations
on a Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities) will not be a violation of the
policy or restriction unless the excess results immediately and directly from
the acquisition of any security or the action taken.
The Trust has never pledged, mortgaged or hypothecated the assets of either
Fund, and the Trust presently intends to continue this policy. The Trust has
never made, nor does it presently intend to make, short sales of securities
"against the box." The Trust has never acquired, nor does it presently intend to
acquire, securities issued by any other investment company or investment trust.
The statements of intention in this paragraph reflect nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.
-26-
<PAGE>
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the Trust
and their aggregate compensation from the Trust for the fiscal year ended
November 30, 1997. Each Trustee who is an "interested person" of the Trust, as
defined by the Investment Company Act of 1940, is indicated by an asterisk.
COMPENSATION
NAME AGE POSITION HELD FROM TRUST
- ---- --- ------------- ----------
*Malcolm D. Clarke, Jr 62 President/Trustee $ 0
*James G. Pepper 53 Vice President/Trustee 0
*Francis S. Branin, Jr 51 Vice President/Trustee 0
*Cheryl L. Grandfield 46 Vice President/Trustee 0
*Charles G. Watson 66 Trustee 0
+Jerome B. Lieber 77 Trustee 5,400
+Antoinette Geyelin Hoar 48 Trustee 5,400
+William M.R. Mapel 66 Trustee 5,400
+Crosby R. Smith 62 Trustee 5,400
Robert G. Dorsey 41 Vice President 0
John F. Splain 41 Secretary 0
Mark J. Seger 36 Treasurer 0
Eric P. Spiegel 46 Assistant Treasurer 0
* Messrs. Clarke, Pepper and Branin and Miss Grandfield, as principals
of Brundage, Story and Rose LLC, the Trust's investment adviser, are
"interested persons" of the Trust within the meaning of Section
2(a)(19) of the Investment Company Act of 1940. Mr. Watson, as a
retired former principal of Brundage, Story and Rose LLC, is also an
"interested person" of the Trust within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the remaining Trustees and executive officers
of the Trust during the past five years are set forth below:
JEROME B. LIEBER, 40th Floor, One Oxford Centre, Pittsburgh, Pennsylvania,
is Senior Counsel with Klett Lieber Rooney & Schloring, Attorneys at Law. He is
also Secretary and a director of Decorator Industries, Inc. (a manufacturer of
draperies and bedspreads).
ANTOINETTE GEYELIN HOAR, 16 East 96th Street, New York, New York, is Vice
President of Bankers Trust Company.
WILLIAM M. R. MAPEL, 18 Stephanie Lane, Darien, Connecticut, is a director
of Churchill Capital Partners (investments), Galey & Lord (textiles) and NSC
Corporation (environmental services).
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<PAGE>
CROSBY R. SMITH, 1330 Avenue of the Americas, 27th Floor, New York, New
York, is Chairman of Keswick Management Inc., a financial management firm. He is
President and a director of The Dillon Fund (a private foundation) and a trustee
of the Clarence & Anne Dillon Dunwalke Trust (a charitable trust). He is also a
general partner of New England Land Associates (timberland owner) and a director
of Bedminster Bio Conversion Corp. (composting and waste disposal).
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio, is President and
Treasurer of Countrywide Fund Services, Inc. (a registered transfer agent) and
CW Fund Distributors, Inc. (a registered broker-dealer) and Treasurer of
Countrywide Investments, Inc. (a registered broker-dealer and investment
adviser) and Countrywide Financial Services, Inc. (a financial services company
and parent of Countrywide Fund Services, Inc., CW Fund Distributors, Inc. and
Countrywide Investments, Inc. and a wholly-owned subsidiary of Countrywide
Credit Industries, Inc.). He is also Vice President of Markman MultiFund Trust,
Dean Family of Funds, The New York State Opportunity Funds, Lake Shore Family of
Funds, Maplewood Investment Trust and Wells Family of Real Estate Funds and
Assistant Vice President of Interactive Investments, Schwartz Investment Trust,
The Tuscarora Investment Trust, Williamsburg Investment Trust, The Gannett Welsh
& Kotler Funds and The Westport Funds (all of which are registered investment
companies).
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio, is Vice President,
Secretary and General Counsel of Countrywide Fund Services, Inc. and CW Fund
Distributors, Inc. and Secretary and General Counsel of Countrywide Investments,
Inc. and Countrywide Financial Services, Inc. He is also Secretary of
Countrywide Investment Trust, Countrywide Tax-Free Trust, Countrywide Strategic
Trust, Markman MultiFund Trust, The Tuscarora Investment Trust, Williamsburg
Investment Trust, Lake Shore Family of Funds, Maplewood Investment Trust and
Wells Family of Real Estate Funds and Assistant Secretary of Interactive
Investments, Schwartz Investment Trust, Dean Family of Funds, The New York State
Opportunity Funds, The Gannett Welsh & Kotler Funds and The Westport Funds.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio, is Vice
President of Countrywide Financial Services, Inc. and Countrywide Fund Services,
Inc. He is also Treasurer of Countrywide Investment Trust, Countrywide Tax-Free
Trust, Countrywide Strategic Trust, Markman MultiFund Trust, Williamsburg
Investment Trust, Dean Family of Funds, The New York State Opportunity Funds,
Lake Shore Family of Funds, Maplewood Investment Trust and Wells Family of Real
Estate Funds and Assistant Treasurer of Interactive Investments, Schwartz
Investment Trust, The Tuscarora Investment Trust, The Gannett Welsh & Kotler
Funds and The Westport Funds.
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<PAGE>
ERIC P. SPIEGEL, One Broadway, New York, New York, is the Comptroller of
Brundage, Story and Rose LLC.
THE INVESTMENT ADVISER
- ----------------------
Brundage, Story and Rose LLC (the "Adviser"), One Broadway, New York, New
York 10004, is the Trust's investment manager. Messrs. Clarke, Pepper and Branin
and Miss Grandfield, as principals of the Adviser, may directly or indirectly
receive benefits from the advisory fees paid to the Adviser. Under the terms of
the investment advisory agreement between the Trust and the Adviser, the Adviser
manages the Funds' investments. The Equity Fund pays the Adviser a fee computed
and accrued daily and paid monthly at an annual rate of .65% of its average
daily net assets. The Short/Intermediate Term Fixed-Income Fund pays the Adviser
a fee computed and accrued daily and paid monthly at an annual rate of .5% of
its average daily net assets.
For the fiscal years ended November 30, 1997, 1996 and 1995, the Equity
Fund paid advisory fees of $204,053, $164,902 and $138,193, respectively. For
the fiscal years ended November 30, 1997, 1996 and 1995, the Short/Intermediate
Term Fixed-Income Fund accrued advisory fees of $167,570, $162,321 and $174,030,
respectively; however, in order to reduce the operating expenses of the Fund,
the Adviser voluntarily waived $140,249, $145,018 and $171,125 of such fees for
the fiscal years ended November 30, 1997, 1996 and 1995, respectively.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The Adviser bears promotional expenses in
connection with the distribution of the Funds' shares to the extent that such
expenses are not assumed by the Funds under their plan of distribution (see
below) and has agreed to reimburse the Underwriter for any expenses incurred by
it in the performance of its obligations under the Underwriting Agreement with
the Trust. The compensation and expenses of any officer, Trustee or employee of
the Trust who is an officer, principal or employee of the Adviser are paid by
the Adviser.
By its terms, the Trust's investment advisory agreement will remain in
force until December 31, 1998 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or (b) a vote of the majority of a
Fund's outstanding
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<PAGE>
voting securities; provided that in either event continuance is also approved by
a majority of the Trustees who are not interested persons of the Trust, by a
vote cast in person at a meeting called for the purpose of voting such approval.
The Trust's investment advisory agreement may be terminated at any time, on
sixty days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of a Fund's outstanding voting securities,
or by the Adviser. The investment advisory agreement automatically terminates in
the event of its assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
The name "Brundage, Story and Rose" is a property right of the Adviser. The
Adviser may use the name "Brundage, Story and Rose" in other connections and for
other purposes, including in the name of other investment companies. The Trust
has agreed to discontinue any use of the name "Brundage, Story and Rose" if the
Adviser ceases to be employed as the Trust's investment manager.
DISTRIBUTION PLAN
- -----------------
As stated in the Prospectus, the Funds have adopted a plan of distribution
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940
which permits each Fund to pay for expenses incurred in the distribution and
promotion of the Funds' shares, including but not limited to, the printing of
prospectuses, statements of additional information and reports used for sales
purposes, advertisements, expenses of preparation and printing of sales
literature, promotion, marketing and sales expenses and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Underwriter. The Plan expressly limits payment of the
distribution expenses listed above in any fiscal year to a maximum of .25% of
the average daily net assets of each Fund. Unreimbursed expenses will not be
carried over from year to year.
For the fiscal year ended November 30, 1997, the aggregate expenditures of
the Equity Fund and the Short/Intermediate Term Fixed-Income Fund under the Plan
were $1,521 and $1,687, respectively, which was spent for the preparation of
prospectuses and reports for prospective shareholders.
Agreements implementing the Plan (the "Implementation Agreements"),
including an agreement with the Adviser wherein the Adviser agrees to adhere to
the terms of the Plan and agreements with dealers wherein such dealers agree for
a fee to act as agents for the sale of the Funds' shares, are in writing and
have been approved by the Board of Trustees. All payments made pursuant to the
Plan are made in accordance with written agreements.
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<PAGE>
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of a Fund. In the event the Plan
is terminated in accordance with its terms, the affected Fund will not be
required to make any payments for expenses incurred by the Adviser after the
termination date. Each Implementation Agreement terminates automatically in the
event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of the holders of a majority
of the outstanding shares of a Fund on not more than 60 days' written notice to
any other party to the Implementation Agreement. The Plan may not be amended to
increase materially the amount to be spent for distribution without shareholder
approval. All material amendments to the Plan must be approved by a vote of the
Trust's Board of Trustees and by a vote of the Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plan should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Funds pursuant
to the Plan and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. In addition, the
selection and nomination of those Trustees who are not interested persons of the
Trust are committed to the discretion of the Independent Trustees during such
period.
As principals of the Adviser, Messrs. Clarke, Pepper and Branin and Miss
Grandfield may be deemed to have a financial interest in the operation of the
Plan and the Implementation Agreements.
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<PAGE>
THE UNDERWRITER
- ---------------
CW Fund Distributors, Inc. (the "Underwriter") is the principal underwriter
of the Funds and, as such, the exclusive agent for distribution of shares of the
Funds. The Underwriter is obligated to sell the shares on a best efforts basis
only against purchase orders for the shares. Shares of each Fund are offered to
the public on a continuous basis.
The Funds may compensate dealers, including the Underwriter and its
affiliates, based on the average balance of all accounts in the Funds for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" above.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of the
Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Funds, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received. For the fiscal years ended
November 30, 1997, 1996 and 1995, the Equity Fund paid brokerage commissions of
$25,162, $20,833 and $19,400, respectively.
Generally, the Funds attempt to deal directly with the dealers who make a
market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Funds may be purchased
directly from the issuer. Because the portfolio securities of the
Short/Intermediate Term Fixed-Income Fund are generally traded on a net basis
and transactions in such securities do not normally involve brokerage
commissions, the cost of portfolio securities transactions of the Fund will
consist primarily of dealer or underwriter spreads. No brokerage commissions
were paid by the Short/Intermediate Term Fixed-Income Fund during the last three
fiscal years.
The Adviser is specifically authorized to select brokers who also provide
brokerage and research services to the Funds and/or other accounts over which
the Adviser exercises investment discretion and to pay such brokers a commission
in excess of the commission another broker would charge if the Adviser
determines in good faith that the commission is reasonable in relation to the
value of the brokerage and research services provided. The determination may be
viewed in terms of a particular transaction
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<PAGE>
or the Adviser's overall responsibilities with respect to the Funds and to
accounts over which it exercises investment discretion. During the fiscal year
ended November 30, 1997, the amount of brokerage transactions and related
commissions for the Equity Fund directed to brokers due to research services
provided were $14,276,794 and $15,690, respectively.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Funds and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Funds effect securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Funds.
The Adviser may aggregate purchase and sale orders for the Funds and its
other clients if it believes such aggregation is consistent with its duty to
seek best execution for the Funds and its other clients. The Adviser will not
favor any advisory account over any other account, and each account that
participates in an aggregated order will participate at the average share price
for all transactions of the Adviser in that security on a given business day,
with all transaction costs shared on a pro rata basis. The Adviser will prepare,
before entering an aggregated order, a written Allocation Statement as to how
the order will be allocated among the various accounts. If the aggregated order
is filled in its entirety, it shall be allocated among the accounts in
accordance with the Allocation Statement; if the order is partially filled, it
shall be allocated pro rata based on the Allocation Statement. Notwithstanding
the foregoing, the order may be allocated on a basis different from that
specified in the Allocation Statement if all accounts of clients whose orders
are allocated receive fair and equitable treatment and the reason for such
different allocation is explained in writing and is approved in writing by the
Adviser's compliance officer no later than one hour after the opening of the
markets on the trading day following the day on which the order is executed.
As of November 30, 1997, the Equity Fund held securities (the market value
of which was $513,844) of J.P. Morgan & Company, Inc., the parent of one of the
Trust's regular broker-dealers. As of November 30, 1997, the Short/Intermediate
Term Fixed-Income Fund held securities of the following of the Trust's regular
broker-dealers or their parents: Salomon Smith Barney Holdings, Inc. (the market
value of which was $996,740 as of November 30, 1997); and Lehman Brothers, Inc.
(the market value of which was $989,790 as of November 30, 1997).
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<PAGE>
Code of Ethics. The Trust and the Adviser have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of 1940. The Code significantly
restricts the personal investing activities of all access persons of the Adviser
and, as described below, imposes additional, more onerous, restrictions on
investment personnel of the Adviser. The Code requires that access persons of
the Adviser preclear any personal securities investment (with limited
exceptions, such as U.S. Government obligations). The preclearance requirement
and associated procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. In addition, no access
person may purchase or sell any security which at the time is being purchased or
sold (as the case may be), or to the knowledge of the access person is being
considered for imminent purchase or sale, by the Funds. Furthermore, the Code
provides for trading "blackout periods" which prohibit trading by investment
personnel for the Fund within periods of trading by the Funds in the same (or
equivalent) security.
PORTFOLIO TURNOVER
- ------------------
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. The Adviser anticipates that the portfolio turnover rate for each Fund
normally will not exceed 100%. A 100% turnover rate would occur if all of a
Fund's portfolio securities were replaced once within a one year period.
Generally, each Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate. For the fiscal years ended November 30, 1997 and 1996, the
Equity Fund's portfolio turnover rate was 49% and 44%, respectively, and the
Short/Intermediate Term Fixed-Income Fund's portfolio turnover rate was 46% and
40%, respectively.
CALCULATION OF SHARE PRICE
- --------------------------
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) on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be
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<PAGE>
open for business on other days in which there is sufficient trading in either
Fund's portfolio securities that its net asset value might be materially
affected. For a description of the methods used to determine the share price,
see "Calculation of Share Price" in the Prospectus.
TAXES
- -----
The Prospectus describes generally the tax treatment of distributions by
the Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
Each Fund has qualified and intends to qualify annually 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. To so qualify a Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction. As of November 30, 1997, the Short/Intermediate Term
Fixed-Income Fund had capital loss carryforwards for federal income tax purposes
of $379,925, none of which expire prior to November 30, 2002.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the
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<PAGE>
"required distribution" is 98% of a Fund's ordinary income for the calendar year
plus 98% of its net capital gains recognized during the one year period ending
on November 30 of the calendar year plus undistributed amounts from prior years.
The Funds intend to make distributions sufficient to avoid imposition of the
excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, each Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula: P (1 + T)n = ERV Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. If a Fund has been in existence less than one, five
or ten years, the time
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<PAGE>
period since the date of the initial public offering of shares will be
substituted for the periods stated. The average annual total returns of the
Funds for the periods ended December 31, 1997 are as follows:
Equity Fund
- -----------
1 year 27.27%
5 years 16.19%
Since inception (January 2, 1991) 15.03%
Short/Intermediate Term Fixed-Income Fund
- -----------------------------------------
1 year 7.63%
5 years 6.51%
Since inception (January 2, 1991) 7.44%
Each 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 a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. The total returns of the Funds as
calculated in this manner for each year since inception are as follows:
Short/Intermediate
Year Ended Equity Fund Term Fixed-Income Fund
---------- ----------- ----------------------
December 31, 1991 22.73% 13.22%
December 31, 1992 2.50% 6.47%
December 31, 1993 10.26% 8.37%
December 31, 1994 -0.54% -2.27%
December 31, 1995 27.22% 15.53%
December 31, 1996 19.28% 4.09%
December 31, 1997 27.27% 7.63%
A nonstandardized quotation may also indicate average annual compounded rates of
return over periods other than those specified for average annual total return.
For example, the average annual compounded rates of return of the Equity Fund
for the 1 year ended November 30, 1997, the 3 years ended November 30, 1997, the
5 years ended November 30, 1997 and for the period since inception through
November 30, 1997 were 23.98%, 23.76%, 15.47% and 14.82%, respectively. The
average annual compounded rates of return for the Short/Intermediate Term
Fixed-Income Fund for the 1 year ended November 30, 1997, the 3 years ended
November 30, 1997, the 5 years ended November 30, 1997 and for the period since
inception through November 30, 1997 were 6.03%, 8.76%, 6.57% and 7.39%,
respectively. A nonstandardized quotation of total return will always be
accompanied by a Fund's average annual total return as described above.
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<PAGE>
From time to time, each of the Funds may advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
6
Yield = 2[(a-b/cd + 1) - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
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). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized. The yields of the Equity Fund and the
Short/Intermediate Term Fixed-Income Fund for November 1997 were 0.42% and
5.84%, respectively.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding each Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare performance
(using the calculation methods set forth in the Prospectus) to performance as
reported by other investments, indices and averages. When advertising current
ratings or rankings, the Funds may use the following publications or indices to
discuss or compare Fund performance:
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<PAGE>
Lipper Mutual Fund Performance Analysis and Lipper Fixed Income Fund
Performance Analysis measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
loads. The Equity Fund may provide comparative performance information appearing
in the Growth and Income Funds category and the Short/Intermediate Term
Fixed-Income Fund may provide comparative performance information appearing in
the Short-Term Investment Grade Debt Funds category. In addition, the Funds may
use comparative performance information of relevant indices, including the S&P
500 Index and the Dow Jones Industrial Average. The S&P 500 Index is an
unmanaged index of 500 stocks, the purpose of which is to portray the pattern of
common stock price movement. The Dow Jones Industrial Average is a measurement
of general market price movement for 30 widely held stocks listed on the New
York Stock Exchange.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of March 6, 1998, the Brundage, Story and Rose Profit Sharing Plan and
the Brundage, Story and Rose 401(k) Plan, One Broadway, New York, New York,
collectively owned of record 11.6% of the Trust's outstanding shares, including
21.6% of the outstanding shares of the Equity Fund and 5.8% of the outstanding
shares of the Short/Intermediate Term Fixed-Income Fund. As of March 6, 1998, JM
Fam Enterprises Inc., Agreement of Trust dtd 6/12/90, 100 NW 12th Avenue,
Deerfield Beach, Florida 33442, owned of record 5.5% of the outstanding shares
of the Short/Intermediate Term Fixed-Income Fund; Charles Schwab & Co., Inc.,
101 Montgomery Street, San Francisco, California 94104, owned of record 5.8% of
the outstanding shares of the Equity Fund and 16.0% of the outstanding shares of
the Short/Intermediate Term Fixed-Income Fund; and Charles G. Watson, 566 Weed
Street, New Canaan, Connecticut 06840, owned of record 8.1% of the outstanding
shares of the Short/Intermediate Term Fixed-Income Fund.
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<PAGE>
As of March 6, 1998, the Trustees and officers of the Trust as a group
owned of record or beneficially 21.7% of the Trust's outstanding shares,
including 27.9% of the outstanding shares of the Equity Fund and 18.0% of the
outstanding shares of the Short/Intermediate Term Fixed-Income Fund.
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has been
retained to act as Custodian for each Fund's investments. The Fifth Third Bank
acts as each Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending November 30, 1998. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Funds as to certain accounting
matters.
COUNTRYWIDE FUND SERVICES, INC.
- -------------------------------
The Trust's transfer agent, Countrywide Fund Services, Inc.
("Countrywide"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Funds' shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. Countrywide is an
affiliate of the Underwriter by reason of common ownership. Countrywide receives
for its services as transfer agent a fee payable monthly at an annual rate of
$15 per account from the Equity Fund and $19.50 per account from the
Short/Intermediate Term Fixed-Income Fund, provided, however, that the minimum
fee is $1,200 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.
Countrywide also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable Countrywide to perform its duties, the Funds
pay Countrywide a fee in accordance with the following schedule:
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<PAGE>
Monthly Fee
-----------------------------
Short/
Intermediate
Equity Term Fixed-
Asset Size of Fund Fund Income Fund
- -------------------- ------ ------------
0 - $ 50,000,000 $2,700 $3,000
50 - 100,000,000 3,200 3,500
100 - 150,000,000 3,700 4,000
150 - 200,000,000 4,200 4,500
200 - 250,000,000 4,700 5,000
Over 250,000,000 5,500 6,000
In addition, each Fund pays all costs of external pricing services.
In addition, Countrywide is retained to provide administrative services to
the Funds. In this capacity, Countrywide supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. Countrywide 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, each Fund pays Countrywide a fee 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 for
each Fund.
ANNUAL REPORT
- -------------
The Funds' financial statements as of November 30, 1997 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
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Brundage,
Story and Rose
Investment Trust
---------------------------
Annual Report
---------------------------
November 30, 1997
---------------------------
---------------------------
Short/Intermediate Term
---------------------------
Fixed-Income Fund
---------------------------
---------------------------
Equity Fund
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[LOGO]
-42-
<PAGE>
Letter To Shareholders January 20, 1998
- --------------------------------------------------------------------------------
ECONOMIC & FINANCIAL
MARKETS OUTLOOK
A Cold Wind Blows From Asia
While always important to the world economy, Asia has now taken center stage.
Beginning with a run on the Thai currency (Baht) in early June and spreading to
other Southeast Asian currencies and stock markets throughout the summer, the
"Asian Flu", as it has been dubbed, engulfed the rest of the region and then the
entire world, culminating in the worldwide stock market declines of late
October. While the markets in the U.S. and Europe quickly recovered, conditions
in Asia continued to deteriorate. Local currencies and stock markets continued
falling, eventually requiring the banking systems of Thailand, Indonesia and
Korea to be rescued by the International Monetary Fund (IMF), the World Bank and
the developed nations.
It does not appear that the region is yet out of the woods. The financial crisis
in South Korea seems to worsen daily, while Japan, the largest economy in the
region, still has not taken the steps necessary to pull its economy out of a
seven year slump. Meanwhile, the aftershocks are still being felt outside of the
region as investors reassess the risks of exotic investments in volatile foreign
markets and flee to the relative safety of the U.S. dollar and U.S. financial
markets.
The questions we find ourselves asking at this point are: What does all this
mean to the U.S. economy and corporate profits over the intermediate term, and
what are the implications for U.S. financial markets beyond the knee-jerk
reactions of the sort experienced in late October? Our conclusion is that, while
the round-the-clock selling in global stock markets during October was almost
silly, and while the long-term prospects for Asia will probably improve once
this crisis has passed, the potential negative implications for the U.S. equity
market are likely to prove more severe than currently believed. Asia, with two
thirds of the world's population and close to 40% of Gross World Product, is too
big and too important for such a large-scale crisis to be only a regional event.
As home to many of the world's fastest growing economies, the region has an
impact even more pronounced than its size would indicate.
What Happened?
At its core, the crisis in Asia is one of liquidity and confidence--first too
much and then too little. For years, countries in the region thrived by fixing
their exchange rates to the U.S. dollar and pursuing "Japan, Inc." styles of
economic development. This meant that governments were free to channel capital
into areas of national priority, while in international capital markets the
threat of currency devaluations had been removed. The economies of the region
thrived, vaulting themselves to economic powerhouses in three short decades.
Unfortunately, the Asian "economic miracle" had its dark side in a lack of
financial sector accountability, a potential to create excess capital and a lack
of marketplace disciplines. Worst of all, massive borrowings in the region were
denominated in outside currencies, principally U.S. dollars and Japanese yen.
The result was that, though seemingly formidable from the outside, the Asian
economic model had serious structural weaknesses.
So what turned inherent structural weaknesses into crisis? The stage was set in
the mid 1990's when China drastically devalued its currency, thereby giving
itself a significant competitive edge over its regional rivals. Soon, the
combination of strong domestic demand and growing export competition from China
led to ballooning trade deficits, declining foreign currency reserves and
growing concern among international lenders. Once confidence had been shaken, it
was the global currency speculators that provided the catalyst for the current
crisis, as they began to "bet against" the fixed exchange rate regimes. The
fixed exchange rate system finally collapsed in the summer of 1997 and the
judgment of the market was swift and brutal. Only China and Hong Kong, both with
large foreign currency reserves and U.S. dollar trade surpluses, were spared.
Of greatest concern to U.S. investors, of course, is the possibility that the
"Asian Flu" will reach across the Pacific to our own shores. Most troubling by
far is the outlook for corporate profits. Already lacking pricing power, many of
the most vibrant segments of the U.S. economy will now find themselves facing
competitors from Asia who, because of currency devaluations, suddenly have a
25%-50% cost advantage. In addition, many U.S. companies had pinned very high
hopes on their large investments in Asia, expecting them to provide growth
opportunities not available in a mature U.S. economy. The Asian crisis could
prove to be a double-edged sword, pressuring profit
-43-
<PAGE>
margins here in the U.S. and limiting the opportunities for growth in what had
been the most dynamic geographic region of the world.
Short/Intermediate Term
Fixed-Income Fund
During fiscal 1997, the yield curve changed shape as yields on short maturity
Treasury issues rose .15% - .25%, while five year rates were unchanged and long
maturity issues declined in yield by over .30%. This environment produced the
highest total rates of returns (coupon plus price appreciation) for 30 year
maturities at 9.35%. Total returns for the Merrill Lynch three and five year
Treasury indicies were 5.85% and 5.79%, respectively.
Your Fund's total return was 6.03% for the fiscal year, comparing favorably to
three to five year Treasury investments. Mortgage-backed bonds continued to
furnish strong returns in fiscal 1997, as these investments outperformed a
variety of similar duration alternatives. Our managers reduced weightings in
this area approximately 10 percentage points during the year, and we ended the
fiscal year with a little over one third of the portfolio invested in this high
achieving sector. We believe these issues will be attractive holdings in 1998,
but their relative returns will not be as attractive as during the last several
years.
Corporate holdings were increased during the year. Issues rated A and Baa were
increased from approximately 19% to 26% over the year as yield premiums widened
during the latter half of the year providing more opportunities to capture
attractive yield premiums.
The 30 day yield on the Fund at fiscal year-end was 5.84%. The yield was
attractive relative to three month Treasury bills at 5.19% and three year
maturity Treasury issues at 5.78%.
Equity Fund
Calendar 1997 was another outstanding year for the Equity Fund as it generated a
total return of 27.3%. This brings the three year a average annual total return
on the Fund to almost 25% per year. In relative terms, while lagging behind the
Standard & Poor's (S&P) 500 Index, this 27.3% outpaced most market measures
including the Dow Jones Industrial Average return of 24.9% and the Russell 2000
small company index of 22.2%. Results also compare favorably to Lipper mutual
fund benchmarks, beating the average return for growth equity funds of 25.3% and
the general equity funds average of 24.4%. For the fiscal year, the Fund's total
return was 24.0% versus 28.5% for the S&P 500 Index.
The best performing sectors in the Fund were health care, communications
services and financials, as increasing price volatility drove investors to the
relative safety of the first two sectors, while falling long-term interest rates
increased the attractiveness of many financial services companies which benefit
from such an environment. On the other side, technology companies, buffeted by
developments in Asia, gave back strong gains in the first half of the year,
while commodity companies also suffered from fears of a global slowdown.
As we begin 1998, it is our belief that the impact on corporate earnings of the
economic and financial meltdown in Asia are not fully appreciated in the market,
likely leading to a continuation of the volatility that has characterized the
equity market over the last six months. On the other hand, on a longer term
basis, and in light of virtually non-existent inflation and correspondingly low
interest rest rates, a more stable economic environment by the end of the year
would likely present new opportunities. In the interim, we have focused our
attention on growth-oriented capital goods companies and health care businesses.
While beginning to rebuild representation in selected technology and consumer
goods companies that have suffered from heavy non-U.S. exposure, we also
continue to emphasize medium-sized companies where valuations are more
compelling than in the large capitalization area.
Summary
While very low rates of inflation and decelerating growth of corporate profits
constitutes a very attractive environment for fixed-income securities, it seems
likely that there will be some disappointments within the equity area and, with
statistical valuations at historic high levels, we are inclined to be only
cautiously optimistic as we enter 1998. 1995 through 1997 has been the only
period in modern history when the S&P 500 Index has appreciated over 20% in
three consecutive years. In the current environment, it seems that somewhat
lower expectations would be prudent, but we have always felt that investment
horizons should be truly long-term and that predictions for shorter periods
often tend to be more humbling than prescient.
Sincerely yours,
/s/ Malcolm D. Clarke, Jr.
Malcolm D. Clarke, Jr.
President
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<PAGE>
Comparison of the Change in Value of a $10,000 Investment in the Brundage, Story
and Rose Short/Intermediate Term Fixed-Income Fund and the Merrill Lynch 3-Year
Treasury Index
Brundage, Story and Rose
Short/Intermediate Term Fixed-Income Fund
Average Annual Total Returns
1 Year 5 Year Since Inception*
6.03% 6.57% 7.39%
Past performance is not predictive of future performance
<TABLE>
<CAPTION>
Brundage, Story
and Rose
Short/Intermediate Merrill Lynch
Term 3 Year
Fixed-Income Fund Treasury Index
<S> <C> <C>
1/91 10000 10000
3/91 10158 10200
6/91 10357 10384
9/91 10864 10845
12/91 11322 11353
3/92 11240 11223
6/92 11685 11654
9/92 12130 12163
12/92 12054 12105
3/93 12488 12482
6/93 12747 12663
9/93 13007 12878
12/93 13063 12931
3/94 12848 12728
6/94 12751 12661
9/94 12828 12759
12/94 12766 12734
3/95 13366 13271
6/95 14036 13837
9/95 14263 14051
12/95 14749 14496
3/96 14647 14423
6/96 14734 14505
9/96 14999 14743
12/96 15352 15060
3/97 15323 15071
6/97 15764 15452
9/97 16178 15833
11/97 16366 16000
</TABLE>
*The public offering of shares commenced on January 2, 1991.
Comparison of the Change in Value of a $10,000 Investment in the Brundage,
Story and Rose Equity Fund and the Standard & Poor's 500 Index
Brundage, Story and Rose
Equity Fund
Average Annual Total Returns
1 Year 5 Year Since Inception*
23.98% 15.47% 14.82%
Past performance is not predictive of future performance
<TABLE>
<CAPTION>
Brundage, Story
and Rose Standard & Poor's
Equity Fund 500 Index
<S> <C> <C>
1/91 10000 10000
3/91 11100 11453
6/91 10736 11427
9/91 11280 12038
12/91 12273 13047
3/92 11890 12717
6/92 11802 12958
9/92 12371 13367
12/92 12579 14039
3/93 12875 14651
6/93 12907 14721
9/93 13385 15101
12/93 13870 15452
3/94 13148 14866
6/94 13156 14928
9/94 14103 15657
12/94 13795 15654
3/95 14791 17178
6/95 15543 18818
9/95 16875 20314
12/95 17551 21537
3/96 17916 22693
6/96 18920 23711
9/96 19188 24444
12/96 20934 26482
3/97 20587 27192
6/97 24236 31939
9/97 26143 34331
12/97 25983 34721
</TABLE>
*The public offering of shares commenced on January 2, 1991. 3
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<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1997
=============================================================================================================================
Short/
Intermediate
Term
Fixed-Income Equity
Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities:
At amortized cost (original cost $35,153,093 and $23,270,638, respectively)........ $ 35,143,353 $ 23,270,638
============= ==============
At market value (Note 2)........................................................... $ 35,613,937 $ 33,881,762
Investments in repurchase agreements (Note 2)........................................ 744,000 1,487,000
Cash................................................................................. 760 583
Receivable for capital shares sold................................................... 11,297 33,895
Interest and principal paydowns receivable........................................... 384,334 630
Dividends receivable................................................................. -- 39,323
Other assets......................................................................... 1,222 1,163
------------- --------------
TOTAL ASSETS................................................................. 36,755,550 35,444,356
------------- --------------
LIABILITIES
Payable for capital shares redeemed.................................................. 42,079 61,050
Dividends payable.................................................................... 31,781 --
Payable to affiliates (Note 4)....................................................... 13,773 28,214
Other accrued expenses and liabilities............................................... 15,100 12,079
------------- --------------
TOTAL LIABILITIES............................................................ 102,733 101,343
------------- --------------
NET ASSETS........................................................................... $ 36,652,817 $ 35,343,013
============= ==============
Net assets consist of:
Paid-in capital...................................................................... $ 36,562,158 $ 21,183,303
Undistributed net investment income.................................................. -- 13,368
Accumulated net realized gains (losses) from security transactions................... (379,925) 3,535,218
Net unrealized appreciation on investments........................................... 470,584 10,611,124
------------- --------------
Net assets........................................................................... $ 36,652,817 $ 35,343,013
============= ==============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value) (Note 5)................................................. 3,428,580 1,821,584
============= ==============
Net asset value, offering price and redemption price per share (Note 2).............. $ 10.69 $ 19.40
============= ==============
</TABLE>
See accompanying notes to financial statements.
-46-
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
For the Year Ended November 30, 1997
======================================================================================================================
Short/
Intermediate
Term
Fixed-Income Equity
Fund Fund
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest..................................................................... $ 2,187,972 $ 56,243
Dividends.................................................................... -- 424,724
------------- -------------
TOTAL INVESTMENT INCOME................................................... 2,187,972 480,967
------------- -------------
EXPENSES
Investment advisory fees (Note 4)............................................ 167,570 204,053
Administrative services fees (Note 4)........................................ 66,812 62,621
Accounting services fees (Note 4)............................................ 36,000 32,400
Professional fees............................................................ 17,902 17,902
Transfer agent and shareholder service fees (Note 4)......................... 14,400 14,400
Trustees' fees and expenses.................................................. 13,188 13,188
Registration fees............................................................ 10,480 10,380
Insurance expense............................................................ 8,716 7,374
Custodian fees............................................................... 3,911 4,062
Pricing expense.............................................................. 6,422 1,382
Postage and supplies......................................................... 5,665 1,326
Reports to shareholders...................................................... 3,268 3,597
Distribution expenses (Note 4)............................................... 1,687 1,521
Other expenses............................................................... 2,070 --
------------- -------------
TOTAL EXPENSES............................................................ 358,091 374,206
Fees waived by the Adviser (Note 4).......................................... (140,249) --
------------- -------------
NET EXPENSES.............................................................. 217,842 374,206
------------- -------------
NET INVESTMENT INCOME.......................................................... 1,970,130 106,761
------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions....................... (30,709) 3,535,218
Net change in unrealized appreciation/depreciation on investments............ 33,026 3,111,825
------------- -------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS............................... 2,317 6,647,043
------------- -------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................... $ 1,972,447 $ 6,753,804
============= =============
</TABLE>
See accompanying notes to financial statements.
-47-
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
=============================================================================================================================
Short/Intermediate Term
Fixed-Income Fund Equity Fund
-----------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income....................................... $ 1,970,130 $ 1,925,771 $ 106,761 $ 105,845
Net realized gains (losses) from security transactions...... (30,709) 164,007 3,535,218 2,298,821
Net change in unrealized appreciation/depreciation
on investments............................................ 33,026 (248,560) 3,111,825 2,561,218
----------- ----------- ----------- -----------
Net increase in net assets from operations.................... 1,972,447 1,841,218 6,753,804 4,965,884
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.................................. (1,970,130) (1,925,771) (106,087) (118,157)
From net realized gains from security transactions.......... -- -- (2,298,821) (1,134,441)
----------- ----------- ----------- -----------
Decrease in net assets from distributions to
shareholders................................................ (1,970,130) (1,925,771) (2,404,908) (1,252,598)
----------- ----------- ----------- -----------
FROM CAPITAL SHARE
TRANSACTIONS (Note 5):
Proceeds from shares sold................................... 6,910,347 4,540,639 3,894,667 2,369,871
Net asset value of shares issued in reinvestment of
distributions to shareholders............................. 1,580,414 1,615,646 2,352,415 1,235,320
Payments for shares redeemed................................ (5,216,812) (7,966,690) (2,793,087) (3,968,907)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from capital share transactions............................. 3,273,949 (1,810,405) 3,453,995 (363,716)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS......................... 3,276,266 (1,894,958) 7,802,891 3,349,570
NET ASSETS:
Beginning of year........................................... 33,376,551 35,271,509 27,540,122 24,190,552
----------- ----------- ----------- -----------
End of year................................................. $36,652,817 $33,376,551 $35,343,013 $27,540,122
=========== =========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME........................... $ -- $ -- $ 13,368 $ 12,694
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
=================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
- -----------------------------------------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year................. $ 10.69 $ 10.73 $ 9.94 $ 10.77 $ 10.49
------- ------- ------- ------- -------
Income from investment operations:
Net investment income.............................. 0.62 0.62 0.64 0.59 0.64
Net realized and unrealized
gains (losses) on investments.................... -- (0.04) 0.79 (0.79) 0.28
------- ------- ------- ------- -------
Total from investment operations..................... 0.62 0.58 1.43 (0.20) 0.92
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............... (0.62) (0.62) (0.64) (0.59) (0.64)
Distributions from net realized gains.............. -- -- -- (0.04) --
------- ------- ------- ------- -------
Total distributions.................................. (0.62) (0.62) (0.64) (0.63) (0.64)
------- ------- ------- ------- -------
Net asset value at end of year....................... $ 10.69 $ 10.69 $ 10.73 $ 9.94 $ 10.77
======= ======= ======= ======= =======
Total return......................................... 6.03% 5.65% 14.84% (1.98%) 9.00%
======= ======= ======= ======= =======
Net assets at end of year (000's).................... $36,653 $33,377 $35,272 $35,390 $43,272
======= ======= ======= ======= =======
Ratio of expenses to average net assets/(A)/......... 0.65% 0.65% 0.60% 0.50% 0.50%
Ratio of net investment income to average net assets. 5.88% 5.90% 6.21% 5.67% 5.95%
Portfolio turnover rate.............................. 46% 40% 39% 57% 29%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
/(A)/ Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 1.07%, 1.09%,
1.09%, 1.06% and 1.11% and for the years ended November 30, 1997, 1996,
1995, 1994 and 1993, respectively (Note 4).
See accompanying notes to financial statements.
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<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
====================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year................. $ 17.18 $ 14.91 $ 12.43 $ 12.70 $ 12.26
------- ------- ------- ------- -------
Income from investment operations:
Net investment income.............................. 0.06 0.06 0.07 0.06 0.09
Net realized and unrealized
gains on investments............................. 3.65 2.97 3.02 0.11 0.76
------- ------- ------- ------- -------
Total from investment operations..................... 3.71 3.03 3.09 0.17 0.85
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............... (0.06) (0.07) (0.06) (0.06) (0.10)
Distributions from net realized gains.............. (1.43) (0.69) (0.55) (0.38) (0.31)
------- ------- ------- ------- -------
Total distributions.................................. (1.49) (0.76) (0.61) (0.44) (0.41)
------- ------- ------- ------- -------
Net asset value at end of year....................... $ 19.40 $ 17.18 $ 14.91 $ 12.43 $ 12.70
======= ======= ======= ======= =======
Total return......................................... 23.98% 21.27% 26.08% 1.35% 6.83%
======= ======= ======= ======= =======
Net assets at end of year (000's).................... $35,343 $27,540 $24,191 $18,821 $19,150
======= ======= ======= ======= =======
Ratio of expenses to average net assets/(A)/......... 1.19% 1.30% 1.45% 1.50% 1.50%
Ratio of net investment income to average net assets. 0.34% 0.42% 0.52% 0.51% 0.74%
Portfolio turnover rate.............................. 49% 44% 42% 44% 45%
Average commission rate per share/(B)/............... $0.0499 $0.0490 -- -- --
</TABLE>
/(A)/ Absent fee waivers by the Adviser, the ratio of expenses to average net
assets would have been 1.58% and for the year ended November 30, 1993.
/(B)/ Beginning with the year ended November 30, 1996, the Fund is required to
disclose its average commission rate per share for security trades on
which commissions are charged.
See accompanying notes to financial statements.
-50-
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
====================================================================================================================================
Par Market
Value INVESTMENT SECURITIES -- 97.2% Rate Maturity Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 25.6%
$ 1,400,000 U.S. Treasury Notes................................................ 6.625% 7/31/01 $ 1,433,250
1,300,000 U.S. Treasury Notes................................................ 5.875 11/30/01 1,299,187
1,100,000 U.S. Treasury Notes................................................ 6.625 3/31/02 1,129,562
1,200,000 U.S. Treasury Notes................................................ 5.750 8/15/03 1,192,126
1,000,000 U.S. Treasury Notes................................................ 7.250 5/15/04 1,071,875
1,000,000 U.S. Treasury Notes................................................ 6.500 8/15/05 1,034,688
1,000,000 U.S. Treasury Notes................................................ 6.875 5/15/06 1,061,563
600,000 U.S. Treasury Notes................................................ 7.000 7/15/06 642,563
500,000 U.S. Treasury Notes................................................ 6.500 10/15/06 519,219
- ------------- ------------
$ 9,100,000 TOTAL U.S. TREASURY OBLIGATIONS (Cost $9,212,734).................. $ 9,384,033
- ------------- ------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES -- 27.8%
$ 206,477 Federal Home Loan Mortgage Corp. GOLD #N-90875..................... 7.500% 2/01/99 $ 209,331
7,614 Government National Mortgage Assoc. #114468........................ 9.500 7/15/99 7,760
517,251 Federal Home Loan Mortgage Corp. GOLD #G-50274..................... 7.500 6/01/00 524,321
10,592 Federal Home Loan Mortgage Corp. GNOME #200068..................... 8.000 3/01/02 10,786
41,517 Federal National Mortgage Assoc. DWARF #51935...................... 8.000 4/01/02 42,444
1,000,000 Federal National Mortgage Assoc. REMIC #93-52E..................... 6.000 4/25/05 996,780
57,431 Federal Home Loan Mortgage Corp. #140094........................... 7.500 5/01/05 58,295
500,000 Federal Home Loan Mortgage Corp. REMIC #1404-D..................... 6.800 1/15/06 505,248
76,290 Federal National Mortgage Assoc. DWARF #50480...................... 8.000 9/01/06 78,855
700,000 Federal National Mortgage Assoc. REMIC #92-24H..................... 7.500 11/25/06 715,619
660,030 Government National Mortgage Assoc. #362109........................ 9.000 9/15/08 693,897
1,500,000 Federal Home Loan Mortgage Corp. REMIC #1523-PE.................... 6.000 10/15/15 1,496,535
1,000,000 Federal National Mortgage Assoc. REMIC #93-20PE.................... 5.900 5/25/16 995,090
1,000,000 Federal Home Loan Mortgage Corp. REMIC #1522-C..................... 6.000 8/15/16 994,250
1,000,000 Federal National Mortgage Assoc. REMIC #94-29PE.................... 6.000 5/25/18 993,120
15,946 Government National Mortgage Assoc. #285639........................ 9.000 2/15/20 17,215
1,000,000 Federal Home Loan Mortgage Corp. REMIC #1699-C..................... 6.200 2/15/24 998,740
833,017 Federal National Mortgage Assoc. #250322........................... 7.500 7/01/25 849,836
- ------------- ------------
$ 10,126,165 TOTAL U.S. GOVERNMENT AGENCY
- ------------- MORTGAGE-BACKED SECURITIES (Cost $10,098,982)..................... $ 10,188,122
------------
OTHER MORTGAGE-BACKED SECURITIES -- 6.7%
$ 467,491 Advanta Home Equity Loan Trust #92-1A.............................. 7.875% 9/25/08 $ 479,669
1,000,000 CMC Securities Corp. III #94-B..................................... 6.000 2/25/09 992,010
1,000,000 Bear Stearns Mortgage Securities, Inc. #96-3-A2.................... 7.240 6/25/27 1,000,620
- ------------- ------------
$ 2,467,491 TOTAL OTHER MORTGAGE-BACKED SECURITIES
- ------------- (Cost $2,457,809)................................................. $ 2,472,299
------------
</TABLE>
-51-
<PAGE>
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND (continued)
<TABLE>
<CAPTION>
======================================================================================================================
Par Market
Value INVESTMENT SECURITIES -- 97.2% Rate Maturity Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 11.5%
$ 100,512 Nissan Auto Receivables Trust #1994-A......................... 6.450% 9/15/99 $ 100,548
1,000,000 Circuit City Credit Card Trust #1994-2-A...................... 8.000 11/15/99 1,033,190
1,000,000 Banc One Credit Card Trust #1994-C-A.......................... 7.800 12/15/00 1,016,400
1,000,000 J.C. Penney Credit Card Trust #B-A............................ 8.950 10/15/01 1,048,934
1,000,000 First Bank Corporate Card Trust #1997-1-A..................... 6.400 2/15/03 1,005,540
- ------------- ------------
$ 4,100,512 TOTAL ASSET-BACKED SECURITIES (Cost $4,163,189)............... $ 4,204,612
- ------------- ------------
CORPORATE BONDS -- 25.6%
$ 100,000 Champion International Corp................................... 9.800% 2/01/98 $ 100,593
1,000,000 Lehman Brothers, Inc.......................................... 6.125 2/01/01 989,790
1,000,000 Ford Motor Credit Co. Medium Term Notes....................... 5.900 2/23/01 989,605
1,000,000 General Motors Acceptance Corp. Global Bond................... 6.750 2/07/02 1,010,273
1,000,000 Quebec Province............................................... 8.800 4/15/03 1,101,820
1,000,000 Sears Roebuck Acceptance Corp. Medium Term Notes.............. 6.760 6/25/03 1,012,800
1,000,000 Salomon Smith Barney Holdings, Inc............................ 6.625 11/15/03 996,740
1,000,000 American Home Products Corp................................... 7.900 2/15/05 1,075,792
1,000,000 U.S. West Capital Funding, Inc................................ 7.300 1/15/07 1,025,497
1,000,000 Bank One Corp................................................. 7.600 5/01/07 1,061,961
- ------------- ------------
$ 9,100,000 TOTAL CORPORATE BONDS (Cost $9,210,639)....................... $ 9,364,871
- ------------- ------------
$ 34,894,168 TOTAL INVESTMENTS (Cost $35,143,353).......................... $ 35,613,937
============= ============
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1) -- 2.0% Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 744,000 Fifth Third Bank, 5.08%, dated 11/28/97, due 12/01/97, repurchase proceeds $744,315... $ 744,000
- ------------- ------------
$ 744,000 TOTAL REPURCHASE AGREEMENTS........................................................... $ 744,000
============= ------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE -- 99.2%......................... $ 36,357,937
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.8%......................................... 294,880
------------
NET ASSETS -- 100.0%.................................................................. $ 36,652,817
============
</TABLE>
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
DWARF - A 15-year mortgage pool issued by FNMA.
GNOME - A 15-year mortgage pool issued by FHLMC.
REMIC - Real Estate Mortgage Investment Conduit.
GOLD - A 30-year mortgage pool issued by FHLMC with a shorter coupon payment
delay period.
See accompanying notes to financial statements.
-52-
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
EQUITY FUND
PORTFOLIO OF INVESTMENTS
November 30, 1997
================================================================================
Market
COMMON STOCK -- 95.9% Shares Value
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 16.5%
AlliedSignal, Inc............................. 16,000 $ 594,000
Avery Dennison Corp........................... 27,200 1,139,000
The Boeing Co................................. 16,000 850,000
Illinois Tool Works, Inc...................... 9,400 515,237
Molex, Inc. - Class A......................... 29,765 1,034,334
Thermo Electron Corp.*........................ 35,700 1,314,206
USA Waste Services, Inc.*..................... 12,000 396,750
-------------
$ 5,843,527
-------------
TECHNOLOGY -- 13.1%
Adobe Systems, Inc............................ 10,200 $ 428,400
Applied Materials, Inc.*...................... 8,500 280,500
Cabletron Systems, Inc.*...................... 18,500 425,500
Computer Sciences Corp.*...................... 12,000 950,250
First Data Corp............................... 7,500 212,344
Hewlett-Packard Co............................ 7,100 433,544
Motorola, Inc................................. 13,500 848,813
QUALCOMM, Inc.*............................... 7,000 474,250
Sequent Computer Systems, Inc.*............... 24,000 558,000
Siebel Systems, Inc.*......................... 34 1,415
-------------
$ 4,613,016
-------------
FINANCIALS -- 12.5%
American Express Co........................... 12,500 $ 985,938
American International Group, Inc............. 7,525 758,614
Chubb Corp.................................... 11,900 844,156
Fannie Mae.................................... 24,700 1,304,469
J.P. Morgan & Company, Inc.................... 4,500 513,844
-------------
$ 4,407,021
-------------
HEALTH CARE -- 12.1%
Abbott Laboratories........................... 15,000 $ 975,000
American Home Products Corp................... 10,700 747,663
MedPartners, Inc.*............................ 14,500 358,875
Merck & Co., Inc.............................. 5,000 472,812
Schering-Plough Corp.......................... 17,300 1,084,494
SmithKline Beecham PLC - ADR.................. 13,000 645,125
-------------
$ 4,283,969
-------------
BASIC MATERIALS -- 8.6%
BetzDearborn, Inc............................. 10,900 $ 663,537
Ecolab, Inc................................... 23,100 1,178,100
Monsanto Co................................... 10,000 436,875
Sonoco Products Co............................ 10,200 334,688
Willamette Industries, Inc.................... 12,000 421,500
-------------
$ 3,034,700
-------------
-53-
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND (continued)
==============================================================================================================
Market
COMMON STOCK -- 95.9% Shares Value
- --------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 8.5%
<S> <C> <C>
Colgate-Palmolive Co........................................... 4,800 $ 320,700
The Walt Disney Co............................................. 4,000 379,750
Gillette Co.................................................... 3,500 323,094
McDonald's Corp................................................ 14,000 679,000
PepsiCo, Inc................................................... 17,300 637,937
Sysco Corp..................................................... 15,000 668,438
------------
$ 3,008,919
------------
ENERGY -- 8.0%
Amoco Corp..................................................... 6,500 $ 585,000
Exxon Corp..................................................... 6,000 366,000
Mobil Corp..................................................... 10,000 719,375
Noble Affiliates, Inc.......................................... 19,000 705,375
Royal Dutch Petroleum Co....................................... 8,800 463,650
------------
$ 2,839,400
------------
CONSUMER CYCLICALS -- 6.6%
AutoZone, Inc.*................................................ 29,700 $ 891,000
H&R Block, Inc................................................. 20,600 844,600
Nike, Inc. - Class B........................................... 12,300 598,856
------------
$ 2,334,456
------------
COMMUNICATION SERVICES -- 5.5%
AirTouch Communications, Inc.*................................. 33,400 $ 1,310,950
AT&T Corp...................................................... 11,500 642,562
------------
$ 1,953,512
------------
UTILITIES -- 2.8%
Duke Energy Corp............................................... 18,590 $ 966,680
------------
TRANSPORTATION -- 1.7%
Landstar System, Inc.*......................................... 23,000 $ 596,562
------------
TOTAL COMMON STOCK (Cost $23,270,638).......................... $ 33,881,762
------------
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================
Face Market
REPURCHASE AGREEMENTS(1) -- 4.2% Amount Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fifth Third Bank, 5.08%, dated 11/28/97, due 12/01/97,
repurchase proceeds $1,487,630............................... $ 1,487,000 $ 1,487,000
------------ ------------
TOTAL REPURCHASE AGREEMENTS.................................... $ 1,487,000 $ 1,487,000
============ ------------
TOTAL COMMON STOCK AND
REPURCHASE AGREEMENTS AT VALUE -- 100.1%............... $ 35,368,762
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)................ (25,749)
------------
NET ASSETS -- 100.0%........................................... $ 35,343,013
============
</TABLE>
* Non-income producing securities.
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
-54-
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
================================================================================
1. Organization
Brundage, Story and Rose Investment Trust (the Trust) was organized as an Ohio
business trust on October 1, 1990. The Trust offers two series of shares to
investors: the Brundage, Story and Rose Short/Intermediate Term Fixed-Income
Fund and the Brundage, Story and Rose Equity Fund (collectively, the Funds). The
Trust commenced operations on December 3, 1990, when Brundage, Story and Rose,
LLC (the Adviser) purchased the initial 5,000 shares of each Fund at $10 per
share. The public offering of shares commenced on January 2, 1991.
The Brundage, Story and Rose Short/Intermediate Term Fixed-Income Fund (the Bond
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 Bond Fund invests
primarily in short and intermediate-term fixed-income securities.
The Brundage, Story and Rose Equity Fund (the Equity Fund) seeks to provide
protection and enhancement of capital and growth of income. The Equity Fund
invests primarily in common stocks and securities convertible into common stock.
2. Significant Accounting Policies
The following is a summary of the Trust's significant accounting policies:
Securities valuation--The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities listed on stock exchanges and
securities traded in the over-the-counter market are valued at the last sale
price as of the close of business on the day the securities are being valued.
Securities not traded on a particular day, or for which the last sale price is
not readily available, are valued at the closing bid price quoted by brokers
that make markets in the securities. U.S. Government and agency obligations,
asset-backed securities and corporate bonds are valued at their most recent bid
price as obtained from one or more of the major market makers for such
securities or are valued at an estimated fair value obtained from an independent
pricing service based upon such factors as maturity, coupon, issuer and type of
security. If market quotations are not readily available, securities will be
valued at fair value as determined in good faith by the Adviser consistent with
procedures established by the Board of Trustees.
Repurchase agreements--Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. 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 each Fund enters into a repurchase agreement, the
seller agrees that the value of the underlying securities, including accrued
interest, will be equal to or exceed the face amount of the repurchase
agreement. Each Fund enters into repurchase agreements only with institutions
deemed to be creditworthy by the Adviser, including the Funds' custodian, banks
having assets in excess of $10 billion and primary U.S. Government securities
dealers.
Share valuation--The net asset value of each Fund is calculated daily by
dividing the total value of that Fund's assets, less liabilities, by the number
of shares outstanding. The offering and redemption price per share of each Fund
are equal to the net asset value per share.
Investment income--Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are accreted/amortized in accordance with income tax regulations which
approximate generally accepted accounting principles.
Distributions to shareholders--Dividends arising from net investment income for
the Bond Fund are declared daily and paid monthly. Dividends arising from net
investment income for the Equity Fund are declared and paid quarterly. With
respect to each Fund, net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Income distributions and capital
gain distributions are determined in accordance with income tax regulations.
-55-
<PAGE>
Security transactions--Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Securities traded on a to-be-announced basis--The Bond Fund periodically trades
portfolio securities on a "to-be-announced" (TBA) basis. In a TBA transaction,
the Fund has committed to purchase securities for which all specific information
is not yet known at the time of the trade, particularly the face amount and
maturity date in mortgage-backed and asset-backed securities transactions.
Securities purchased on a TBA basis are recorded on the trade date, however,
they are not settled until they are delivered to the Fund, normally 15 to 45
days later. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other portfolio
securities. When effecting such transactions, assets of a dollar amount
sufficient to make payment for the portfolio securities to be purchased are
placed in a segregated account on the trade date.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax--It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
fiscal year ended November 30) plus undistributed amounts from prior years.
The following information is based upon federal income tax cost of portfolio
investments (excluding repurchase agreements) as of November 30, 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Bond Equity
Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized appreciation......................... $ 528,915 $ 11,028,788
Gross unrealized depreciation......................... (58,331) (417,664)
----------- ------------
Net unrealized appreciation........................... $ 470,584 $ 10,611,124
=========== ============
Federal income tax cost............................... $ 35,143,353 $ 23,270,638
=========== ============
- ----------------------------------------------------------------------------------
</TABLE>
As of November 30, 1997, the Bond Fund had capital loss carryforwards for
federal income tax purposes of $379,925, none of which expire prior to November
30, 2002. These capital loss carryforwards may be utilized in future years to
offset net realized capital gains prior to distributing such gains to
shareholders.
3. Investment Transactions
Purchases and proceeds from sales and maturities of investment securities, other
than short-term investments, amounted to $18,322,901 and $15,136,557,
respectively, for the Bond Fund and $15,478,689 and $14,783,656, respectively,
for the Equity Fund, during the year ended November 30, 1997.
4. Transactions with Affiliates
Certain Trustees and officers of the Trust are principals of the Adviser.
Certain officers of the Trust are officers of Countrywide Fund Services, Inc.
(CFS), the administrative services agent, shareholder servicing and transfer
agent, and accounting services agent for the Trust, and of Countrywide
Investments, Inc., the exclusive underwriter of the Funds' shares.
As of November 30, 1997, the Adviser, principals of the Adviser and certain
employee benefit plans of the Adviser collectively owned 18% and 33% of the
shares of beneficial interest outstanding of the Bond Fund and the Equity Fund,
respectively.
-56-
<PAGE>
ADVISORY AGREEMENT
Each Fund's investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. Under the Advisory Agreement, the Bond Fund and the Equity
Fund each pay the Adviser a fee, computed and accrued daily and paid monthly, at
an annual rate of 0.50% and 0.65%, respectively, of average daily net assets.
In order to reduce the operating expenses of the Bond Fund, the Adviser
voluntarily waived $140,249 of its investment advisory fees during the year
ended November 30, 1997.
ADMINISTRATIVE SERVICES AGREEMENT
Under the terms of the Administrative Services Agreement with the Trust, CFS
supplies non-investment related statistical and research data, internal
regulatory compliance services and executive and administrative services for the
Funds. CFS 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 these services, CFS receives a monthly fee based on each Fund's
average daily net assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, CFS 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. For these services, CFS receives a monthly fee based on the
number of shareholder accounts in each Fund. In addition, each Fund pays
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, CFS
calculates the daily net asset value per share and maintains the financial books
and records of each Fund. For these services, CFS receives a monthly fee from
each Fund. In addition, each Fund pays certain out-of-pocket expenses incurred
by CFS in obtaining valuations of such Fund's portfolio securities.
PLAN OF DISTRIBUTION
The Trust has a plan of distribution (the Plan) under which each Fund may incur
or reimburse the Adviser for expenses related to the distribution and promotion
of capital shares. The annual limitation for payment of such expenses under the
Plan is 0.25% of the average daily net assets of each Fund.
5. Capital Share Transactions
Proceeds and payments on capital shares sold and redeemed as shown in the
Statements of Changes in Net Assets are the result of the following capital
share transactions for the years ended November 30, 1997 and 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Bond Fund Equity Fund
---------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 651,578 430,192 226,359 157,706
Shares issued in reinvestment
of distributions to shareholders.................. 149,272 152,952 154,343 85,211
Shares redeemed...................................... (494,784) (748,745) (161,988) (262,040)
---------- ---------- ---------- ----------
Net increase (decrease) in shares outstanding........ 306,066 (165,601) 218,714 (19,123)
Shares outstanding, beginning of year................ 3,122,514 3,288,115 1,602,870 1,621,993
---------- ---------- ---------- ----------
Shares outstanding, end of year...................... 3,428,580 3,122,514 1,821,584 1,602,870
========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-57-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
Arthur Andersen LLP
To the Shareholders and Board of Trustees
of the Brundage, Story and Rose Investment Trust:
We have audited the accompanying statements of assets and liabilities of the
Brundage, Story and Rose Short/Intermediate Term Fixed-Income Fund and the
Brundage, Story and Rose Equity Fund of the Brundage, Story and Rose Investment
Trust (an Ohio business trust), including the portfolios of investments, as of
November 30, 1997, the related statements of operations for the year then ended,
and the statements of changes in net assets and the financial highlights for the
periods indicated thereon. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Brundage, Story and Rose Short/Intermediate Term Fixed-Income Fund and the
Brundage, Story and Rose Equity Fund of the Brundage, Story and Rose Investment
Trust as of November 30, 1997, the results of their operations for the year then
ended, and the changes in their net assets and the financial highlights for the
periods indicated thereon, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
December 31, 1997
-58-
<PAGE>
Brundage,
Story and Rose
Investment Trust
- ------------------------------------
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Board of Trustees
- ------------------------------------
Francis S. Branin, Jr.
Malcolm D. Clarke, Jr.
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, LLC
One Broadway
New York, New York 10004
Underwriter
- ------------------------------------
Countrywide Investments, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Transfer Agent
- ------------------------------------
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Services
- ------------------------------------
Nationwide: (Toll Free) 800-320-2212
-59-
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
-----------------------------------------
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) (i) Financial Statements included in Part A:
Financial Highlights
(ii) Financial Statements included in Part B:
Statements of Assets and Liabilities, November 30, 1997
Statements of Operations for the Year Ended November 30,
1997
Statements of Changes in Net Assets for the Years Ended
November 30, 1997 and November 30, 1996
Financial Highlights for the Years Ended November 30, 1997,
1996, 1995, 1994 and 1993
Notes to Financial Statements, November 30, 1997
Portfolios of Investments, November 30, 1997
(b) Exhibits
(1) (i) Agreement and Declaration of Trust*
(ii) Amendments to Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Specimen of Share Certificate*
(5) (i) Advisory Agreement with Brundage, Story and Rose*
(ii) Agreement to Transfer Investment Advisory Contract*
<PAGE>
(6) (i) Underwriting Agreement with Countrywide Investments,
Inc.*
(ii) Form of Underwriter's Dealer Agreement*
(7) Inapplicable
(8) Custody Agreement with The Fifth Third Bank*
(9) (i) Administration Agreement with Countrywide Fund
Services, Inc.*
(ii) Accounting Services Agreement with Countrywide Fund
Services, Inc.*
(iii)Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with Countrywide Fund Services,
Inc.*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Inapplicable
(14) (i) Brundage, Story and Rose Individual Retirement Account
Plan*
(ii) Brundage, Story and Rose 403(b) Retirement Plan*
(15) (i) Plan of Distribution Pursuant to Rule 12b-1*
(ii) Implementation Agreement with Brundage, Story and Rose
LLC*
(16) Computations of Performance Quotations Provided in Response
to Item 22*
(17) (i) Financial Data Schedule -- Brundage, Story and Rose
Equity Fund
(ii) Financial Data Schedule -- Brundage, Story and Rose
Short/Intermediate Term Fixed-Income Fund
(18) Inapplicable
- -------------------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A
Item 25. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
Item 26. Number of Holders of Securities.
- -------- --------------------------------
Set forth below are the number of record holders, as of February 28,
1998, of the shares of beneficial interest of the Registrant.
Number of
Title of Class Record Holders
- -------------- --------------
Brundage, Story and Rose
Equity Fund 522
Brundage, Story and Rose Short/
Intermediate Term Fixed-Income Fund 343
Item 27. Indemnification
- -------- ---------------
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 Indemnification of Trustees, Officers, etc. The
Trust shall indemnify each of its Trustees and officers,
including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person") against all
liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and
counsel fees, incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except that no
Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office.
Section 6.5 Advances of Expenses. The Trust shall advance
attorneys' fees or other expenses incurred by a Covered Person in
defending a proceeding to the full extent permitted by the
Securities Act of 1933, as amended, the 1940 Act, and Ohio
Revised Code Chapter 1707, as amended. In the event any of these
laws conflict with Ohio Revised Code Section 1701.13(E), as
amended, these laws, and not Ohio Revised Code Section
1701.13(E), shall govern.
<PAGE>
Section 6.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators. Nothing contained in this article shall affect
any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of
any such person."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability policy. The
policy provides coverage to the Registrant, its Trustees and officers,
its Adviser and its Underwriter. Coverage under the policy includes
losses by reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
The Advisory Agreement with Brundage, Story and Rose LLC (the
"Adviser") provides that the Adviser shall not be liable for any
action taken, omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by the Agreement,
or in accordance with (or in the absence of) specific directions or
instructions from Registrant, provided, however, that such acts or
omissions shall not have resulted from Adviser's willful misfeasance,
bad faith or gross negligence, a violation of the standard of care
established by and applicable to the
<PAGE>
Adviser in its actions under the Agreement or breach of its duty or of
its obligations thereunder.
The Underwriting Agreement with CW Fund Distributors, Inc. (the
"Underwriter") provides that the Underwriter, its directors, officers,
employees, partners, shareholders and control persons shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by Registrant in connection with the matters to which the
Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of any of such persons in
the performance of Underwriter's duties or from the reckless disregard
by any of such persons of Underwriter's obligations and duties under
the Agreement. Registrant will advance attorneys' fees or other
expenses incurred by any such person in defending a proceeding, upon
the undertaking by or on behalf of such person to repay the advance if
it is ultimately determined that such person is not entitled to
indemnification.
Item 28. Business and Other Connections of the Investment Adviser
- -------- --------------------------------------------------------
(a) The Adviser is a registered investment adviser providing
investment advisory services to the Registrant. The Adviser has
been engaged since 1932 in the business of providing investment
advisory services to individual and institutional clients.
(b) The following list sets forth the principals of the Adviser. No
principal of the Adviser was engaged in any other business,
profession, vocation or employment of a substantial nature during
the past two years. The business address of each principal of the
Adviser is One Broadway, New York, New York 10004.
(1) Malcolm D. Clarke, Jr.
(2) Jeanne M. Harrington
(3) James G. Pepper
(4) Francis S. Branin, Jr.
(5) Cheryl L. Grandfield
(6) Paul R. Barkus
<PAGE>
(7) Brandon Reid
(8) H. Dean Benner
(9) Gregory E. Ratte
(10) Deborah C. Foord
(11) Benjamin C. Halliburton
Item 29. Principal Underwriters
- -------- ----------------------
(a) CW Fund Distributors, Inc. also serves as underwriter for a
number of investment companies for which its sister company,
Countrywide Fund Services, Inc., acts as administrator.
Position Position
with with
(b) Name Underwriter Registrant
---- ----------- ----------
Angelo R. Mozilo Chairman of None
the Board
and Director
Andrew S. Bielanski Director None
Thomas H. Boone Director None
Marshall M. Gates Director None
Robert H. Leshner Vice Chairman None
and Director
Mark J. Seger Vice President Treasurer
Maryellen Peretzky Vice President None
John F. Splain Vice President, Secretary
Sercretary and
General Counsel
Robert G. Dorsey President and Vice
Treasurer President
<PAGE>
M. Kathleen Leugers Vice President None
Terrie A. Wiedenheft Vice President None
and Controller
Elizabeth A. Santen Assistant None
Secretary
The address of all of the above-named persons is 312 Walnut
Street, Cincinnati, Ohio 45202.
(c) Inapplicable
Item 30. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained by the Registrant at its principal office located
at 312 Walnut Street, Cincinnati, Ohio 45202 as well as at the office of the
Adviser located at One Broadway, New York, New York 10004.
Item 31. Management Services Not Discussed in Parts A or B
- -------- -------------------------------------------------
Inapplicable
Item 32. Undertakings
- -------- ------------
(a) Inapplicable
(b) Inapplicable
(c) The Registrant undertakes that, if so requested, it will furnish
each person to whom a prospectus is delivered with a copy of
Registrant's latest annual report without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of Cincinnati and State of Ohio on the
31st day of March, 1998.
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
By: /s/John F. Splain By: /s/ John A. Dudley
-------------------- ----------------------
John F. Splain, John A. Dudley,
Attorney-in-Fact Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title
--------- -----
- ------------------------- President
Malcolm D. Clarke, Jr.* and Trustee
/s/ Mark J. Seger Treasurer March 31, 1998
- -------------------------
Mark J. Seger
- ------------------------- Vice President
James G. Pepper* and Trustee
- ------------------------- Vice President
Francis S. Branin, Jr.* and Trustee
- ------------------------- Vice President
Cheryl L. Grandfield* and Trustee
- -------------------------
Charles G. Watson* Trustee
- ------------------------- Trustee By: /s/John F. Splain
Jerome B. Lieber* -----------------------
John F. Splain,
Attorney-in-Fact*
March 31, 1998
- ------------------------- Trustee
Antoinette Geyelin Hoar*
- ------------------------- Trustee By: /s/John A. Dudley
William M.R. Mapel* -----------------------
John A. Dudley
Attorney-in-Fact*
March 31, 1998
- ------------------------- Trustee
Crosby R. Smith*
<PAGE>
INDEX TO EXHIBITS
(1)(i) Agreement and Declaration of Trust*
(1)(ii) Amendments to Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Specimen of Share Certificate*
(5)(i) Advisory Agreement*
(5)(ii) Agreement to Transfer Investment Advisory Contract*
(6)(i) Underwriting Agreement*
(6)(ii) Form of Underwriter's Dealer Agreement*
(7) Inapplicable
(8) Custody Agreement*
(9)(i) Administrative Services Agreement*
(9)(ii) Accounting Services Agreement*
(9)(iii) Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement*
(10) Opinion and Consent of Counsel*
(11) Consent of Independent Public Accountants
(12)-(13) Inapplicable
(14)(i) Brundage, Story and Rose Individual Retirement
Account Plan*
(14)(ii) Brundage, Story and Rose 403(b) Retirement Plan*
(15)(i) Plan of Distribution Pursuant to Rule 12b-1*
(15)(ii) Implementation Agreement*
(16) Computations of Performance Quotations*
(17)(i) Financial Data Schedule -- Brundage, Story and Rose
Equity Fund
(ii) Financial Data Schedule -- Brundage, Story and Rose
Short/Intermediate Term Fixed-Income Fund
(18) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's registration statement on Form
N-1A.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use in this
Post-Effective Amendment No. 9 of our report dated December 31, 1997 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 24,757,638
<INVESTMENTS-AT-VALUE> 35,368,762
<RECEIVABLES> 73,848
<ASSETS-OTHER> 1,163
<OTHER-ITEMS-ASSETS> 583
<TOTAL-ASSETS> 35,444,356
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,343
<TOTAL-LIABILITIES> 101,343
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,183,303
<SHARES-COMMON-STOCK> 1,821,584
<SHARES-COMMON-PRIOR> 1,602,870
<ACCUMULATED-NII-CURRENT> 13,368
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,535,218
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,611,124
<NET-ASSETS> 35,343,013
<DIVIDEND-INCOME> 424,724
<INTEREST-INCOME> 56,243
<OTHER-INCOME> 0
<EXPENSES-NET> 374,206
<NET-INVESTMENT-INCOME> 106,761
<REALIZED-GAINS-CURRENT> 3,535,218
<APPREC-INCREASE-CURRENT> 3,111,825
<NET-CHANGE-FROM-OPS> 6,753,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 106,087
<DISTRIBUTIONS-OF-GAINS> 2,298,821
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 226,359
<NUMBER-OF-SHARES-REDEEMED> 161,988
<SHARES-REINVESTED> 154,343
<NET-CHANGE-IN-ASSETS> 7,802,891
<ACCUMULATED-NII-PRIOR> 12,694
<ACCUMULATED-GAINS-PRIOR> 2,298,821
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204,053
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 374,206
<AVERAGE-NET-ASSETS> 31,420,444
<PER-SHARE-NAV-BEGIN> 17.18
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 3.65
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 1.43
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.40
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 35,887,937
<INVESTMENTS-AT-VALUE> 36,357,937
<RECEIVABLES> 395,631
<ASSETS-OTHER> 1,222
<OTHER-ITEMS-ASSETS> 760
<TOTAL-ASSETS> 36,755,550
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,733
<TOTAL-LIABILITIES> 102,733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,562,158
<SHARES-COMMON-STOCK> 3,428,580
<SHARES-COMMON-PRIOR> 3,122,514
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (379,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 470,584
<NET-ASSETS> 36,652,817
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,187,972
<OTHER-INCOME> 0
<EXPENSES-NET> 217,842
<NET-INVESTMENT-INCOME> 1,970,130
<REALIZED-GAINS-CURRENT> (30,709)
<APPREC-INCREASE-CURRENT> 33,026
<NET-CHANGE-FROM-OPS> 1,972,447
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,970,130
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 651,578
<NUMBER-OF-SHARES-REDEEMED> 494,784
<SHARES-REINVESTED> 149,272
<NET-CHANGE-IN-ASSETS> 3,276,266
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (349,216)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 167,570
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 358,091
<AVERAGE-NET-ASSETS> 33,530,804
<PER-SHARE-NAV-BEGIN> 10.69
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.62
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.69
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
