Cusip Number 140296104 NASDAQ Symbol CMEIX
________________________________________________________________________________
CAPITAL MANAGEMENT MID-CAP FUND
A series of the
Capital Management Investment Trust
INSTITUTIONAL SHARES
________________________________________________________________________________
Prospectus
April 1, 1999
The Capital Management Mid-Cap Fund seeks long-term capital appreciation. This
Prospectus relates to the Institutional Class Shares. The Fund also offers an
additional class of shares, Investor Class Shares, which are offered by another
prospectus.
Advisor
-------
Capital Management Associates, Inc.
140 Broadway
New York, New York 10005
1-888-626-3863
The Securities and Exchange Commission has not approved the securities being
offered by this prospectus or determined whether this prospectus is accurate and
complete. It is unlawful for anyone to make any representation to the contrary.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.......................................................................2
- --------
Investment Objective........................................................2
Principal Investment Strategies.............................................2
Principal Risks Of Investing In The Fund....................................2
Financial Highlights........................................................4
Bar Chart and Performance Table.............................................5
Fees And Expenses Of The Fund...............................................6
MANAGEMENT OF THE FUND.........................................................7
- ----------------------
The Investment Advisor......................................................7
The Administrator...........................................................8
The Transfer Agent..........................................................8
The Distributor.............................................................9
YOUR INVESTMENT IN THE FUND....................................................9
- ---------------------------
Minimum Investment..........................................................9
Purchase And Redemption Price...............................................9
Purchasing Shares..........................................................10
Redeeming Your Shares......................................................12
OTHER IMPORTANT INVESTMENT INFORMATION........................................14
- --------------------------------------
Dividends, Distributions And Taxes.........................................14
Year 2000..................................................................14
Additional Information.............................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The investment objective of the Capital Management Mid-Cap Fund (the "Fund") is
to seek long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund, which is a diversified separate investment portfolio of the Capital
Management Investment Trust (the "Trust"), pursues its investment objective by
investing primarily in equity securities of medium-capitalization ("mid-cap")
companies. The Fund considers a mid-cap company to be one that has market
capitalization, measured at the time the Fund purchases the security, within the
range of $1 billion to $10 billion.
The Fund's investments in mid-cap companies will be primarily in equity
securities of such companies, such as common and preferred stocks and securities
convertible into common stocks. The Fund intends to invest in a diversified
group of mid-cap companies and will not concentrate it investments in any one
industry or group.
Under normal market conditions, the Fund will invest at least 90% of its total
assets in equity securities, of which at least 65% of its total assets will be
invested in the equity securities of mid-cap companies. In selecting portfolio
securities, the Fund's Advisor, Capital Management Associates, Inc., uses
various screens and proprietary models that begin with a potential universe of
over 1,700 companies and then through fundamental research seeks to select from
that group companies whose current share price is relatively undervalued. This
process often includes visits with company management and contacts with industry
experts and suppliers. Final investment decisions are made by the Advisor's
Portfolio Management Team.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The Fund is intended for aggressive investors seeking above-average gains and
willing to accept the risks involved in investing in the securities of mid-cap
companies. There can be no assurance that the Fund will be successful in meeting
its objective.
Since the Fund may invest in both equity securities, concentrating on mid-cap
company securities, and short-term investment instruments, the Fund has some
exposure to the risks of both equity securities and short-term investment
instruments.
<PAGE>
Mid-Cap Securities
Investments in equity securities (i.e., common stocks and preferred stocks) are
particularly subject to the risk of changing economic, stock market, industry,
and company conditions which can adversely affect the value of the Fund's equity
holdings.
Investing in the securities of mid-cap companies generally involves greater risk
than investing in larger, more established companies. This greater risk is, in
part, attributable to the fact that the securities of mid-cap companies usually
have more limited marketability and, therefore, may be more volatile than
securities of larger, more established companies or the market averages in
general. Because mid-cap companies normally have fewer shares outstanding than
larger companies, it may be more difficult to buy or sell significant amounts of
such shares without an unfavorable impact on prevailing prices. Another risk
factor is that mid-cap companies often have limited product lines, markets, or
financial resources and may lack management depth. Additionally, mid-cap
companies are typically subject to greater changes in earnings and business
prospects than are larger, more established companies, and there typically is
less publicly available information concerning mid-cap companies than for
larger, more established companies.
Although investing in securities of medium-sized companies offers potential
above-average returns if the companies are successful, the risk exists that the
companies will not succeed, and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds that seek
capital growth by investing in more established, larger companies.
Short-Term Investments
As a temporary defensive position, the Advisor may determine that market
conditions warrant investing in investment-grade bonds, U.S. Government
Securities, repurchase agreements, money market instruments, and to the extent
permitted by applicable law and the Fund's investment restriction, shares of
other investment companies. Under such circumstances, the Advisor may invest up
to 100% of the Fund's assets in these investments. Since investment companies
investing in other investment companies pay management fees and other expenses
relating to those investment companies, shareholders of the Fund would
indirectly pay both the Fund's expenses and the expenses relating to those other
investment companies with respect to the Fund's assets invested in such
investment companies. To the extent the Fund is invested in short-term
investments, it will not be pursuing its investment objective.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the Fund. The financial data for the fiscal years ended
November 30, 1998 and 1997, have been audited by Deloitte & Touche LLP,
independent auditors, whose report covering such periods is included in the
Statement of Additional Information. The financial data for the prior fiscal
years were audited by other independent auditors. This information should be
read in conjunction with the Fund's latest audited annual financial statements
and notes thereto, which are also included in the Statement of Additional
Information, a copy of which may be obtained at no charge by calling the Fund.
Further information about the performance of the Fund is contained in the Annual
Report of the Fund, a copy of which may also be obtained at no charge by calling
the Fund.
Institutional Class
-------------------
(For a Share Outstanding Throughout each Period Represented)
<TABLE>
<S> <C> <C> <C> <C>
For Fiscal Years Ended November 30,
1998 1997 1996 1995(a)
---- ---- ---- -------
Net Asset Value, Beginning of Period $18.20 $13.99 $12.16 $10.00
Income from investment operations
Net investment income (loss) 0.03 0.01 0.23 0.20
Net realized and unrealized gain on investments (1.70) 4.60 2.08 2.10
----- ---- ---- ----
Total from investment operations (1.67) 4.61 2.31 2.30
----- ---- ---- ----
Distributions to shareholders from
Net investment income 0.00 (0.04) (0.26) (0.14)
Distributions in excess of net investment income 0.00 (0.02) 0.00 (0.00)
Net realized gain from investment transactions (2.32) (0.34) (0.22) 0.00
----- ----- ----- ----
Total distributions (2.32) (0.40) (0.48) (0.14)
----- ------ ------ ------
Net Asset Value, End of Period $14.21 $18.20 $13.99 $12.16
====== ====== ====== ======
Total return (b) (10.94)% 33.92 % 19.57 % 23.00 %
Ratios/supplemental data
Net Assets, End of Period $4,929,525 $5,311,416 $3,502,215 $1,832,507
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.60 % 2.92 % 3.70 % 7.20 % (c)
After expense reimbursements and waived fees 1.50 % 1.50 % 0.00 % 0.31 % (c)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (0.93)% (1.34)% (1.77)% (4.45)% (c)
After expense reimbursements and waived fees 0.17 % 0.08 % 1.94 % 2.44 % (c)
Portfolio Turnover Rate 89.04 % 66.30 % 82.30 % 47.74 %
</TABLE>
(a) For the period from January 27, 1995 (commencement of operations) to
November 30, 1995.
(b) Total return does not reflect payment of a sales charge.
(c) Annualized.
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing (on a calendar year basis) changes in the
Fund's annual total return from year to year and by showing (on a calendar year
basis) how the Fund's average annual returns for one year, three years, and
since inception compare to those of a broad-based securities market index. How
the Fund has performed in the past is not necessarily an indication of how the
Fund will perform in the future.
[Bar Chart Inserted Here]
Calendar Year Returns
Institutional Shares
1996 18.82%
1997 37.22%
1998 -6.99%
o During the 3-year period shown in the bar chart, the highest return for a
quarter was 23.69% (quarter ended December 31, 1998).
o During the 3-year period shown in the bar chart, the lowest return for a
quarter was -25.61% (quarter ended September 30, 1998).
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------- ------------------ ---------------- -----------------
Average Annual Total Returns Past 1 Year Past 3 Years Since Inception
Period ended December 31, 1998
- ------------------------------------------------------- ------------------ ---------------- -----------------
Capital Management Mid-Cap Fund Institutional Shares -6.99% 14.87% 17.71%
- ------------------------------------------------------- ------------------ ---------------- -----------------
S&P 400 Midcap Index * 19.09% 23.31% 25.28%
- ------------------------------------------------------- ------------------ ---------------- -----------------
* The S&P 400 Midcap Index is the Standard & Poor's unmanaged,
capitalization-weighted index of 400 stocks in the mid-range sector of
the U.S. stock market.
</TABLE>
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees For Institutional Shares
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ....................None
Redemption fee ..............................................None
Annual Fund Operating Expenses For Institutional Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees......................................1.00%
Distribution and/or Service (12b-1) Fees............. None
Other Expenses.......................................1.60%*
-----
Total Annual Fund Operating Expenses...................2.60%
Fee Waiver and/or Expense Reimbursement...............(1.10%)
------
Net Expenses...........................................1.50%
======
* Other Expenses shown above are based upon actual expenses
incurred by the Institutional Shares of the Fund for the fiscal
year ended November 30, 1998. The Advisor has entered into a
contractual agreement with the Fund under which it has agreed to
waive or reduce its fees and to assume other expenses of the
Fund, if necessary, in an amount that limits Total Fund
Operating Expenses (exclusive of interest, taxes, brokerage fees
and commissions, extraordinary expenses, and payments, if any,
under a Rule 12b-1 Plan) to not more than 1.50% of the
Institutional Shares average daily net assets for the fiscal
year ending November 30, 1999. See "Expense Limitation
Agreement" for more detailed information.
Example. This Example shows you the expenses you may pay over time by investing
in the Fund. Since all funds use the same hypothetical conditions, it should
help you compare the costs of investing in the Fund versus other funds. The
Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return, and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
- ---------------------------- ------------ ------------ ------------ ------------
Period Invested 1 Year 3 Years 5 Years 10 Years
- ---------------------------- ------------ ------------ ------------ ------------
Your Costs $153 $474 $818 $1,791
- ---------------------------- ------------ ------------ ------------ ------------
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
The Fund's Advisor is Capital Management Associates, Inc., 140 Broadway, New
York, New York 10005. The Advisor serves in that capacity pursuant to an
advisory contract with the Trust on behalf of the Fund. Subject to the authority
of the Trustees, the Advisor provides guidance and policy direction in
connection with its daily management of the Fund's assets. The Advisor manages
the investment and reinvestment of the Fund's assets. The Advisor is also
responsible for the selection of broker-dealers through which the Fund executes
portfolio transactions, subject to the brokerage policies established by the
Trustees, and it provides certain executive personnel to the Fund.
The Advisor, organized as a New York corporation in 1982, is controlled by its
officers and directors, with the principal shareholders being J.V. Shields, Jr.;
David V. Shields; C. Lennis Koontz, II, CFA; and Joseph A. Zock. Messrs. Zock
and Koontz, assisted by seven full-time analysts, serve as the Portfolio
Management Team that selects the investments for the Fund. The Shields brothers
and Mr. Zock have been affiliated with the Advisor since 1982. Mr. Koontz has
been affiliated with the Advisor since 1992. The Advisor has been managing the
Fund since its inception and has been providing investment advice to investment
companies, individuals, corporations, pension and profit sharing plans,
endowments, and other business and private accounts since 1982. The Advisor
currently has approximately $1 billion in assets under management.
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Fund, the Fund pays the Advisor monthly compensation
based on the Fund's daily average net assets at the annual rate of 1.00% of the
first $100 million of the Fund's net assets, 0.90% of the next $150 million,
0.85% of the next $250 million, and 0.80% of all assets over $500 million.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to the Fund ("Expense Limitation Agreement"), pursuant to which the
Advisor has agreed to waive or limit its fees and to assume other expenses so
that the total annual operating expenses of the Fund (other than interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable pursuant to a Rule 12b-1 Plan) are limited to 1.50% of
the average daily net assets of the Fund.
<PAGE>
The Fund may at a later date reimburse the Advisor the management fees waived or
limited and other expenses assumed and paid by the Advisor pursuant to the
Expense Limitation Agreement during any of the previous five (5) fiscal years,
provided the Fund has reached a sufficient asset size to permit such
reimbursement to be made without causing the total annual expense ratio of the
Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $10
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above, and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers. Certain securities
trades will be cleared through Shields & Company, a registered broker-dealer
affiliate of the Advisor and Distributor of the Fund.
The Investment Company Act of 1940, as amended (the "1940 Act"), generally
prohibits the Fund from engaging in principal securities transactions with an
affiliate of the Advisor. Thus, the Fund does not engage in principal
transactions with any affiliate of the Advisor. The Fund has adopted procedures,
under Rule 17e-1 under the 1940 Act, that are reasonably designed to provide
that any brokerage commission the Fund pays to an affiliate of the Advisor does
not exceed the usual and customary broker's commission. In addition, the Fund
will adhere to Section 11(a) of the 1934 Act and any applicable rules thereunder
governing floor trading.
THE ADMINISTRATOR
The Nottingham Company, Inc., (the "Administrator") assists the Trust in the
performance of its administrative responsibilities to the Fund, coordinates the
services of each vendor of services to the Fund, and provides the Fund with
other necessary administrative, fund accounting, and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel, and facilities required to provide such services to the Fund.
THE TRANSFER AGENT
NC Shareholder Services, LLC, ("NCSS") serves as the transfer agent and dividend
disbursing agent of the Fund. As indicated later in the section of this
Prospectus, "Investing in the Fund," NCSS will handle your orders to purchase
and redeem shares of the Fund and will disburse dividends paid by the Fund.
<PAGE>
THE DISTRIBUTOR
Shields & Company is the principal underwriter and distributor of the Fund's
shares and serves as the Fund's exclusive agent for the distribution of Fund
shares. Shields & Company may sell the Fund's shares to or through qualified
securities dealers or others.
Other Expenses. In addition to the management fees and Rule 12b-1 fees for the
Investor Class shares, the Fund pays all expenses not assumed by the Fund's
Advisor, including, without limitation: the fees and expenses of its
administrator, custodian, transfer agent, independent accountants, and legal
counsel; the costs of printing and mailing to shareholders annual and
semi-annual reports, proxy statements, prospectuses, statements of additional
information, and supplements thereto; the costs of printing registration
statements; bank transaction charges and custodian's fees; any proxy solicitors'
fees and expenses; filing fees; any federal, state, or local income or other
taxes; any interest; any membership fees of the Investment Company Institute and
similar organizations; fidelity bond and Trustees' liability insurance premiums;
and any extraordinary expenses, such as indemnification payments or damages
awarded in litigation or settlements made. All general Trust expenses are
allocated among and charged to the assets of each separate series of the Trust,
such as the Fund, on a basis that the Trustees deem fair and equitable, which
may be on the basis of relative net assets of each series or the nature of the
services performed and relative applicability to each series.
YOUR INVESTMENT IN THE FUND
---------------------------
MINIMUM INVESTMENT
Institutional Class shares are sold and redeemed at net asset value. Shares may
be purchased by any account managed by the Advisor and any other institutional
investor or any broker-dealer authorized to sell shares in the Fund. The minimum
initial investment is $250,000 and the minimum additional investment is $500.
The Fund may, in the Advisor's sole discretion, accept certain accounts with
less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. Good form includes providing a complete and accurate
application and payment in full of the purchase amount. The Fund's net asset
value per share is calculated by dividing the value of the Fund's total assets,
less liabilities (including Fund expenses, which are accrued daily), by the
total number of outstanding shares of that Fund. The net asset value per share
of the Fund is normally determined at the time regular trading closes on the New
York Stock Exchange (currently 4:00 p.m. Eastern time, Monday through Friday),
except on business holidays when the New York Stock Exchange is closed.
<PAGE>
Other Matters. All redemption requests will be processed and payment with
respect thereto will normally be made within seven days after tenders. The Fund
may suspend redemption, if permitted by the 1940 Act, for any period during
which the New York Stock Exchange is closed or during which trading is
restricted by the Securities Exchange Commission ("SEC") or if the SEC declares
that an emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Fund's shareholders.
Additionally, during drastic economic and market changes, telephone redemption
privileges may be difficult to implement. Also, if the Trustees determine that
it would be detrimental to the best interest of the Fund's remaining
shareholders to make payment in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "Capital
Management Mid-Cap Fund," to:
Capital Management Mid-Cap Fund
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S.
investors if certain IRS requirements regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or to add to an existing account by wire, please call
the Fund at 1-888-626-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the Capital Management Mid-Cap Fund - Institutional Class Shares
Acct. # 2000000861878
For further credit to (shareholder's name and SS# or TIN#)
<PAGE>
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current public offering price. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-888-626-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Fund.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series of the Trust offered for sale in the state in which you reside. Shares
may be exchanged for shares of any other series of the Trust at the net asset
value. Prior to making an investment decision or giving us your instructions to
exchange shares, please read the prospectus for the series in which you wish to
invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60 days prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
<PAGE>
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
Capital Management Mid-Cap Fund
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, the Fund may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) The name of the Fund and the designation of Class (Institutional or
Investor),
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder, and
5) Shareholder signature as it appears on the application then on file with
the Fund.
<PAGE>
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10.00 per transaction for wiring redemption
proceeds. If this cost is passed through to redeeming shareholders by the Fund,
the charge will be deducted automatically from your account by redemption of
shares in your account. Your bank or brokerage firm may also impose a charge for
processing the wire. If wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-888-626-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Small Accounts. All shares are purchased and redeemed in accordance with the
Fund's Amended and Restated Declaration of Trust and By-Laws. The Trustees
reserve the right to redeem involuntarily any account having a net asset value
of less than $250,000 (due to redemptions, exchanges, or transfers, and not due
to market action) upon 60-days' written notice. If the shareholder brings his
account net asset value up to at least $250,000 during the notice period, the
account will not be redeemed. Redemptions from retirement plans may be subject
to federal income tax withholding.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
<PAGE>
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for an application form.
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund plans to qualify as a regulated investment company ("RIC") under
Subchapter M of the Code. As a RIC, the Fund will not be subject to federal tax
on its net investment income and net realized capital gains to the extent such
income and gains are distributed timely to its shareholders. Accordingly, the
Fund intends to distribute all of its net investment income and net realized
capital gains to its shareholders. Unless otherwise instructed by shareholders,
all dividend distributions will be reinvested in full and fractional shares of
the Fund to which they relate.
Although the Fund intends that it will be operated so that there will be no
federal income or excise tax liability, if any such liability is incurred as a
result of failing to qualify as a RIC, the investment performance will be
adversely affected by the tax liability incurred and paid
Certain additional tax information appears in the Statement of Additional
Information.
YEAR 2000
Like other mutual funds, the Fund and the service providers for the Fund rely
heavily on the reasonably consistent operation of their computer systems. Many
software programs and certain computer hardware in use today, cannot properly
process information after December 31, 1999, because of the method by which
dates are encoded and calculated in such programs and hardware. This problem,
commonly referred to as the "Year 2000 Issue," could, among other things,
negatively impact the processing of trades, the distribution of securities, the
pricing of securities, and other investment-related and settlement activities.
The Trust is currently obtaining and assessing information with respect to the
actions that have been taken and the actions that are planned to be taken by
each of its service providers to prepare their computer systems for the Year
2000. While the Trust expects that each of the Trust's service providers will
have adapted their computer systems to address the Year 2000 Issue, there can be
no assurance that this will be the case or that the steps taken by the Trust
will be sufficient to avoid any adverse impact to the Trust and each of its
funds.
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
CAPITAL MANAGEMENT MID-CAP FUND
INSTITUTIONAL SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-888-626-3863
By mail: Capital Management Mid-Cap Fund
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
---------------
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet sit at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-08822
<PAGE>
Cusip Number 140296203 NASDAQ Symbol CMCIX
________________________________________________________________________________
CAPITAL MANAGEMENT MID-CAP FUND
A series of the
Capital Management Investment Trust
INVESTOR SHARES
________________________________________________________________________________
Prospectus
April 1, 1999
The Capital Management Mid-Cap Fund seeks long-term capital appreciation. This
Prospectus relates to the Investor Class Shares. The Fund also offers an
additional class of shares, Institutional Class Shares, which are offered by
another prospectus.
Advisor
-------
Capital Management Associates, Inc.
140 Broadway
New York, New York 10005
1-888-626-3863
The Securities and Exchange Commission has not approved the securities being
offered by this prospectus or determined whether this prospectus is accurate and
complete. It is unlawful for anyone to make any representation to the contrary.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.......................................................................2
- -------
Investment Objective........................................................2
Principal Investment Strategies.............................................2
Principal Risks Of Investing In The Fund....................................2
Financial Highlights........................................................4
Bar Chart and Performance Table.............................................5
Fees And Expenses Of The Fund...............................................6
MANAGEMENT OF THE FUND.........................................................7
- ----------------------
The Investment Advisor......................................................7
The Administrator...........................................................8
The Transfer Agent..........................................................8
The Distributor.............................................................9
YOUR INVESTMENT IN THE FUND...................................................10
- ---------------------------
Minimum Investment.........................................................10
Purchase And Redemption Price..............................................10
Purchasing Shares..........................................................11
Redeeming Your Shares......................................................13
OTHER IMPORTANT INVESTMENT INFORMATION........................................15
- --------------------------------------
Dividends, Distributions And Taxes.........................................15
Year 2000..................................................................15
Additional Information.............................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The investment objective of the Capital Management Mid-Cap Fund (the "Fund") is
to seek long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund, which is a diversified separate investment portfolio of the Capital
Management Investment Trust (the "Trust"), pursues its investment objective by
investing primarily in equity securities of medium-capitalization ("mid-cap")
companies. The Fund considers a mid-cap company to be one that has market
capitalization, measured at the time the Fund purchases the security, within the
range of $1 billion to $10 billion.
The Fund's investments in mid-cap companies will be primarily in equity
securities of such companies, such as common and preferred stocks and securities
convertible into common stocks. The Fund intends to invest in a diversified
group of mid-cap companies and will not concentrate it investments in any one
industry or group.
Under normal market conditions, the Fund will invest at least 90% of its total
assets in equity securities, of which at least 65% of its total assets will be
invested in the equity securities of mid-cap companies. In selecting portfolio
securities, the Fund's Advisor, Capital Management Associates, Inc., uses
various screens and proprietary models that begin with a potential universe of
over 1,700 companies and then through fundamental research seeks to select from
that group companies whose current share price is relatively undervalued. This
process often includes visits with company management and contacts with industry
experts and suppliers. Final investment decisions are made by the Advisor's
Portfolio Management Team.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The Fund is intended for aggressive investors seeking above-average gains and
willing to accept the risks involved in investing in the securities of mid-cap
companies. There can be no assurance that the Fund will be successful in meeting
its objective.
Since the Fund may invest in both equity securities, concentrating on mid-cap
company securities, and short-term investment instruments, the Fund has some
exposure to the risks of both equity securities and short-term investment
instruments.
<PAGE>
Mid-Cap Securities
Investments in equity securities (i.e., common stocks and preferred stocks) are
particularly subject to the risk of changing economic, stock market, industry,
and company conditions which can adversely affect the value of the Fund's equity
holdings.
Investing in the securities of mid-cap companies generally involves greater risk
than investing in larger, more established companies. This greater risk is, in
part, attributable to the fact that the securities of mid-cap companies usually
have more limited marketability and, therefore, may be more volatile than
securities of larger, more established companies or the market averages in
general. Because mid-cap companies normally have fewer shares outstanding than
larger companies, it may be more difficult to buy or sell significant amounts of
such shares without an unfavorable impact on prevailing prices. Another risk
factor is that mid-cap companies often have limited product lines, markets, or
financial resources and may lack management depth. Additionally, mid-cap
companies are typically subject to greater changes in earnings and business
prospects than are larger, more established companies, and there typically is
less publicly available information concerning mid-cap companies than for
larger, more established companies.
Although investing in securities of medium-sized companies offers potential
above-average returns if the companies are successful, the risk exists that the
companies will not succeed, and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds that seek
capital growth by investing in more established, larger companies.
Short-Term Investments
As a temporary defensive position, the Advisor may determine that market
conditions warrant investing in investment-grade bonds, U.S. Government
Securities, repurchase agreements, money market instruments, and to the extent
permitted by applicable law and the Fund's investment restriction, shares of
other investment companies. Under such circumstances, the Advisor may invest up
to 100% of the Fund's assets in these investments. Since investment companies
investing in other investment companies pay management fees and other expenses
relating to those investment companies, shareholders of the Fund would
indirectly pay both the Fund's expenses and the expenses relating to those other
investment companies with respect to the Fund's assets invested in such
investment companies. To the extent the Fund is invested in short-term
investments, it will not be pursuing its investment objective.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the Fund. The financial data for the fiscal years ended
November 30, 1998 and 1997, have been audited by Deloitte & Touche LLP,
independent auditors, whose report covering such periods is included in the
Statement of Additional Information. The financial data for the prior fiscal
years were audited by other independent auditors. This information should be
read in conjunction with the Fund's latest audited annual financial statements
and notes thereto, which are also included in the Statement of Additional
Information, a copy of which may be obtained at no charge by calling the Fund.
Further information about the performance of the Fund is contained in the Annual
Report of the Fund, a copy of which may also be obtained at no charge by calling
the Fund.
Investor Class
--------------
(For a Share Outstanding Throughout each Period Represented)
<TABLE>
<S> <C> <C> <C> <C>
For Fiscal Years Ended November 30,
1998 1997 1996 1995(a)
---- ---- ---- ------
Net Asset Value, Beginning of Period $18.04 $13.96 $12.09 $11.07
Income from investment operations
Net investment income (loss) (0.09) (0.05) 0.24 0.11
Net realized and unrealized gain on investments (1.67) 4.53 2.06 1.02
----- ---- ---- ----
Total from investment operations (1.76) 4.48 2.30 1.13
----- ---- ---- ----
Distributions to shareholders from
Net investment income 0.00 (0.03) (0.21) (0.11)
Distributions in excess of net investment income 0.00 (0.03) 0.00 0.00
Net realized gain from investment transactions (2.32) (0.34) (0.22) 0.00
------ ----- ----- ----
Total distributions (2.32) (0.40) (0.43) (0.11)
------ ------ ------ ------
Net Asset Value, End of Period $13.96 $18.04 $13.96 $12.09
====== ====== ====== ======
Total return (b) (11.67)% 33.11 % 19.61 % 10.24 %
Ratios/supplemental data
Net Assets, End of Period $1,766,893 $1,873,942 $746,136 $550,814
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 3.35 % 3.71 % 4.45 % 7.18 % (c)
After expense reimbursements and waived fees 2.25 % 2.25 % 0.00 % 1.06 % (c)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (1.67)% (2.10)% (2.50)% (4.23)% (c)
After expense reimbursements and waived fees (0.57)% (0.63)% 1.95 % 1.89 % (c)
Portfolio Turnover Rate 89.04 % 66.30 % 82.30 % 47.74 %
(a) For the period from April 7, 1995 (commencement of operations) to November
30, 1995.
(b) Total return does not reflect payment of a sales charge.
(c) Annualized.
</TABLE>
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing (on a calendar year basis) changes in the
Fund's annual total return from year to year and by showing (on a calendar year
basis) how the Fund's average annual returns for one year, three years, and
since inception compare to those of a broad-based securities market index. How
the Fund has performed in the past is not necessarily an indication of how the
Fund will perform in the future.
[BAR CHART INSERTED HERE]
Calendar Year Returns
Investor Shares
1996 18.79%
1997 36.38%
1998 -7.70%
o During the 3-year period shown in the bar chart, the highest return for a
quarter was 23.47% (quarter ended December 31, 1998).
o During the 3-year period shown in the bar chart, the lowest return for a
quarter was -25.74% (quarter ended September 30, 1998).
o Sales loads are not reflected in the chart above. If these amounts were
reflected, returns would be less than those shown.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------- ------------------ ---------------- -----------------
Average Annual Total Returns Past 1 Year Past 3 Years Since Inception
Period ended December 31, 1998*
- ------------------------------------------------------- ------------------ ---------------- -----------------
Capital Management Mid-Cap Fund Investor Shares -10.47% 13.18% 13.90%
- ------------------------------------------------------- ------------------ ---------------- -----------------
S&P 400 Midcap Index ** 19.09% 23.31% 24.49%
- ------------------------------------------------------- ------------------ ---------------- -----------------
* Maximum sales loads are reflected in the table above.
** The S&P 400 Midcap Index is Standard & Poor's unmanaged,
capitalization-weighted index of 400 stocks in the mid-range sector of
the U.S. stock market.
</TABLE>
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees For Investor Shares
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ...................3.00%
Redemption fee ............................................ None
Annual Fund Operating Expenses For Investor Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees....................................1.00%
Distribution and/or Service (12b-1) Fees...........0.75%
Other Expenses.....................................1.60%*
----
Total Annual Fund Operating Expenses...................3.35%
Fee Waiver and/or Expense Reimbursement...............(1.10%)
----
Net Expenses...........................................2.25%
====
* Other Expenses shown above are based upon actual expenses incurred
by the Investor Shares of the Fund for the fiscal year ended
November 30, 1998. The Advisor has entered into a contractual
agreement with the Fund under which it has agreed to waive or
reduce its fees and to assume other expenses of the Fund, if
necessary, in an amount that limits Total Fund Operating Expenses
(exclusive of interest, taxes, brokerage fees and commissions,
extraordinary expenses, and payments, if any, under a Rule 12b-1
Plan) to not more than 1.50% of the Investor Shares average daily
net assets for the fiscal year ending November 30, 1999. See
"Expense Limitation Agreement" for more detailed information.
Example. This Example shows you the expenses you may pay over time by investing
in the Fund. Since all funds use the same hypothetical conditions, it should
help you compare the costs of investing in the Fund versus other funds. The
Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return, and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
- ---------------------------- ------------ ------------ ------------ ------------
Period Invested 1 Year 3 Years 5 Years 10 Years
- ---------------------------- ------------ ------------ ------------ ------------
Your Costs $521 $982 $1,469 $2,807
- ---------------------------- ------------ ------------ ------------ ------------
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
The Fund's Advisor is Capital Management Associates, Inc., 140 Broadway, New
York, New York 10005. The Advisor serves in that capacity pursuant to an
advisory contract with the Trust on behalf of the Fund. Subject to the authority
of the Trustees, the Advisor provides guidance and policy direction in
connection with its daily management of the Fund's assets. The Advisor manages
the investment and reinvestment of the Fund's assets. The Advisor is also
responsible for the selection of broker-dealers through which the Fund executes
portfolio transactions, subject to the brokerage policies established by the
Trustees, and it provides certain executive personnel to the Fund.
The Advisor, organized as a New York corporation in 1982, is controlled by its
officers and directors, with the principal shareholders being J.V. Shields, Jr.;
David V. Shields; C. Lennis Koontz, II, CFA; and Joseph A. Zock. Messrs. Zock
and Koontz, assisted by seven full-time analysts, serve as the Portfolio
Management Team that selects the investments for the Fund. The Shields brothers
and Mr. Zock have been affiliated with the Advisor since 1982. Mr. Koontz has
been affiliated with the Advisor since 1992. The Advisor has been managing the
Fund since its inception and has been providing investment advice to investment
companies, individuals, corporations, pension and profit sharing plans,
endowments, and other business and private accounts since 1982. The Advisor
currently has approximately $1 billion in assets under management.
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Fund, the Fund pays the Advisor monthly compensation
based on the Fund's daily average net assets at the annual rate of 1.00% of the
first $100 million of the Fund's net assets, 0.90% of the next $150 million,
0.85% of the next $250 million, and 0.80% of all assets over $500 million.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to the Fund ("Expense Limitation Agreement"), pursuant to which the
Advisor has agreed to waive or limit its fees and to assume other expenses so
that the total annual operating expenses of the Fund (other than interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and amounts
payable pursuant to a Rule 12b-1 Plan) are limited to 1.50% of the average daily
assets of the Fund.
The Fund may at a later date reimburse the Advisor the management fees waived or
limited and other expenses assumed and paid by the Advisor pursuant to the
Expense Limitation Agreement during any of the previous five (5) fiscal years,
provided the Fund has reached a sufficient asset size to permit such
reimbursement to be made without causing the total annual expense ratio of the
Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $10
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above, and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
<PAGE>
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers. Certain securities
trades will be cleared through Shields & Company, a registered broker-dealer
affiliate of the Advisor and Distributor of the Fund.
The Investment Company Act of 1940, as amended (the "1940 Act"), generally
prohibits the Fund from engaging in principal securities transactions with an
affiliate of the Advisor. Thus, the Fund does not engage in principal
transactions with any affiliate of the Advisor. The Fund has adopted procedures,
under Rule 17e-1 under the 1940 Act, that are reasonably designed to provide
that any brokerage commission the Fund pays to an affiliate of the Advisor does
not exceed the usual and customary broker's commission. In addition, the Fund
will adhere to Section 11(a) of the 1934 Act and any applicable rules thereunder
governing floor trading.
THE ADMINISTRATOR
The Nottingham Company, Inc., (the "Administrator") assists the Trust in the
performance of its administrative responsibilities to the Fund, coordinates the
services of each vendor of services to the Fund, and provides the Fund with
other necessary administrative, fund accounting, and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel, and facilities required to provide such services to the Fund.
THE TRANSFER AGENT
NC Shareholder Services, LLC, ("NCSS") serves as the transfer agent and dividend
disbursing agent of the Fund. As indicated later in the section of this
Prospectus, "Investing in the Fund," NCSS will handle your orders to purchase
and redeem shares of the Fund and will disburse dividends paid by the Fund.
<PAGE>
THE DISTRIBUTOR
Shields & Company is the principal underwriter and distributor of the Fund's
shares and serves as the Fund's exclusive agent for the distribution of Fund
shares. Shields & Company may sell the Fund's shares to or through qualified
securities dealers or others.
Distribution of the Fund's Shares. For the Investor Class shares of the Fund,
the Fund has adopted a Distribution Plan in accordance with Rule 12b-1 (the
"Distribution Plan") under the 1940 Act. Pursuant to the Distribution Plan, the
Fund compensates its distributor, Shields & Company (the "Distributor"), for
services rendered and expenses borne in connection with activities primarily
intended to result in the sale of the Fund's Investor Class shares (this
compensation is commonly referred to as "12b-1 fees"). It is anticipated that a
portion of the 12b-1 fees received by the Distributor will be used to defray
various costs incurred or paid by the Distributor in connection with the
printing and mailing to potential investors of Fund prospectuses, statements of
additional information, any supplements thereto, and shareholder reports, and
holding seminars and sales meetings with wholesale and retail sales personnel
designed to promote the sale of Investor Class shares. The Distributor may also
use a portion of the 12b-1 fees received to provide compensation to financial
intermediaries and third-party broker-dealers for their services in connection
with the sale of Investor Class shares. Because the 12b-1 fees are paid out of
the Fund's assets on an on-going basis, these fees, over time, will increase the
cost of your investment and may cost you more than paying other types of sales
loads.
The Distribution Plan provides that the Fund will pay annually 0.75% of the
average daily net assets of the Fund's Investor Class shares for activities
primarily intended to result in the sale of those shares, including to reimburse
entities for providing distribution and shareholder servicing with respect to
the Fund's Investor Class shares.
The Distribution Plan is known as a "compensation" plan because payments are
made for services rendered to the Fund with respect to Investor Class shares
regardless of the level of expenditures made by the Distributor. The Board of
Trustees of the Trust will, however, take into account such expenditures for
purposes of reviewing operations under the Distribution Plan and concerning
their annual consideration of the Plan's renewal. The Distributor has indicated
that it expects its expenditures to include, without limitation: (a) the
printing and mailing to prospective investors of Fund prospectuses, statements
of additional information, any supplements thereto and shareholder reports with
respect to the Investor Class shares of the Fund; (b) those relating to the
development, preparation, printing and mailing of advertisements, sales
literature and other promotional materials describing and/or relating to the
Investor Class shares of the Fund; (c) holding seminars and sales meetings
designed to promote the distribution of the Fund's Investor Class shares; (d)
obtaining information and providing explanations to wholesale and retail
distributors of the Fund's investment objectives and policies and other
information about the Fund; (e) training sales personnel regarding the Investor
Class shares of the Fund; and (f) financing any other activity that the
Distributor determines is primarily intended to result in the sale of Investor
Class shares.
<PAGE>
Other Expenses. In addition to the management fees and Rule 12b-1 fees for the
Investor Class shares, the Fund pays all expenses not assumed by the Fund's
Advisor, including, without limitation: the fees and expenses of its
administrator, custodian, transfer agent, independent accountants, and legal
counsel; the costs of printing and mailing to shareholders annual and
semi-annual reports, proxy statements, prospectuses, statements of additional
information, and supplements thereto; the costs of printing registration
statements; bank transaction charges and custodian's fees; any proxy solicitors'
fees and expenses; filing fees; any federal, state, or local income or other
taxes; any interest; any membership fees of the Investment Company Institute and
similar organizations; fidelity bond and Trustees' liability insurance premiums;
and any extraordinary expenses, such as indemnification payments or damages
awarded in litigation or settlements made. All general Trust expenses are
allocated among and charged to the assets of each separate series of the Trust,
such as the Fund, on a basis that the Trustees deem fair and equitable, which
may be on the basis of relative net assets of each series or the nature of the
services performed and relative applicability to each series.
YOUR INVESTMENT IN THE FUND
---------------------------
MINIMUM INVESTMENT
Investor Class shares are sold subject to a sales charge of 3.00%, so that the
term "offering price" includes the front-end sales load. Shares are redeemed at
net asset value. Shares may be purchased by any account managed by the Advisor
and any broker-dealer authorized to sell Fund shares. The minimum initial
investment is $2,500 ($1,000 for Individual Retirement Accounts ("IRAs"), Keogh
Plans, 401(k) Plans, or purchases under the Uniform Transfer to Minors Act). The
minimum additional investment is $500. The Fund may, in the Advisor's sole
discretion, waive such minimum investment amounts.
PURCHASE AND REDEMPTION PRICE
Sales Charges. The public offering price of Investor Class shares of the Fund
equals net asset value plus a sales charge. The Distributor receives this sales
charge and may reallow it in the form of dealer discounts and brokerage
commissions as follows:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------ --------------------- -------------------- -----------------------------
Amount of Transaction At Public Charge As % of Net Sales Charge As % Sales Dealers Discounts and
Offering Price Amount Invested of Public Offering Brokerage Commissions as %
Price of Public Offering Price
- ------------------------------------ --------------------- -------------------- -----------------------------
Less than $250,000 3.09% 3.00% 2.80%
- ------------------------------------ --------------------- -------------------- -----------------------------
$250,000 but less than $500,000 2.56% 2.50% 2.30%
- ------------------------------------ --------------------- -------------------- -----------------------------
$500,000 or more 2.04% 2.00% 1.80%
- ------------------------------------ --------------------- -------------------- -----------------------------
</TABLE>
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers. Pursuant to the terms of the
Distribution Agreement, the sales charge payable to the Distributor and the
dealer discounts may be suspended, terminated or amended. The Distributor, at
its expense, may, from time to time, provide additional promotional incentives
to dealers who sell Fund shares.
<PAGE>
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. Good form includes providing a complete and accurate
application and payment in full of the purchase amount. The Fund's net asset
value per share is calculated by dividing the value of the Fund's total assets,
less liabilities (including Fund expenses, which are accrued daily), by the
total number of outstanding shares of that Fund. The net asset value per share
of the Fund is normally determined at the time regular trading closes on the New
York Stock Exchange (currently 4:00 p.m. Eastern time, Monday through Friday),
except on business holidays when the New York Stock Exchange is closed.
Other Matters. All redemption requests will be processed and payment with
respect thereto will normally be made within seven days after tenders. The Fund
may suspend redemption, if permitted by the 1940 Act, for any period during
which the New York Stock Exchange is closed or during which trading is
restricted by the Securities Exchange Commission ("SEC") or if the SEC declares
that an emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Fund's shareholders.
Additionally, during drastic economic and market changes, telephone redemption
privileges may be difficult to implement. Also, if the Trustees determine that
it would be detrimental to the best interest of the Fund's remaining
shareholders to make payment in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "Capital
Management Mid-Cap Fund," to:
Capital Management Mid-Cap Fund
Investor Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
<PAGE>
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S.
investors if certain IRS requirements regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or to add to an existing account by wire, please call
the Fund at 1-888-626-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the Capital Management Mid-Cap Fund - Investor Class Shares
Acct. # 2000000861878
For further credit to (shareholder's name and SS# or TIN#)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current public offering price. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-888-626-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Fund.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series of the Trust offered for sale in the state in which you reside. Shares
may be exchanged for shares of any other series of the Trust at the net asset
value plus the percentage difference between that series' sales charge and any
sales charge, if any, previously paid in connection with the shares being
exchanged. Prior to making an investment decision or giving us your instructions
to exchange shares, please read the prospectus for the series in which you wish
to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60 days prior notice.
<PAGE>
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Rights of Accumulation. The sales charge applicable to a current purchase of
shares of the Fund by a person listed above is determined by adding the purchase
price of shares to be purchased to the aggregate value (at current offering
price) of shares of the Fund previously purchased and then owned, provided the
Distributor is notified by such person or his or her broker-dealer each time a
purchase is made which would so qualify. For example, a person who is purchasing
Mid-Cap shares with an aggregate value of $50,000 and who currently owns shares
of the Funds with a value of $200,000 would pay a sales charge of 2.50% of the
offering price on the new investment.
Letter of Intent. Sales charges may also be reduced through an agreement to
purchase a specified quantity of shares over a designated thirteen-month period
by completing the "Letter of Intent" section of the Account Application.
Information about the "Letter of Intent" procedure, including its terms, is
contained on the back of the Account Application.
Group Plans. Shares of the Fund may be sold at a reduced or eliminated sales
charge to certain Group Plans under which a sponsoring organization makes
recommendations to, permits group solicitation of, or otherwise facilitates
purchases by, its employees, members or participants. Information about such
arrangements is available from the Distributor.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
Capital Management Mid-Cap Fund
Investor Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, the Fund may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
<PAGE>
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) The name of the Fund and the designation of class (Institutional or
Investor),
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder, and
5) Shareholder signature as it appears on the application then on file with
the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10.00 per transaction for wiring redemption
proceeds. If this cost is passed through to redeeming shareholders by the Fund,
the charge will be deducted automatically from your account by redemption of
shares in your account. Your bank or brokerage firm may also impose a charge for
processing the wire. If wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
<PAGE>
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-888-626-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Small Accounts. All shares are purchased and redeemed in accordance with the
Fund's Amended and Restated Declaration of Trust and By-Laws. The Trustees
reserve the right to redeem involuntarily any account having a net asset value
of less than $1,000 (due to redemptions, exchanges, or transfers, and not due to
market action) upon 60-days' written notice. If the shareholder brings his
account net asset value up to at least $1,000 during the notice period, the
account will not be redeemed. Redemptions from retirement plans may be subject
to federal income tax withholding.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for an application form.
<PAGE>
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund plans to qualify as a regulated investment company ("RIC") under
Subchapter M of the Code. As a RIC, a Fund will not be subject to federal tax on
its net investment income and net realized capital gains to the extent such
income and gains are distributed timely to its shareholders. Accordingly, the
Fund intends to distribute all of its net investment income and net realized
capital gains to its shareholders. Unless otherwise instructed by shareholders,
all dividend distributions will be reinvested in full and fractional shares of
the Fund to which they relate.
Although the Fund intends that it will be operated so that there will be no
federal income or excise tax liability, if any such liability is incurred as a
result of failing to qualify as a RIC, the investment performance will be
adversely affected by the tax liability incurred and paid.
Certain additional tax information appears in the Statement of Additional
Information.
YEAR 2000
Like other mutual funds, the Fund and the service providers for the Fund rely
heavily on the reasonably consistent operation of their computer systems. Many
software programs and certain computer hardware in use today, cannot properly
process information after December 31, 1999, because of the method by which
dates are encoded and calculated in such programs and hardware. This problem,
commonly referred to as the "Year 2000 Issue," could, among other things,
negatively impact the processing of trades, the distribution of securities, the
pricing of securities, and other investment-related and settlement activities.
The Trust is currently obtaining and assessing information with respect to the
actions that have been taken and the actions that are planned to be taken by
each of its service providers to prepare their computer systems for the Year
2000. While the Trust expects that each of the Trust's service providers will
have adapted their computer systems to address the Year 2000 Issue, there can be
no assurance that this will be the case or that the steps taken by the Trust
will be sufficient to avoid any adverse impact to the Trust and each of its
funds.
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
CAPITAL MANAGEMENT MID-CAP FUND
INVESTOR SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-888-626-3863
By mail: Capital Management Mid-Cap Fund
Investor Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
---------------
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet sit at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-08822
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CAPITAL MANAGEMENT MID-CAP FUND
April 1, 1999
A series of
CAPITAL MANAGEMENT INVESTMENT TRUST
Capital Management Associates, Inc.
140 Broadway
New York, New York 10005
Telephone 1-888-626-3863
Table of Contents
Page
----
INVESTMENT OBJECTIVE AND POLICIES............................................B-1
INVESTMENT LIMITATIONS.......................................................B-2
MANAGEMENT AND OTHER SERVICE PROVIDERS.......................................B-3
ADDITIONAL INFORMATION ON PERFORMANCE........................................B-8
PORTFOLIO TRANSACTIONS.......................................................B-9
SPECIAL SHAREHOLDER SERVICES................................................B-11
PURCHASE OF SHARES..........................................................B-12
REDEMPTION OF SHARES........................................................B-14
NET ASSET VALUE.............................................................B-15
ADDITIONAL TAX INFORMATION..................................................B-15
CAPITAL SHARES AND VOTING...................................................B-17
APPENDIX A..................................................................B-18
This Statement of Additional Information (the "SAI") is meant to be read in
conjunction with the Prospectuses of the Capital Management Mid-Cap Fund (the
"Fund"), dated April 1, 1999, relating to the Fund's Institutional Shares and
Investor Shares and hereby incorporates by reference the Prospectus in its
entirety. Because this SAI is not itself a prospectus, no investment in shares
of the Fund should be made solely upon the information contained herein. Copies
of the Prospectus for the Investor Class and Institutional Class Shares of the
Fund and Annual Reports may be obtained at no charge by writing or calling the
Fund at the address or phone number shown above. Capitalized terms used but not
defined herein have the same meanings as in each Prospectus.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus for each Class of shares of the Fund. Supplemental information about
these policies is set forth below. Certain capitalized terms used herein are
defined in the Prospectus.
Repurchase Agreements. The Fund may acquire U.S. Government obligations or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale generally
will occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Fund will consider the creditworthiness of the vendor. If the
vendor fails to pay the agreed upon resale price on the delivery date, the Fund
will retain or attempt to dispose of the collateral. The Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Fund will not enter into any repurchase agreement which will
cause more than 10% of its net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Description of Money Market Instruments. The Fund may invest in money market
instruments may include U.S. Government obligations or corporate debt
obligations (including those subject to repurchase agreements), provided that
they mature in thirteen months or less from the date of acquisition and are
otherwise eligible for purchase by the Fund. Money market instruments also may
include Banker's Acceptances and Certificates of Deposit of domestic branches of
U.S. banks, Commercial Paper, and Variable Amount Demand Master Notes ("Master
Notes"). Banker's Acceptances are time drafts drawn on and "accepted" by a bank.
When a bank "accepts" such a time draft, it assumes liability for its payment.
When the Fund acquires a Banker's Acceptance, the bank which "accepted" the time
draft is liable for payment of interest and principal when due. The Banker's
Acceptance carries the full faith and credit of such bank. A Certificate of
Deposit ("CD") is an unsecured, interest bearing debt obligation of a bank.
Commercial Paper is an unsecured, short-term debt obligation of a bank,
corporation, or other borrower. Commercial Paper maturity generally ranges from
two to 270 days and is usually sold on a discounted basis rather than as an
interest bearing instrument. The Fund will invest in Commercial Paper only if it
is rated in one of the top two rating categories by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch Investors
Service, Inc. ("Fitch"), or Duff & Phelps ("D&P"), or if not rated, of
equivalent quality in the Advisor's opinion. Commercial Paper may include Master
Notes of the same quality. Master Notes are unsecured obligations which are
redeemable upon demand of the holder and which permit the investment of
fluctuating amounts at varying rates of interest. Master Notes are acquired by
the Fund only through the Master Note program of the Fund's custodian bank,
acting as administrator thereof. The Advisor will monitor, on a continuous
basis, the earnings' power, cash flow, and other liquidity ratios of the issuer
of a Master Note held by the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of the Fund's investments, and through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). If through a change in values, net assets, or other
circumstances, the Fund were in a position where more than 10% of its net assets
were invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
Restricted Securities. Within its limitation on investment in illiquid
securities, the Fund may purchase restricted securities that generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the federal securities laws, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If during such a
period adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
Forward Commitment & When-Issued Securities. The Fund may purchase securities on
a when-issued basis or for settlement at a future date if the Fund holds
sufficient assets to meet the purchase price. In such purchase transactions, the
Fund will not accrue interest on the purchased security until the actual
settlement. Similarly, if a security is sold for a forward date, the Fund will
accrue the interest until the settlement of the sale. When-issued security
purchase and forward commitments have a higher degree of risk of price movement
before settlement due to the extended time period between the execution and
settlement of the purchase or sale. As a result, the exposure to the
counterparty of the purchase or sale is increased. Although the Fund would
generally purchase securities on a forward commitment or when-issued basis with
the intention of taking delivery, the Fund may sell such a security prior to the
settlement date if the Advisor felt such action was appropriate. In such a case,
the Fund could incur a short-term gain or loss.
INVESTMENT LIMITATIONS
The Fund has adopted the following investment limitations, which cannot be
changed without approval by holders of a majority of the outstanding voting
shares of the Fund. A "majority" for this purpose means the lesser of (i) 67% of
the Fund's outstanding shares represented in person or by proxy at a meeting at
which more than 50% of its outstanding shares are represented, or (ii) more than
50% of its outstanding shares. Unless otherwise indicated, percentage
limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
(1) Issue senior securities, borrow money, or pledge its assets, except
that it may borrow from banks as a temporary measure (a) for
extraordinary or emergency purposes, in amounts not exceeding 5% of its
total assets or (b) to meet redemption requests in amounts not
exceeding 15% of its total assets. The Fund will not make any
investments if borrowing exceeds 5% of its total assets until such time
as total borrowing represents less than 5% of Fund assets;
(2) With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any
class of securities of any one issuer (except that securities of the
U.S. government, its agencies, and instrumentalities are not subject to
this limitation);
(3) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies, and instrumentalities are not subject to this
limitation);
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Purchase or sell commodities or commodities contracts; real estate
(including limited partnership interests, but excluding readily
marketable interests in real estate investment trusts or other
securities secured by real estate or interests therein or readily
marketable securities issued by companies that invest in real estate or
interests therein); or interests in oil, gas, or other mineral
exploration or development programs or leases (although it may invest
in readily marketable securities of issuers that invest in or sponsor
such programs or leases);
(6) Underwrite securities issued by others except to the extent that the
disposition of portfolio securities, either directly from an issuer or
from an underwriter for an issuer, may be deemed to be an underwriting
under the federal securities laws;
(7) Invest in warrants, valued at the lower of cost or market, exceeding
more than 5% of the value of the Fund's net assets. Included within
this amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or
American Stock Exchange;
(8) Participate on a joint or joint and several basis in any trading
account in securities;
(9) Invest its assets in the securities of one or more investment companies
except to the extent permitted by the 1940 Act; or
(10) Write, purchase, or sell puts, calls, straddles, spreads, or
combinations thereof or futures contracts or related options.
The following investment limitations are not fundamental and may be changed
without shareholder approval. As a matter of non-fundamental policy, the Fund
may not:
(1) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors) if more than 5% of its total assets would be
invested in such securities;
(2) Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) securities for
which no readily available market exists or which have legal or
contractual restrictions on resale, (b) fixed-time deposits that are
subject to withdrawal penalties and have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days;
(3) Invest in the securities of any issuer if those officers or Trustees of
the Trust and those officers and directors of the Advisor who
individually own more than 1/2 of 1% of the outstanding securities of
such issuer together own more than 5% of such issuer's securities;
(4) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(5) Make short sales of securities or maintain a short position, except
short sales "against the box." (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no additional cost securities identical to those sold short.)
While the Fund has reserved the right to make short sales "against the
box," the Advisor has no present intention of engaging in such
transactions at this time or during the coming year.
MANAGEMENT AND OTHER SERVICE PROVIDERS
The Trust's Board of Trustees (the "Trustees") are responsible for the
management and supervision of the Fund. The Trustees approve all significant
agreements between the Trust, on behalf of the Fund, and those companies that
furnish services to the Fund. This section of the Statement of Additional
Information provides the persons who serve as Trustees and Officers to the Trust
and Fund, respectively, as well as the entities that provide services to the
Fund.
TRUSTEES AND OFFICERS. Following are the Trustees and Officers of the Trust,
their age, their present position with the Trust or the Fund, and their
principal occupation during the past five years. Those Trustees who are
"interested persons" (as defined in the 1940 Act) by virtue of their affiliation
with either the Trust or the Advisor, are noted by an asterisk (*). Messrs.
David V. Shields and Joseph V. Shields, Jr. are brothers.
<TABLE>
<S> <C> <C>
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Name, Age, Position(s) with Position with Principal Occupation(s)
Fund and/or Trust, and Address The Fund During Past 5 Years
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Lucius E. Burch, III, 56 Trustee Chairman and Chief Executive Officer
438 Rosemeade Lane Massey Burch Investment Group, Inc.
Naples, Florida 33999 (venture capital firm)
Nashville, Tennessee
- --------------------------------------------------- ----------------------- ---------------------------------------------------
C. Lennis Koontz, II, 55 President Senior Vice President
President Capital Management Associates, Inc.
140 Broadway (Advisor to the Fund)
New York, New York 10005 New York, New York
- --------------------------------------------------- ----------------------- ---------------------------------------------------
George S. Reichenback Trustee Managing Director
123 West Street Advent International Corporation
Carlisle, Massachusetts 01741 (venture capital firm)
Boston, Massachusetts
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Thomas A. Saunders, III, 61 Trustee General Partner
667 Madison Avenue Saunders Karp & Company
21st Floor (merchant bank)
New York, New York 10021 New York, New York
- --------------------------------------------------- ----------------------- ---------------------------------------------------
David V. Shields, 58 Trustee* Managing Director
140 Broadway Capital Management Associates, Inc.
New York, New York 10005 (Advisor to the Fund)
New York, New York;
Managing Director
Shields & Company
(Distributor of the Fund)
New York, New York
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Joseph V. Shields, Jr., 59 Chairman & Trustee* Chairman and Chief Executive Officer
140 Broadway Capital Management Associates, Inc.
New York, New York 10005 (Advisor to the Fund)
New York, New York;
Managing Director
Shields & Company
(Distributor to the Fund)
New York, New York
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Anthony J. Walton 55 Trustee Chief Executive Officer
230 Park Avenue Armstrong Holdings Corporation
Suite 1440 (investment and corporate finance advisory firm)
New York, New York 10169 New York, New York, since 1995;
Vice Chairman
Petsec Energy, Inc.
(exploration and production company)
Sydney, Australia, and Lafayette, Louisiana,
since 1995; previously
Chief Executive Officer, Llama Company
Fayetteville, Arkansas
- --------------------------------------------------- ----------------------- ---------------------------------------------------
C. Frank Watson, III, 28 Secretary Vice President
105 North Washington Street The Nottingham Company
Rocky Mount, North Carolina 27802 (Administrator to the Fund)
Rocky Mount, North Carolina
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Julian G. Winters, 30 Treasurer Legal and Compliance Director
105 North Washington Street The Nottingham Company
Rocky Mount, North Carolina 27802 (Administrator to the Fund)
Rocky Mount, North Carolina since 1996; previously
Operations Manager, Tar Heel
Medical, Nashville, North Carolina
- --------------------------------------------------- ----------------------- ---------------------------------------------------
Joseph A. Zock, 45 Vice-President Senior Vice President
140 Broadway Capital Management Associates, Inc.
New York, New York 10005 (Advisor to the Fund)
New York, New York
- --------------------------------------------------- ----------------------- ---------------------------------------------------
</TABLE>
Compensation. Trustees and Officers of the Trust who are interested persons of
the Trust or the Advisor will receive no salary or fees from the Trust. Other
Trustees receive $2,000 each year plus $250 per Fund per meeting attended in
person and $100 per Fund per meeting attended by telephone. The Trust reimburses
each Trustee for his or her travel and other expenses relating to attendance at
such meetings.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
Name of Person Aggregate Pension or Retirement Estimated Annual Total Compensation From
Compensation Benefits Benefits Upon Fund and Fund Complex
Retirement Paid to Directors
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
Lucius E. Burch, III $2,450 None None $2,450
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
George S. Reichenback None None None None
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
Thomas A. Saunders, III $2,600 None None $2,600
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
David V. Shields None None None None
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
Joseph V. Shields, Jr. None None None None
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
Anthony J. Walton $2,700 None None $2,700
- ------------------------------- -------------------- ------------------------ ---------------------- ---------------------------
*Figures are for the fiscal period ended November 30, 1998.
</TABLE>
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of January 21, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of each Class of
the Fund. On the same date the following shareholders owned of record more than
5% of the outstanding shares of beneficial interest of each Class of the Fund.
Except as provided below, no person is known by the Trust to be the beneficial
owner of more than 5% of the outstanding shares of any Class of the Fund as of
January 21, 1999.
Institutional Class
-------------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
=================== ===================== =======
BT Alex Brown, Inc. 26,204.504 shares 39.389%*
FBO 873-20604-16
P.O. Box 1346
Baltimore, Maryland 21203
BT Alex Brown, Inc. 24,792.068 shares 7.738%
FBO 876-01389-10
P.O. Box 1346
Baltimore, Maryland 21203
BT Alex Brown, Inc. 22,017.458 shares 6.872%
FBO 873-80154-14
P.O. Box 1346
Baltimore, Maryland 21203
BT Alex Brown, Inc. 19,779.008 shares 6.173%
FBO 876-01174-19
P.O. Box 1346
Baltimore, Maryland 21203
Investor Class
--------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
=================== ==================== =======
BT Alex Brown, Inc. 24,857.072 shares 20.053%
FBO 873-23222-12
P.O. Box 1346
Baltimore, Maryland 21203
BT Alex Brown, Inc. 7,598.077 shares 6.130%
FBO 873-20803-15
P.O. Box 1346
Baltimore, Maryland 21203
*Deemed a "control person" of the Fund as defined by applicable SEC regulations.
INVESTMENT ADVISOR. Information about Capital Management Associates, Inc. (the
"Advisor"), 140 Broadway, New York, New York 10005 and its duties and
compensation as Advisor is contained in the Prospectus. The Advisor supervises
the Fund's investments pursuant to an Investment Advisory Agreement (the
"Advisory Agreement"). The Advisory Agreement is effective for a one-year period
and will be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the Fund's outstanding voting securities, provided the continuance
is also approved by a majority of the Trustees who are not parties to the
Advisory Agreement or interested persons of any such party. The Advisory
Agreement is terminable without penalty on 60-days' notice by the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund. The Advisory Agreement provides that it will terminate
automatically in the event of its assignment.
The Advisor will receive a monthly management fee equal to an annual rate of
1.00% of the first $100 million of the Fund's net assets, 0.90% of the next $150
million, 0.85% of the next $250 million and 0.80% of all assets over $500
million. The Advisor has voluntarily waived all or substantially all of its fee
and reimbursed all or a portion of the Fund's operating expenses for the fiscal
years and period ended November 30, 1998, 1997, and 1996. The total fees waived
amounted to, $66,709 (the Advisor received 7,540 of its fee), $52,043 (the
Advisor received $1,921 of its fees), and $34,561, respectively, and expenses
reimbursed amounted to $14,704, $25,031, and $97,598, respectively.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services; or a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of the Advisor in the performance of its duties; or from its reckless
disregard of its duties and obligations under the Agreement.
The employees of the Advisor control the Advisor. Affiliates of the Advisor also
control the Distributor.
ADMINISTRATOR. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company (the "Administrator"), 105
North Washington Street, Post Office Drawer 69, Rocky Mount, North Carolina
27802-0069, pursuant to which the Administrator receives a fee at the following
annual rates: on the first $50 million of the Fund's net assets, 0.125%; on the
next $50 million, 0.100%; on all assets over $100 million, 0.075%. In addition,
the Administrator currently receives a monthly fee of $2,250 for the first class
of the Fund and $750 for each additional class of the Fund (although the fees
are allocated equally as an expense to each class) for accounting and
recordkeeping services for the Fund. The Administrator also charges the Fund for
certain costs involved with the daily valuation of investment securities and is
reimbursed for out-of-pocket expenses. The Administrator charges a minimum fee
of $4,000 per month for all of its fees taken in the aggregate, analyzed
monthly.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones, and
other communications facilities and personnel competent to perform
administrative and clerical functions for the Fund; (4) supervise the
maintenance by third parties of such books and records of the Fund as may be
required by applicable federal or state law; (5) prepare or supervise the
preparation by third parties of all federal, state, and local tax returns and
reports of the Fund required by applicable law; (6) prepare and, after approval
by the Trust, file and arrange for the distribution of proxy materials and
periodic reports to shareholders of the Fund as required by applicable law; (7)
prepare and, after approval by the Trust, arrange for the filing of such
registration statements and other documents with the Securities and Exchange
Commission and other federal and state regulatory authorities as may be required
by applicable law; (8) review and submit to the officers of the Trust for their
approval invoices or other requests for payment of Fund expenses and instruct
the Custodian to issue checks in payment thereof; and (9) take such other action
with respect to the Fund as may be necessary in the opinion of the Administrator
to perform its duties under the agreement. The Administrator also provides
certain accounting and pricing services for the Fund.
TRANSFER AGENT. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, to serve as transfer, dividend paying,
and shareholder servicing agent for the Fund. The Transfer Agent is compensated
for its services based upon a $15.00 fee per shareholder per year, subject to a
minimum fee of $750 per month. The address of the Transfer Agent is 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365.
DISTRIBUTOR. Shields & Company (the "Distributor") is the principal underwriter
and distributor of Fund shares pursuant to a Distribution Agreement with the
Trust. The Distributor, which is affiliated with the Advisor, serves as
exclusive agent for the distribution of the shares of the Fund. The Distributor
may sell such shares to or through qualified securities dealers or others. The
Distributor receives commissions consisting of that portion of the sales charge
for Investor Shares remaining after the discounts which it allows to dealers.
For the fiscal years and period ended November 30, 1998, 1997, and 1996, the
aggregate dollar amount of sales charges paid on the sale of Investor Shares was
$25,113, $29,130, and $15,356, respectively, of which the Distributor retained
$1,951, $1,941, and $303, respectively, after reallowances to broker-dealers and
sales representatives.
J.V. Shields, Jr. and David V. Shields, affiliated persons of the Fund, are also
affiliated persons of the Advisor and the Distributor.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 of
the 1940 Act for the Investor Shares (see "Management of the Fund - Distribution
Plan" in the Prospectus for the Investor Shares). As required by Rule 12b-1, the
Plan (together with the Distribution Agreement) has been approved by the Board
of Trustees and separately by a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan and the Distribution Agreement.
Potential benefits of the Plan to the Fund include improved shareholder
services, savings to the Fund in transfer agency costs, savings to the Fund in
advisory fees and other expenses, benefits to the investment process through
growth and stability of assets, and maintenance of a financially healthy
management organization. The continuation of the Plan must be considered by the
Board of Trustees annually.
Under the Plan the Fund may expend up to 0.75% of the Investor Shares' average
daily net assets annually to finance any activity primarily intended to result
in the sale of Investor Shares and the servicing of shareholder accounts,
provided the Trust's Board of Trustees has approved the category of expenses for
which payment is being made. Such expenditures paid as service fees to any
person who sells Investor Shares may not exceed 0.25% of the Investor Shares'
average annual net asset value. For the fiscal year ended November 30, 1998, the
Fund incurred distribution and service fees under the Plan in the amount of
$16,078. This amount was substantially paid to sales personnel for selling Fund
shares and servicing shareholder accounts, with a small amount paid for
marketing expenses. The Distributor waived $72 of its fee for the fiscal year
ended November 30, 1998.
CUSTODIAN. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for the Fund. The Custodian holds all cash and securities of the Fund (either in
its possession or in its favor through "book entry systems" authorized by the
Trustees in accordance with the 1940 Act).
INDEPENDENT AUDITORS. The firm of Deloitte & Touche LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401, currently serves as independent auditors
for the Fund to audit the annual financial statements of the Fund, prepare the
Fund's federal and state tax returns, and consult with the Fund on matters of
accounting and federal and state income taxation.
The audited financial statements of the Fund for the year ended November 30,
1998, including the financial highlights, appearing the in the Fund's Annual
Report to shareholders are incorporated by reference and made a part of this
document.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Class of the Fund may be quoted in
advertisements, sales literature, shareholder reports, or other communications
to shareholders. The Fund computes the "average annual total return" of each
Class of the Fund by determining the average annual compounded rates of return
during specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $1,000 initial payment. This calculation is
as follows:
P(1+T)^n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
n = period covered by the computation, expressed in terms of
years.
The Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund may also quote other total
return information that does not reflect the effects of the sales load.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded in the United
States securities markets. The Fund may also compare its performance to the S&P
MidCap 400 Index, which is designed to measure the investment performance of
medium-capitalization equities such as those in which the Fund invests, and the
Lipper Capital Appreciation Index, which ranks the performance of mutual funds
that have an objective of growth of capital. Comparative performance may also be
expressed by reference to a ranking prepared by a mutual fund monitoring service
or by one or more newspapers, newsletters, or financial periodicals. The Fund
may also occasionally cite statistics to reflect its volatility and risk. The
Fund may also compare its performance to other published reports of the
performance of unmanaged portfolios of companies. The performance of such
unmanaged portfolios generally does not reflect the effects of dividends or
dividend reinvestment. Of course, there can be no assurance the Fund will
experience the same results. Performance comparisons may be useful to investors
who wish to compare the Fund's past performance to that of other mutual funds
and investment products. Of course, past performance is not a guarantee of
future results.
The average annual total return for the Investor Shares of the Fund for the
fiscal year ended November 30, 1998, and for the period from the inception of
the Investor Shares of the Fund (April 7, 1995) through November 30, 1998, was
(14.32)% and 11.82%, respectively. The cumulative total return for the Investor
Shares of the Fund since inception through November 30, 1998, was 50.38%. These
quotations assume the maximum 3% sales load was deducted from the initial
investment. Without reflecting the effects of the maximum 3% sales load, the
average annual total return for the Investor Shares for the fiscal year ended
November 30, 1998, and for the period since inception through November 30, 1998,
was (11.67)% and 12.76%, respectively. The cumulative total return for the
Investor Shares of the Fund since inception through November 30, 1998, without
deducting the maximum 3% sales load, was 55.03%.
The average annual total return for the Institutional Shares of the Fund for the
fiscal year ended November 30, 1998, and for the period from the inception of
the Institutional Shares of the Fund (January 27, 1995) through November 30,
1998, was (10.94)% and 15.74%, respectively. The cumulative total return for the
Institutional Shares of the Fund since inception through November 30, 1998, was
74.41%.
These performance quotations should not be considered as representative of the
Fund's performance for any specified period in the future.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time the Fund may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and to compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time, the Fund may include in advertisements and other
communications charts and illustrations relating to inflation and the effects of
inflation on the dollar, including the purchasing power of the dollar at various
rates of inflation. The Fund may also disclose from time to time information
about its portfolio allocation and holdings at a particular date (including
ratings of securities assigned by independent rating services such as S&P and
Moody's). The Fund may also depict the historical performance of the securities
in which the Fund may invest over periods reflecting a variety of market or
economic conditions either alone or in comparison with alternative investments,
performance indices of those investments, or economic indicators. The Fund may
also include in advertisements and in materials furnished to present and
prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
From time to time, the Fund may include in advertisements and other
communications information on the value of investing in mid-cap stocks,
including without limitation their performance over time, their characteristics,
and the case for mid-cap stock investing.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters, and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Fund. In addition, the Advisor is authorized to cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Fund. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries; general
summaries of groups of stocks or bonds and their comparative earnings and
yields; or broad overviews of the stock, bond, and government securities
markets; and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Fund. The Trustees will periodically review any
commissions paid by the Fund to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor (including the Distributor, an affiliate of the Advisor) if it believes
it can obtain the best execution of transactions from such broker. The Fund will
not execute portfolio transactions through, acquire securities issued by, make
savings deposits in, or enter into repurchase agreements with the Advisor or an
affiliated person of the Advisor (as such term is defined in the 1940 Act)
acting as principal, except to the extent permitted by the Securities and
Exchange Commission ("SEC"). In addition, the Fund will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which the Advisor, or an affiliated person of the Advisor, is a member, except
to the extent permitted by the SEC. Under certain circumstances, the Fund may be
at a disadvantage because of these limitations in comparison with other
investment companies that have similar investment objectives but are not subject
to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, if any, and for any other investment companies and
accounts advised or managed by the Advisor. Such other investment companies and
accounts may also invest in the same securities as the Fund. To the extent
permitted by law, the Advisor may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount in a manner which the
Advisor believes to be equitable to the Fund and such other investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund.
For the fiscal years and period ended November 30, 1998, 1997, and 1996, the
Fund paid brokerage commissions of $29,234, $16,311, and $14,523, respectively,
of which $29,234, $15,789, and $14,367, respectively, was paid during such
periods to the Distributor. For the fiscal year ended November 30, 1998,
transactions in which the Fund used the Distributor as broker involved 100% of
the aggregate dollar amount of transactions involving the payment of commissions
and 100% of the aggregate brokerage commissions paid by the Fund.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following shareholder services:
REGULAR ACCOUNT. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans, and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Administrator will automatically charge the checking account for
the amount specified ($100 minimum) which will be automatically invested in
shares at the public offering price on or about the 21st day of the month. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Fund.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders owning shares with a value of $10,000
or more for Investor Shares and $250,000 or more for Institutional Shares may
establish a Systematic Withdrawal Plan. A shareholder may receive monthly or
quarterly payments, in amounts of not less than $100 per payment, by authorizing
the Fund to redeem the necessary number of shares periodically (each month, or
quarterly in the months of March, June, September, and December) in order to
make the payments requested. The Fund has the capability of electronically
depositing the proceeds of the systematic withdrawal directly to the
shareholder's personal bank account ($5,000 minimum per bank wire). Instructions
for establishing this service are included in the Fund Shares Application,
enclosed in the Prospectus, or are available by calling the Fund. If the
shareholder prefers to receive his systematic withdrawal proceeds in cash, or if
such proceeds are less than the $5,000 minimum for a bank wire, checks will be
made payable to the designated recipient and mailed within seven days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles, and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the Fund
upon 60-days' written notice or by a shareholder upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-888-626-3863 or by writing to:
Capital Management Mid-Cap Fund
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
PURCHASES IN KIND. The Fund may accept securities in lieu of cash in payment for
the purchase of shares in the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long-term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Net Asset Value is Determined" in the Prospectus.
REDEMPTIONS IN KIND. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
TRANSFER OF REGISTRATION. To transfer shares to another owner, send a written
request to the Fund at the address shown above. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number, and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
PURCHASE OF SHARES
The purchase price of shares of the Fund is the net asset value next determined
after the order is received, plus a sales charge for the Investor Shares as more
fully described in the Prospectus for Investor Shares. The basis for determining
the sales charge applicable to a purchase of Investor Shares and how the sales
charge is distributed between the Distributor and other dealers is described in
the Prospectus for the Investor Shares under "How to Purchase Shares."
The Fund reserves the right in its sole discretion (i) to suspend the offering
of its shares, (ii) to reject purchase orders when in the judgment of management
such rejection is in the best interest of the Fund and its shareholders, and
(iii) to reduce or to waive the minimum for initial and subsequent investments
under circumstances where certain economies can be achieved in sales of Fund
shares.
EMPLOYEES AND AFFILIATES OF THE FUND. The Fund has adopted initial investment
minimums for the purpose of reducing the cost to the Fund (and consequently to
the shareholders) of communicating with and servicing its shareholders. In
keeping with this purpose, a reduced minimum initial investment of $1,000
applies to Trustees, officers, and employees of the Fund; the Advisor and
certain parties related thereto; including clients of the Advisor or any
sponsor, officer, committee member thereof, or the immediate family of any of
them. The Fund may also sell shares at net asset value without a sales charge to
such persons. In addition, accounts having the same mailing address may be
aggregated for purposes of the minimum investment if they consent in writing to
sharing a single mailing of shareholder reports, proxy statements (but each such
shareholder would receive his/her own proxy) and other Fund literature.
DEALERS. The Distributor, at its expense, may provide additional compensation in
addition to dealer discounts and brokerage commissions to dealers in connection
with sales of shares of the Fund. Compensation may include financial assistance
to dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding the Fund,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
REDUCED SALES CHARGES
Concurrent Purchases. For purposes of qualifying for a lower sales charge
for Investor Class shares, investors have the privilege of combining concurrent
purchases of the Fund and one or more future series of the Trust affiliated with
the Advisor and sold with a sales charge. For example, if a shareholder
concurrently purchases shares in one of the future series of the Trust
affiliated with the Advisor and sold with a sales charge at the total public
offering price of $250,000, and Investor Shares in the Fund at the total public
offering price of $250,000, the sales charge would be that applicable to a
$500,000 purchase as shown in the appropriate table above. This privilege may be
modified or eliminated at any time or from time to time by the Trust without
notice thereof.
Rights of Accumulation. Pursuant to the right of accumulation, investors
are permitted to purchase Investor Class shares at the public offering price
applicable to the total of (a) the total public offering price of the Investor
Shares of the Fund then being purchased plus (b) an amount equal to the then
current net asset value of the purchaser's combined holdings of the shares of
all of the series of the Trust affiliated with the Advisor and sold with a sales
charge. To receive the applicable public offering price pursuant to the right of
accumulation, investors must, at the time of purchase, provide sufficient
information to permit confirmation of qualification, and confirmation of the
purchase is subject to such verification. This right of accumulation may be
modified or eliminated at any time or from time to time by the Trust without
notice.
Letters of Intent. Investors may qualify for a lower sales charge for
Investor Class shares by executing a letter of intent. A letter of intent allows
an investor to purchase Investor Class shares of the Fund over a 13-month period
at reduced sales charges based on the total amount intended to be purchased plus
an amount equal to the then current net asset value of the purchaser's combined
holdings of the shares of all of the series of the Trust affiliated with the
Advisor and sold with a sales charge. Thus, a letter of intent permits an
investor to establish a total investment goal to be achieved by any number of
purchases over a 13-month period. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the intended
investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day backdating period can be used to include earlier purchases at the
investor's cost (without a retroactive downward adjustment of the sales charge);
the 13-month period would then begin on the date of the first purchase during
the 90-day period. No retroactive adjustment will be made if purchases exceed
the amount indicated in the letter of intent. Investors must notify the
Administrator or the Distributor whenever a purchase is being made pursuant to a
letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the
Administrator or the Distributor. This letter of intent option may be modified
or eliminated at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds
from a redemption of Investor Shares in Investor Shares or in shares of another
series of the Trust affiliated with the Advisor and sold with a sales charge,
within 90 days after the redemption. If the other Class or Fund charges a sales
charge higher than the sales charge the investor paid in connection with the
shares redeemed, the investor must pay the difference. In addition, the shares
of the Class or Fund to be acquired must be registered for sale in the
investor's state of residence. The amount that may be so reinvested may not
exceed the amount of the redemption proceeds, and a written order for the
purchase of such shares must be received by the Fund or the Distributor within
90 days after the effective date of the redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Purchases by Related Parties and Groups. Reductions in sales charges apply
to purchases by a single "person," including an individual, members of a family
unit, consisting of a husband, wife and children under the age of 21 purchasing
securities for their own account, or a trustee or other fiduciary purchasing for
a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Exchange Feature. Investors may exchange shares of the Fund for shares of any
other comparable series of the Trust. Shares of the Fund may be exchanged at the
net asset value plus the percentage difference between that series' sales charge
and any sales charge previously paid in connection with the shares being
exchanged. For example, if a 2% sales charge was paid on shares that are
exchanged into a series with a 3% sales charge, there would be an additional
sales charge of 1% on the exchange. Exchanges may only be made by investors in
states where shares of the other series are qualified for sale. An investor may
direct the Fund to exchange his shares by writing to the Fund at its principal
office. The request must be signed exactly as the investor's name appears on the
account, and it must also provide the account number, number of shares to be
exchanged, the name of the series to which the exchange will take place and a
statement as to whether the exchange is a full or partial redemption of existing
shares. Notwithstanding the foregoing, exchanges of shares may only be within
the same class or type of class of shares involved. For example, Investor Shares
may not be exchanged for Institutional Shares.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Board of
Trustees of the Trust also reserves the right to suspend or terminate, or amend
the terms of, the exchange privilege upon 60 days written notice to the
shareholders.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange (the "NYSE") is closed for
other than customary weekend and holiday closings, or that trading on the NYSE
is restricted as determined by the Securities and Exchange Commission (the
"Commission"); (ii) during any period when an emergency exists as defined by the
rules of the Commission as a result of which it is not reasonably practicable
for the Fund to dispose of securities owned by it, or to determine fairly the
value of its assets; and (iii) for such other periods as the Commission may
permit. The Fund may also suspend or postpone the recordation of the transfer of
shares upon the occurrence of any of the foregoing conditions. Any redemption
may be more or less than the shareholder's cost depending on the market value of
the securities held by the Fund. No charge is made by the Fund for redemptions
other than the possible charge for wiring redemption proceeds.
In addition to the situations described in the Prospectus under "How to Redeem
Shares," the Fund may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Prospectus from time to time.
NET ASSET VALUE
The net asset value per share of each Class of Shares of the Fund normally is
determined at the time regular trading closes on the NYSE (currently 4:00 p.m.,
New York time, Monday through Friday), except on business holidays when the NYSE
is closed. The NYSE recognizes the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Fourth of
July, Labor Day, Thanksgiving Day, and Christmas Day. Any other holiday
recognized by the NYSE will be considered a business holiday on which the net
asset value of each Class of Shares of the Fund will not be calculated.
The net asset value per share of each Class of the Fund is calculated separately
by adding the value of the Fund's securities and other assets belonging to the
Fund and attributable to that Class, subtracting the liabilities charged to the
Fund and to that Class, and dividing the result by the number of outstanding
shares of such Class. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of shares of the Fund together with all
net investment income; realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments;
any funds or payments derived from any reinvestment of such proceeds; and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Income, realized and unrealized capital gains and losses, and
any expenses of the Fund not allocated to a particular Class of the Fund will be
allocated to each Class of the Fund on the basis of the net asset value of that
Class in relation to the net asset value of the Fund. Assets belonging to the
Fund are charged with the direct liabilities of the Fund and with a share of the
general liabilities of the Trust, which are normally allocated in proportion to
the number of or the relative net asset values of all of the Trust's series at
the time of allocation or in accordance with other allocation methods approved
by the Board of Trustees. Certain expenses attributable to a particular Class of
shares (such as the distribution and service fees attributable to Investor
Shares) will be charged against that Class of shares. Certain other expenses
attributable to a particular Class of shares (such as registration fees,
professional fees, and certain printing and postage expenses) may be charged
against that Class of shares if such expenses are actually incurred in a
different amount by that Class, or if the Class receives services of a different
kind or to a different degree than other Classes, and the Board of Trustees
approves such allocation. Subject to the provisions of the Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets, with respect to
the Fund and the Classes of the Fund are conclusive.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of sixty days or less are valued
at amortized costs, which approximates market value. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith under policies approved by the Trustees.
ADDITIONAL TAX INFORMATION
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders. The discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
The Fund, and any other series of the Trust, will be treated as a separate
corporate entity under the Internal Revenue Code. The Fund intends to qualify
and to remain qualified as a regulated investment company. To so qualify, the
Fund must elect to be a regulated investment company or have made such an
election for a previous year and must satisfy, in addition to the distribution
requirement described in the Prospectus, certain requirements with respect to
the source of its income for a taxable year. At least 90% of the gross income of
the Fund must be derived from dividends; interest; payments with respect to
securities loans, gains from the sale or other disposition of stocks,
securities, or foreign currencies; and other income derived with respect to the
Fund's business of investing in such stock, securities, or currencies. Any
income derived by the Fund from a partnership or trust is treated as derived
with respect to the Fund's business of investing in stock, securities, or
currencies only to the extent that such income is attributable to items of
income that would have been qualifying income if realized by the Fund in the
same manner as by the partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies, and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
The Fund will designate any distribution of long-term capital gains as a capital
gain dividend in a written notice mailed to shareholders within 60 days after
the close of the Fund's taxable year. Shareholders should note that upon the
sale or exchange of Fund shares, if the shareholder has not held such shares for
at least six months, any loss on the sale or exchange of those shares will be
treated as long-term capital loss to the extent of the capital gain dividends
received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to distribute currently an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the Fund's
current and accumulated earnings and profits.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure to include properly on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so, or that they
are "exempt recipients."
Depending upon the extent of the Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located, or in which it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of the
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
Dividends paid by the Fund derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
Under current tax law, certain types of expenses incurred by the Fund must be
proportionately allocated as additional income to shareholders. As a result, the
amounts reportable by the Fund as taxable income, if any, may exceed the
dividends actually paid. Such proportionate allocation of Fund expenses, if any,
will be identified when tax information is distributed by the Fund. The Fund
will send shareholders information each year on the tax status of dividends and
disbursements. A dividend or capital gains distribution paid shortly after
shares have been purchased, although in effect a return of investment, is
subject to federal income taxation. Dividends from net investment income, along
with capital gains, will be taxable to shareholders, whether received in cash or
shares and no matter how long you have held Fund shares, even if they reduce the
net asset value of shares below your cost and thus, in effect, result in a
return of a part of your investment.
CAPITAL SHARES AND VOTING
The Trust's Declaration of Trust authorizes the issuance of shares in two or
more series. Currently, the Trust consists of three series: the Capital
Management Mid-Cap Fund, the Capital Management Small-Cap Fund, and the Capital
Management Energy Fund. These shares are divided into two Classes
("Institutional Shares" and "Investor Shares") as described in the Prospectuses.
Shares of the Fund, when issued, are fully paid and non-assessable and have no
preemptive or conversion rights. Shareholders are entitled to one vote for each
full share and a fractional vote for each fractional share held. Shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees,
and in this event, the holders of the remaining shares voting will not be able
to elect any Trustees. The Trustees will hold office indefinitely, except that:
(1) any Trustee may resign or retire; and (2) any Trustee may be removed: (a)
any time by written instrument signed by at least two-thirds of the number of
Trustees prior to such removal; (b) at any meeting of shareholders of the Trust
by a vote of two-thirds of the outstanding shares of the Trust; or (c) by a
written declaration signed by shareholders holding not less than two-thirds of
the outstanding shares of the Trust and filed with the Trust's custodian.
Shareholders have certain rights, as set forth in the Declaration of Trust,
including the right to call a meeting of the shareholders. Shareholders holding
not less than 10% of the shares then outstanding may require the Trustees to
call a meeting, and the Trustees are obligated to provide certain assistance to
shareholders desiring to communicate with other shareholders in such regard
(e.g., providing access to shareholder lists, etc.). In case a vacancy or an
anticipated vacancy on the Board of Trustees shall for any reason exist, the
vacancy shall be filled by the affirmative vote of a majority of the remaining
Trustees, subject to certain restrictions under the 1940 Act. Otherwise, there
will normally be no meeting of shareholders for the purpose of electing
Trustees, and the Trust does not expect to have an annual meeting of
shareholders.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund will normally be at least 90% invested in equities. As a temporary
defensive position, however, when the Advisor determines that market conditions
warrant such investments, the Fund may invest up to 100% of its assets in
investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments ("Investment-Grade Debt Securities"). When the Fund
invests in Investment-Grade Debt Securities as a temporary defensive measure, it
is not pursuing its investment objective. Under normal circumstances, however,
the Fund may invest in money market instruments. The various ratings used by the
nationally recognized securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed-income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell, or hold a
security because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation is
very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
"Investment-Grade Debt Securities" and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
Aaa - Bonds that 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 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 that 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 - Debt which is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. 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 - Debt which is rated Baa is considered as a medium grade obligation,
i.e., it is 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 debt lacks outstanding
investment characteristics and in fact has speculative characteristics as
well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered "Investment-Grade Debt Securities" by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below-average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
"Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative". The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
