As filed with the Securities and Exchange Commission on July 31, 1998
Securities Act File No. 33-89628
Investment Company Act File No. 811-8978
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
POST-EFFECTIVE AMENDMENT NO. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 6
GRANDVIEW INVESTMENT TRUST
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Telephone (919) 972-9922
AGENT FOR SERVICE:
C. Frank Watson, III, Secretary
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
______________________________________
It is proposed that this filing will become effective:
|X| Immediately upon filing pursuant |_| on __________________, 1997 pursuant
to Rule 485(b), or to Rule 485(b), or
|_| 60 days after filing pursuant |_| on __________________, 1997 pursuant
to Rule 485(a)(1), or to Rule 485(a)(1), or
|_| 75 days after filing pursuant |_| on __________________, 1997 pursuant
to Rule 485(a)(2), or to Rule 485(a)(2).
<PAGE>
PART A
======
PROSPECTUS
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THE GRANDVIEW FUNDS
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Series of the GrandViewSM Investment Trust
GrandviewSM Investment Trust (the "Trust") is an open-end, registered management
investment company offering two mutual funds described in this Prospectus:
GrandView S&P(R) REIT Index Fund and GrandView Realty Growth Fund (the "S&P(R)
REIT Index Fund" and the "Realty Growth Fund" and together "Funds"). The Realty
Growth Fund is a non-diversified fund. The Funds' investment adviser is
GrandView Advisers, Inc. (the "Adviser").
The Funds are designed to provide an investor with focused investment
alternatives within the real estate industry. Each Fund invests primarily in
securities of companies in the real estate industry, including real estate
investment trusts ("REITs"). The Funds differ in the degree to which they
emphasize active or passive account management and employ different policies to
achieve their objectives:
GrandView S&P(R) REIT Index Fund seeks to provide investment results
corresponding to the performance of the S&P(R) REIT Index (the "Index") by
investing in the stocks included in the Index.
GrandView Realty Growth Fund seeks long-term growth of capital, with current
income as a secondary objective, by investing primarily in equity securities of
real estate companies.
Mutual fund shares are not deposits or obligations of, or endorsed or guaranteed
by, any bank or insured depositary institution, nor are they insured or
otherwise protected by the Federal Deposit Insurance Corporation or any other
agency. Investments in mutual funds involve investment risk, including possible
loss of principal.
This Prospectus sets forth concisely the basic information about the Trust and
the Funds that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated August 1, 1998 has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request and
without charge by writing the Funds or by calling (800) 773-3863. The Statement
of Additional Information is incorporated into this Prospectus by reference. The
SEC also maintains an Internet Web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference, and
other information regarding the Funds.
================================================================================
On July 1, 1998, the Board of Trustees of the GrandviewSM Investment Trust
approved a plan to reorganize the Funds of the Trust into a new series of the
FBR Family of Funds to be called the FBR Realty Growth Fund. The FBR Realty
Growth Fund will have substantially identical objectives and policies to those
of the GrandView Realty Growth Fund, as described in this prospectus. Management
of the FBR Realty Growth Fund will be by FBR Advisers, Inc. who will hire, as
employees, the same personnel who are managing the GrandView Realty Growth Fund,
as described in this prospectus. This Plan of Reorganization will be submitted
to shareholders of both the GrandView Realty Growth Fund and the GrandView
S&P(R) REIT Index Fund for consideration at a special shareholder meeting
scheduled for mid-September. There can no assurance that this Plan of
Reorganization will be completed. Further information can be found in proxy
material for the special meeting, which will be sent to shareholders, or by
calling GrandView Advisers, Inc. at 860-633-4301.
================================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
August 1, 1998
<PAGE>
TABLE OF CONTENTS
FEE TABLE.................................................................... 3
FINANCIAL HIGHLIGHTS......................................................... 4
ADVANTAGES OF INVESTING...................................................... 6
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS............................. 6
MANAGEMENT OF THE FUNDS...................................................... 11
INFORMATION ABOUT FUND SHARES................................................ 13
How to Purchase Shares.............................................. 13
Net Asset Value and Pricing of Orders............................... 16
How to Exchange Shares.............................................. 17
How to Redeem Shares................................................ 17
Dividends and Distributions......................................... 19
Tax Matters......................................................... 19
Performance Information............................................. 20
Description of Shares and Voting Rights............................. 20
APPENDIX A: DESCRIPTION OF BOND RATINGS..................................... 22
APPENDIX B: CERTAIN INVESTMENT PRACTICES.................................... 25
<PAGE>
FEE TABLE
The following table is designed to help you understand the charges and expenses
that you, as a shareholder, will bear directly or indirectly when you invest in
a Fund.
S&P(R)
REIT Realty
Index Growth
Fund5 Fund
----- ------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge on Purchases1 3.00% 4.50%
(as a percentage of offering price)
Maximum Sales Charge on
Reinvestment of Dividends None None
Deferred Sales Charge None None
Redemption Fee* 1.00% 2 None
(as a percentage of amount redeemed,
if applicable)
Exchange Fee None None
* The Funds in their discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Funds $10.00 per
transaction for wiring redemption proceeds.
ANNUAL OPERATING EXPENSES:
(after fee waivers and expense reimbursements)
(as a percentage of average net assets)
Management Fees3 0.00% 0.00%
12b-1 Fees4 0.25% 0.25%
Other Expenses3 0.80% 1.75%
----- -----
Total Operating Expenses3 1.05% 2.00%
1 Reduced for larger purchases. Certain purchases by participants in a "Group
Plan" and certain other investors are not subject to an initial sales charge.
See "Information About Fund Shares -- How to Purchase Shares."
2 The maximum redemption fee applies to redemptions in the first six months
after purchase. These fees are subsequently reduced and after one year are
eliminated. See "Information About Fund Shares -- How to Redeem Shares."
3 The "Total Operating Expenses" shown above are based on actual operating
expenses incurred by each Fund for the fiscal year ended March 31, 1998, which,
after fee waivers and expense reimbursements, were 1.05% and 2.00% of average
net assets of the S&P(R) REIT Index and Realty Growth Funds, respectively, but
restated to reflect the expenses anticipated to be incurred by the Funds for the
current fiscal year (assuming payment of the 12b-1 fees described under footnote
4 below). Absent such waivers and reimbursements, the percentages for
"Management Fees" and "Total Operating Expenses" for the fiscal year ended March
31, 1998 would have been 0.35% and 4.84%, respectively, for the S&P(R) REIT
Index Fund and 1.00% and 5.68%, respectively, for the Realty Growth Fund. The
Adviser has voluntarily agreed to limit the expenses of each Fund. Under this
arrangement, the Adviser will waive management fees and reimburse other
operating expenses to the extent needed to limit each Fund's expenses to the
percentage of its average net assets shown above as "Total Operating Expenses."
This agreement applies for the fiscal year ending March 31, 1999, and there is
no assurance that it will be extended after that date.
4 The Trust's Distribution Plan permits the imposition of a 12b-1 fee not to
exceed 0.25% of each Fund's net assets.
5 The investment objective of the S&P(R) REIT Index Fund was changed, effective
January 1, 1998, to its current investment objective. See "Investment
Objectives, Policies and Risk Factors." From the inception of the Fund until
that date, the Fund had sought to provide investment results that exhibited a
high correlation and resembled those of the National Association of Real Estate
Investment Trust's Total Return Index. The Fund had sought this investment
objective by investing in the equity securities that composed The GrandView REIT
Index, an index developed and maintained by the Adviser. Effective January 1,
1998, the focus of the Fund was shifted to the S&P(R) REIT Index.
Example: You would pay the following fees and expenses (including the maximum
initial sales charge) on a $1,000 investment in a Fund, assuming a 5% annual
return, reinvestment of all dividends and distributions, and constant expenses,
with or without redemption at the end of each time period:
Fund 1 Year 3 Years 5 Years 10 Years
- ---- ------ ------- ------- --------
S&P(R)REIT Index Fund $40 $ 62 $ 86 $154
Realty Growth Fund $64 $105 $148 $267
The example is designed for information purposes only, and should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
For further information regarding investment advisory fees, 12b-1 fees and other
expenses of the Funds, see "Management of the Funds -- Adviser," "Management of
the Funds -- Distributor" and "Information about Fund Shares--How to Purchase
Shares."
FINANCIAL HIGHLIGHTS
The financial data included in the tables below has been derived from audited
financial statements of the Funds. The financial data for the fiscal year ended
March 31, 1998, has been derived from financial statements audited by Deloitte &
Touche, LLP, independent auditors, whose report covering such period is included
in the Statement of Additional Information. The financial data for the prior
fiscal year and period was audited by other independent auditors. The
information in the tables below should be read in conjunction with each Fund's
latest audited 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 Funds at (800) 773-3863. Further information about the
performance of the Funds is contained in the Annual Report of the Funds, a copy
of which may be obtained at no charge by calling the Funds. For information on a
change in the investment objective of the S&P(R) REIT Index Fund, effective
January 1, 1998, see footnote 5 to the Fee Table.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
(For a Share Outstanding Throughout the Period)
Year Ended Year Ended Period Ended
March 31, 1998 March 31, 1997 March 31, 1996(a)
-------------- -------------- -----------------
Net asset value, beginning of period $12.53 $10.21 $10.00
Income from investment operations
Net investment income 0.49 0.50 0.33
Net realized and unrealized gain
on investments 1.45 2.38 0.32
---- ---- ----
Total from investment operations 1.94 2.88 0.65
---- ---- ----
Distributions to shareholders from
Net investment income (0.49) (0.50) (0.33)
Tax return of capital (0.17) (0.05) 0.00
Net realized gain from investment
Transactions (2.75) (0.01) (0.11)
------ ------ ------
Total distributions (3.41) (0.56) (0.44)
------ ------ ------
Net asset value, end of period $11.06 $12.53 $10.21
====== ====== ======
Total return (b) 15.54% 28.85% 6.40%
====== ====== =====
Ratios/supplemental data
Net assets, end of period $955,067 $1,467,098 $252,793
======== ========== ========
Ratio of expenses to average net assets
Before expense reimbursements
and waived fees 4.84% 7.59% 20.63%(c)
After expense reimbursements
and waived fees 1.05% 1.04% 1.05%(c)
Ratio of net investment income
(loss) to average net assets
Before expense reimbursements
and waived fees (0.13)% (2.16)% (13.66)%(c)
After expense reimbursements
and waived fees 3.66% 4.38% 5.86%(c)
Portfolio turnover rate 63.15% 23.38% 47.46%
Average commission rate paid (d) $0.0697 $0.0698
GRANDVIEW REALTY GROWTH FUND
(For a Share Outstanding Throughout the Period)
Year Ended Year Ended Period Ended
March 31, 1998 March 31, 1997 March 31, 1996(a)
-------------- -------------- -----------------
Net asset value, beginning of period $12.69 $10.09 $10.00
Income from investment operations
Net investment income 0.11 0.33 0.20
Net realized and unrealized gain
on investments 3.00 4.14 0.36
---- ---- ----
Total from investment operations 3.11 4.47 0.56
---- ---- ----
Distributions to shareholders from
Net investment income (0.11) (0.33) (0.20)
Net realized gain from
investment transactions (1.18) (1.53) (0.22)
Tax return of capital 0.00 (0.01) (0.05)
------ ------ ------
Total distributions (1.29) (1.87) (0.47)
------ ------ ------
Net asset value, end of period $14.51 $12.69 $10.09
====== ====== ======
Total return (b) 24.80% 45.12% 5.70%
====== ====== =====
Ratios/supplemental data
Net assets, end of period $2,376,221 $1,158,023 $182,022
========== ========== ========
Ratio of expenses to average net assets
Before expense reimbursements
and waived fees 5.68% 9.59% 31.34%(c)
After expense reimbursements
and waived fees 2.00% 1.89% 2.00%(c)
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements
and waived fees (3.09)% (4.58)% (25.55)%(c)
After expense reimbursements
and waived fees 0.59% 3.12% 3.62% (c)
Portfolio turnover rate 170.19% 197.90% 44.44%
Average commission rate paid (d) $0.0429 $0.0367
</TABLE>
(a) For the period from July 3, 1995 (commencement of operations) to March 31,
1996.
(b) Total return does not reflect payment of a sales charge.
(c) Annualized.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure was not required for fiscal years of the Funds prior to March 31,
1997.
ADVANTAGES OF INVESTING
Investing in the Funds is a convenient way to participate in the real estate
industry or in particular sectors of the real estate industry. The Trust
believes that for most investors the Funds afford a number of advantages over
direct investment in real estate, including:
o greater diversification;
o continuous professional management;
o convenience; and
o liquidity.
However, investment in the Funds also involves risks, and investment in either
Fund, or even in both Funds, should not be viewed as a complete investment
program. See "Investment Objectives, Policies and Risk Factors--Risks of
Investing."
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Funds are designed to provide an investor with focused investment
alternatives within the real estate industry. Each Fund invests primarily in
securities of real estate investment trusts ("REITs") and other real estate
industry companies. The Funds differ in the degree to which they emphasize
active or passive account management and employ different policies to achieve
their objectives.
As a fundamental policy (which cannot be changed without shareholder approval),
each Fund will invest at least 25% of its assets in the real estate industry.
Under normal circumstances, the assets of the S&P(R) REIT Index Fund are
invested primarily in equity securities of REITs included in the S&P(R) REIT
Index, while at least 65% of the total assets of the Realty Growth Fund are
invested in equity securities of REITs and other real estate industry companies.
See "Risks of Investing -Real Estate Investment Trusts" for a description of the
various types of REITs. For these purposes, a "real estate industry company" is
a company that derives at least 50% of its gross revenues or net profits from
the ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate. In addition to REITs, real
estate industry companies include brokers or real estate developers, as well as
companies with substantial real estate holdings (i.e., at least 50% of their
total assets), such as paper and lumber producers and hotel and entertainment
companies. The equity securities of real estate industry companies in which the
Realty Growth Fund will invest include common stock, shares of beneficial
interest and securities with common stock characteristics, such as preferred
stock, warrants and debt securities convertible into common stock. The debt
securities of real estate industry companies in which the Realty Growth Fund may
invest include bonds, notes and other short-term debt obligations. The
mortgage-backed securities in which the Realty Growth Fund may invest include
mortgage pass-through certificates, real estate mortgage investment conduit
("REMIC") certificates and collateralized mortgage obligations ("CMOs").
The Realty Growth Fund may also invest up to 35% of its total assets in
securities of issuers which are or are affiliated with companies whose products
or services are related to the real estate industry like building supplies,
mortgage servicing or the provision of utility or transportation services. In
addition, the Realty Growth Fund may, from time to time, invest in the
securities of companies unrelated to the real estate industry whose real estate
assets are substantial relative to the price of the companies' securities or
whose securities the Adviser believes to be undervalued or to provide income or
the opportunity for capital appreciation. In pursuit of its objectives, either
Fund may employ various management techniques, certain of which may be used in
an attempt to hedge risks associated with the Fund's investments. See "Certain
Other Investment Practices."
For temporary defensive purposes, the Realty Growth Fund may invest up to 100%
of its total assets in short-term investments, as described below under "Other
Eligible Investments." The Fund would assume a temporary defensive posture only
when economic and other factors affect the real estate industry market to such
an extent that the Adviser believes there to be undue risk in being
substantially invested in real estate industry companies. Each Fund (including
the S&P(R) REIT Index Fund) may also make short-term investments for liquidity
purposes (e.g., in anticipation of redemptions or purchases of securities).
The investment objective of each Fund may be changed without approval by that
Fund's shareholders, but shareholders will be given written notice at least 30
days before any change is implemented.
S&P(R) REIT Index Fund
The investment objective of the S&P(R) REIT Index Fund is to provide investment
results corresponding to the performance of the S&P(R) REIT Index by investing
in the stocks included in the Index.
The Fund attempts to duplicate the investment results of the S&P(R) Real Estate
Investment Trust Composite Price Index (the "S&P(R) REIT Index" or the "Index").
The Index is made up of approximately 100 stocks which constitute a
representative sample of all publicly-traded REITs. To be included in the Index,
a REIT must be traded on a major U.S. stock exchange and must have a total
market capitalization of at least $100 million. As of June 30, 1998, 105 REITs
were included in the Index. The Index is rebalanced every calendar quarter as
well as each time that a REIT is removed from the Index because of corporate
activity such as a merger, acquisition, leveraged buyout, bankruptcy, IRS
removal of REIT status, fundamental change in business, or a change in shares
outstanding.
The S&P(R) REIT Index Fund is not sponsored, endorsed, sold, or promoted by
Standard & Poor's Corporation ("S&P"). S&P makes no representation or warranty,
express or implied, to the purchasers of the Fund or any member of the public
regarding the advisability of investing in securities generally, or in the Fund
particularly, or the ability of the Index to track the market performance of
real estate investment trusts. S&P's only relationship to the Fund is the
licensing of certain trademarks and trade names of S&P and of the S&P(R) REIT
Index, which is determined, composed, and calculated by S&P without regard to
the Fund. S&P has no obligation to take the needs of the Fund or the purchasers
of the Fund into consideration in determining, composing, or calculating the
REIT Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the shares of the Fund or the timing
of the issuance or sale of the shares of the Fund or in the determination or
calculation of the equation by which the shares of the Fund are to be converted
into cash. S&P has no obligation or liability in connection with the
administration, marketing, or trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P(R) REIT
INDEX OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE S&P(R) REIT INDEX FUND, PURCHASERS
OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P(R) REIT INDEX
OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P(R) REIT INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The S&P(R) REIT Index Fund attempts to achieve its investment objective by
investing primarily in the stocks included in the S&P(R) REIT Index. The Fund
intends to be as fully invested at all times as is reasonably practicable and
will attempt to approximate the weightings of the stocks held in its portfolio
to the weightings of the stocks in the Index. Thus, the proportion of the Fund's
assets invested in each stock held in the Fund's portfolio will generally be
substantially similar to the proportion of the Index represented by the stock.
For example, if a stock represents 2% of the value of the Index, the Fund
invests approximately 2% of its assets in the stock. The Adviser seeks to
maintain a correlation of at least 95% between the composition of the Index and
the Fund's portfolio. The Adviser monitors the composition of the Index and
makes adjustments to the Fund's portfolio as necessary in order to correlate
with the Index.
The Trust expects there will be a close correlation between the Fund's
performance and that of the Index in both rising and falling markets. Over the
long term, the Adviser will seek a correlation of 95% or better. A correlation
of 100% would indicate a perfect correlation. If a correlation of 95% or better
is not achieved, the Board of Trustees of the Trust will review with the Adviser
methods for increasing the correlation, such as through adjustments in
securities holdings of the Fund. Factors such as the size of the Fund's
securities holdings, transaction costs, management fees and expenses, brokerage
commissions and fees, and the extent and timing of cash flows into and out of
the Fund, are expected to account for the differences between the Fund's
performance and that of the Index.
The S&P(R) REIT Index Fund is not managed in the traditional investment sense,
since changes in the composition of its securities holdings are made in order to
track the changes in the composition of the securities included in the Index.
Moreover, inclusion of a security in the Index does not imply an opinion by the
Adviser as to the merits of that specific security as an investment.
For information on a change in the investment objective of the S&P(R) REIT Index
Fund, effective January 1, 1998, see footnote 5 to the Fee Table.
Realty Growth Fund
The primary investment objective of the Realty Growth Fund is long-term growth
of capital. Current income is a secondary objective. In selecting investments
for the Fund, the Adviser will emphasize equity securities of the real estate
industry which it believes exhibit above average growth prospects. Such
securities may include securities of real estate industry companies or REITs
that are large, well capitalized, and in favor; real estate industry companies
or REITs that are out of favor and/or the Adviser believes are undervalued; and
real estate industry companies or REITs that the Adviser believes have
significant "turnaround" potential. In determining whether a security meets any
of these requirements, the Adviser may take into account price-earnings ratios,
cash flows, relationships of asset value to market prices of the securities,
interest or dividend payment histories and other factors which it believes to be
relevant. The Adviser may determine that a company has "turnaround" potential
based on, for example, changes in management or financial restructurings.
Other Eligible Investments
Debt Securities of Real Estate Industry Companies. The Realty Growth Fund
may invest in debt securities of real estate industry companies, but the Fund
may not invest more than 25% of its assets in debt securities rated lower than
Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Services ("Standard & Poor's") or Fitch Investors Service, Inc.
("Fitch") or securities not rated by Moody's, Standard & Poor's or Fitch which
the Adviser deems to be of equivalent quality. Debt securities rated Ba or below
by Moody's or BB or below by Standard & Poor's or Fitch (or comparable unrated
securities), are commonly called "junk bonds" and are considered speculative,
and payment of principal and interest thereon may be questionable. In some
cases, such securities may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment in
such bonds will entail greater speculative risks than those associated with
investment in investment-grade debt securities (i.e., debt securities rated Baa
or higher by Moody's or BBB or higher by Standard & Poor's or Fitch). The Realty
Growth Fund will not invest in debt securities rated lower than Caa by Moody's
or CCC by Standard & Poor's or Fitch or equivalent unrated securities. Debt
securities rated Caa by Moody's or CCC by Standard & Poor's or Fitch, and
equivalent unrated securities, are speculative and may be in default. These
securities may present significant elements of danger with respect to the
repayment of principal or interest. See Appendix B for a description of the
characteristics of lower-rated debt securities and associated risks. A
description of the corporate debt ratings assigned by Moody's, Standard & Poor's
and Fitch is contained in Appendix A.
Mortgage-Backed Securities. The Realty Growth Fund may invest in securities
that directly or indirectly represent participations in, or are collateralized
by and payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"). See Appendix B for a description of the characteristics of
Mortgage-Backed Securities and associated risks.
Short-Term Investments. Each Fund may invest in short-term investments
consisting of corporate commercial paper and other short-term commercial
obligations, in each case rated or issued by companies with similar securities
outstanding that are rated Prime-l, Aa or better by Moody's or A-1, AA or better
by Standard & Poor's; obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances) of banks with securities
outstanding that are rated Prime-l, Aa or better by Moody's or A-1, AA or better
by Standard & Poor's; obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities with remaining maturities not exceeding 18
months; securities of registered investment companies, to the extent permitted
by the Investment Company Act of 1940, as amended; and repurchase agreements.
These investments may result in a lower yield than would be available from
investments with a lower quality or longer term.
Certain Other Investment Practices
See Appendix B for more information about the Funds' permitted investments and
investment practices and associated risks. The Funds will not necessarily invest
or engage in each of the investments and investment practices described in
Appendix B but reserve the right to do so to the extent applicable to each Fund.
Some of the investments and investment practices described in Appendix B are
limited to the Realty Growth Fund and will not be engaged in by the S&P(R) REIT
Index Fund. Investors should note that certain of the investments and investment
practices described in Appendix B may be considered to be, or involve the use
of, derivatives. See "Risks of Investing - Derivatives" below.
Risks of Investing
An investment in each of the Funds involves risks. There is no assurance that
either Fund will achieve its investment objectives. An investment in either
Fund, and even an investment in both Funds, should not be viewed as a complete
investment program. Some of the risks of investing in the Funds are summarized
below.
Changes In Net Asset Value. Each Fund's net asset value will fluctuate
based on changes in the values of its underlying portfolio securities. This
means that an investor's shares may be worth more or less at redemption than at
the time of purchase. Equity securities fluctuate in response to general market
and economic conditions and other factors, including actual and anticipated
earnings, changes in management, political developments and the potential for
takeovers and acquisitions. During periods of rising interest rates, the value
of debt and other income-producing securities generally declines, and during
periods of falling interest rates, the value of these securities generally
increases. Changes by recognized rating agencies in the rating of any debt
security, and actual or perceived changes in an issuer's ability to make
principal or interest payments, also affect the value of these investments.
The Real Estate Industry. Although the Funds do not invest directly in real
estate, each Fund invests primarily in securities of real estate industry
companies, and, therefore, an investment in each of the Funds is subject to
risks associated with the ownership of real estate. These risks include, among
others: possible declines in the value of real estate; risks related to general
and local economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates.
Real Estate Investment Trusts. Each Fund may invest without limitation in
shares of REITs. REITs are pooled investment vehicles which invest primarily in
income-producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like investment companies such as the Funds, REITs are not taxed on
income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code.
Investing in REITs involves certain risks in addition to those risks associated
with investing in the real estate industry in general. Equity REITs may be
affected by changes in the value of the underlying property owned by the REITs,
while mortgage REITs may be affected by the quality of any credit extended
(which may also be affected by changes in the value of the underlying property).
REITs are dependent upon management skills, often have limited diversification,
and are subject to the risks of financing projects. REITs are subject to heavy
cash flow dependency, default by borrowers, self-liquidation, and the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Internal Revenue Code and failing to maintain their exemptions
from the Investment Company Act of 1940, as amended. Certain REITs have
relatively small market capitalizations, which may result in less market
liquidity and greater price volatility of their securities. When a shareholder
invests in real estate indirectly through a Fund, the shareholder's return will
be reduced not only by his or her proportionate share of the expenses of the
Fund, but also, indirectly, by similar expenses of the REITs in which the Fund
invests.
Realty Growth Fund: Growth-Oriented Investments. Securities such as those
in which the Realty Growth Fund may invest which offer the potential for
significant capital appreciation may also be subject to greater risks and
volatility than other securities. Equity securities which the Adviser believes
are undervalued may fail to increase or may decline in value. Similarly,
companies which the Adviser believes have "turnaround" potential may fail to do
so, as a result of many factors, including economic conditions, inadequate
financing and actions taken by creditors.
Derivatives. As noted above, each Fund may invest or engage in the
investments and investment practices described in Appendix B. Certain of those
investments and investment practices may be considered to be, or involve the use
of, derivatives. Investment in derivatives may involve concepts that have not
been fully tested by market events. Investment in derivatives may also have the
effect of increasing a Fund's exposure to interest rate risk, or of altering the
Fund's portfolio composition. For example, a relatively small investment in
futures contracts on an index can allow the Fund to control a substantial block
of stock, and the Fund will be subject to fluctuations in the prices of such
stocks out of proportion to its investment in the contract. Some derivative
instruments may be illiquid, particularly in the case of more specialized
derivatives, or derivatives linked to relatively illiquid markets. Investment in
derivatives may present a risk of counterparty default, i.e., that the other
party to the transaction will default on its obligations with respect to the
derivative instruments. Although the Adviser will consider the creditworthiness
of counterparties, and try to minimize the Fund's exposure to any particular
counterparty, this may be difficult or impossible to accomplish.
Certain Investment Practices. The Funds may invest or engage in the
investments and investment practices described in Appendix B to the extent
applicable to each Fund. These investments and investment practices involve
risks, certain of which are described in Appendix B.
Realty Growth Fund: Non-Diversified Status
The Realty Growth Fund is "non-diversified" for purposes of the Investment
Company Act of 1940, as amended. As a non-diversified mutual fund, this Fund may
be more susceptible to risks associated with a single economic, political or
regulatory occurrence than a diversified fund might be. Like most other
registered investment companies, however, this Fund, like the S&P(R) REIT Index
Fund, intends to qualify as a "regulated investment company" under the Internal
Revenue Code and therefore will be subject to diversification limits, which
generally require that, as of the close of each quarter of its taxable year, (i)
no more than 25% of its assets may be invested in the securities of a single
issuer (except for U.S. Government securities) and (ii) with respect to 50% of
its total assets, no more than 5% of those assets may be invested in the
securities of a single issuer (except for U.S. Government securities) or
invested in more than 10% of the outstanding voting securities of a single
issuer.
Portfolio Turnover
The Adviser generally avoids market-timing or speculating on broad market
fluctuations. Therefore, the Funds will generally be substantially fully
invested at all times. It is anticipated that the portfolio turnover rate of the
S&P(R) REIT Index Fund and the Realty Growth Fund will not exceed 50% and 200%,
respectively, for the fiscal year ending March 31, 1999. Changes in the
portfolio of the S&P(R) REIT Index Fund will be effected primarily to
accommodate cash flows into and out of the Fund and changes in the S&P(R) REIT
Index. Although each of the Funds generally seeks to invest for the long term,
changes in a Fund's portfolio will be made when determined to be advisable, and
usually without reference to the length of time a security has been held. The
amount of a Fund's brokerage commissions and realization of taxable capital
gains will tend to increase as the level of portfolio activity increases. The
portfolio turnover rate for each Fund since inception is set forth under
"Financial Highlights" above.
Portfolio Transactions
Orders for the Funds' portfolio securities transactions are placed by the
Adviser, which strives to obtain the best price and execution for each
transaction. In circumstances in which two or more broker-dealers are in a
position to offer comparable prices and execution, consideration may be given to
whether a broker-dealer provides investment research or brokerage services or
sells shares of the Funds. See the Statement of Additional Information for a
further description of the Adviser's brokerage allocation practices.
Investment Restrictions
The Statement of Additional Information contains a list of specific investment
restrictions which govern the investment policies of the Funds, including a
limitation that each Fund may borrow from banks and enter into reverse
repurchase agreements in an amount not to exceed 33 1/3% of the Fund's total
assets for extraordinary or emergency purposes (e.g., to meet redemption
requests) and a limitation that no Fund may purchase securities at any time at
which borrowings exceed 5% of the total assets of the Fund, taken at market
value. Certain of these specific restrictions may not be changed without
shareholder approval. Except as otherwise indicated, a Fund's investment
objectives and policies may be changed by the Board of Trustees without
shareholder approval. If a percentage restriction (other than a restriction as
to borrowing) is adhered to at the time an investment is made, a later change in
percentage resulting from changes in a Fund's portfolio securities will not be a
violation of policy.
MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees has overall responsibility for the management and
supervision of the Funds. A majority of the Trustees are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940, as
amended. The Statement of Additional Information contains more information about
the Trustees and executive officers of the Trust.
Adviser
GrandView Advisers, Inc. (the "Adviser") manages the Funds' assets pursuant to
separate investment advisory agreements (the "Advisory Agreements"). Subject to
policies set by the Trust's Board of Trustees, the Adviser makes the investment
decisions for the Funds. The Adviser is also responsible for the selection of
broker-dealers through which the Funds execute portfolio transactions, subject
to brokerage policies established by the Board of Trustees, and it provides
certain executive personnel to the Funds.
Winsor H. Aylesworth, Lucille C. Carlson, and David F. Wolf are all directors,
officers, and shareholders of the Adviser. Winsor H. Aylesworth and Lucille C.
Carlson serve as co-portfolio managers for the Funds. They have served in such
capacity for the Funds since commencement of operations of the Funds on July 3,
1995. They collectively have over 50 years experience in the commercial real
estate finance and management and securities businesses.
Winsor H. Aylesworth, President, Treasurer, Director, and the controlling
shareholder of the Adviser, has had over ten years of experience with Bank of
Boston Corporation and Bank of Boston Connecticut. At Bank of Boston, Mr.
Aylesworth's responsibilities included forming and managing workout and OREO
groups and overseeing the disposition of real estate properties and other assets
by the OREO groups. Mr. Aylesworth was also responsible for managing Bank of
Boston Corporation's Florida Loan Production Office and for overseeing the
granting of construction loans on investment grade real estate. Lucille C.
Carlson, Executive Vice President and a Director of the Adviser, has managed
cases on non-performing assets, including loan restructuring and OREO management
and disposition, for Bank of Boston Connecticut. Ms. Carlson has served as a
real estate asset management officer, managing an institutional grade real
estate portfolio comprised of commercial property and other portfolios
consisting of real estate property and mortgages for John Hancock Properties
Inc. and Cigna Investments Inc., and has served as a securities and equity
analyst. David F. Wolf, Executive Vice President and a Director of the Adviser,
has over eight years of experience as a financial consultant, serving as a
consultant for John Hancock Financial Services and Shearson Lehman Brothers. Mr.
Wolf has acted as an account executive for NCNB Securities and has professional
experience in the areas of real estate developing, lending, workouts and asset
management.
Mr. Aylesworth, Ms. Carlson and Mr. Wolf also control WHA Enterprises, Inc.,
which since 1991 has published a monthly newsletter on the REIT industry known
as The Winsor Report. The Adviser was organized in March, 1995 and has no
previous experience as an investment adviser.
For its services under the Advisory Agreements, the Adviser receives the
following investment advisory fees, which are accrued daily and paid monthly,
expressed as a percentage of the applicable Fund's average daily net assets on
an annualized basis for its then-current fiscal year:
S&P(R) REIT Index Fund 0.35%
Realty Growth Fund 1.00%
The Adviser has voluntarily agreed to waive the investment advisory fees payable
by the Funds and reimburse other operating expenses to the extent needed to
limit each Fund's expenses to the percentage of its average net assets shown
below:
S&P(R) REIT Index Fund 1.05%
Realty Growth Fund 2.00%
This agreement applies for the fiscal year ending March 31, 1999, and there is
no assurance that it will be extended after that date.
The Adviser has voluntarily waived its fee and reimbursed a portion of each
Fund's operating expenses for the fiscal year ended March 31, 1998. The total
fees waived amounted to $5,370 and $16,842, respectively, and expenses
reimbursed amounted to $49,107 and $42,126, respectively, for the S&P(R) REIT
Index Fund and the Realty Growth Fund, respectively.
Administrator
The Nottingham Company (the "Administrator") serves as the administrator and
fund accounting agent for the Funds. These administrative services include
providing general office facilities; supervising the overall administration of
the Funds; maintaining books of account and calculating the daily net asset
value of shares of the Funds; and providing persons satisfactory to the Trustees
to serve as officers of the Trust. Such officers may be directors, officers or
employees of the Administrator.
For its administrative services, the Administrator is entitled to receive from
each Fund a fee based on the average daily net assets of the Fund, in addition
to a base monthly fee for accounting and recordkeeping services. The
Administrator also performs certain accounting and pricing services for each
Fund as pricing agent, including the daily calculation of the Fund's net asset
value, for which it receives certain charges and is reimbursed for out-of-pocket
expenses.
The Administrator was established as a North Carolina corporation in 1988. Frank
P. Meadows, III is the managing director and controlling shareholder of the
Administrator.
Transfer Agent
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Funds'
transfer, dividend paying, and shareholder servicing agent. The Transfer Agent,
subject to the authority of the Board of Trustees, provides transfer agency
services pursuant to an agreement with the Administrator, which has been
approved by the Trust. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning accounts,
processes purchases and redemptions of the Funds' shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions. Each Fund is charged a recordkeeping fee based on the number of
shareholders in the Fund.
The Transfer Agent was established as a North Carolina limited liability company
in 1997. John D. Marriott, Jr., is the firm's controlling member.
Custodian
The custodian of the assets of each of the Funds is First Union National Bank of
North Carolina (the "Custodian"). Securities of the Funds may also be held by a
sub-custodian bank approved by the Trustees.
Distributor
Capital Investment Group, Inc. (the "Distributor") is the distributor of shares
of each of the Funds. The Distributor receives commissions on the sale of shares
of the Funds and may also receive fees and reimbursement for certain expenses
under the Trust's Distribution Plan described below. See "Information About Fund
Shares--How to Purchase Shares."
The Trust has adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-l under the Investment Company Act of 1940, as amended.
Under the Distribution Plan, the Trustees may authorize the periodic payment of
up to 0.25% annually of each Fund's average daily net asset value for each year
elapsed subsequent to adoption of the Plan. Such expenditures paid as service
fees to any person who sells shares of the Funds may not exceed 0.25% of the
shares' average annual net asset value.
Payments under the Distribution Plan will be made to the Distributor and others
to finance activities primarily intended to result in the sale of shares of the
Funds and/or the servicing of shareholder accounts. The Distribution Plan may
not be amended to increase materially the amount that may be paid pursuant to
the Distribution Plan from the assets of a particular Fund without the approval
of the shareholders of that Fund. The continuation of the Distribution Plan must
be considered by the Board of Trustees annually. For the fiscal year ended March
31, 1998, the S&P(R) REIT Index Fund and the Realty Growth Fund, after waivers,
expended $858 and $1,157, respectively, under the Distribution Plan.
David F. Wolf, a registered representative of the Funds' Distributor, may
receive brokerage commissions from the Distributor, and may receive payments
under the Distribution Plan, in connection with sales of shares of the Funds
and/or the servicing of shareholder accounts. Mr. Wolf is a Vice President of
the Trust and is an Executive Vice President and a Director of the Adviser.
Expenses
In addition to amounts payable as described above, each Fund is responsible for
its own expenses and its allocable share of the expenses of the Trust,
including, among other things, the costs of securities transactions, the
compensation of Trustees that are not affiliated with the Adviser, governmental
fees, taxes, accounting and legal fees, expenses of communicating with
shareholders, interest expense and insurance premiums. Each Fund is also liable
for any nonrecurring expenses as may arise, such as litigation to which a Fund
may be a party. Each Fund may be obligated to indemnify the Trustees and
officers of the Trust with respect to such litigation. As described above under
"Adviser," the Adviser has voluntarily agreed to waive investment advisory fees
and reimburse other operating expenses to the extent needed to limit each Fund's
expenses for the fiscal year ending March 31, 1999.
INFORMATION ABOUT FUND SHARES
How to Purchase Shares
An investor may purchase shares of each Fund at the public offering price
directly through the Distributor or from a securities firm or broker-dealer
having a sales agreement with the Distributor or a bank having an agency
agreement with the Distributor. Except as provided below, the minimum initial
investment is $1,000. The minimum initial investment for a tax-deferred
retirement plan (such as an Individual Retirement Account (IRA), Keogh or 401(k)
Plan) is $250. The minimum initial purchase under the Trust's Automatic
Investment Plan is $50. The minimum additional investment for any account is
$50. The Funds may, in the Adviser's sole discretion, accept accounts or
investments with less than the stated minimum investment.
Purchases by Mail. Investors may purchase shares of a Fund by completing
and signing the Account Application accompanying this Prospectus and mailing it,
along with a check (or other negotiable bank instrument or money order) payable
to the Fund in which shares are being purchased, to:
GrandviewSM Investment Trust
107 North Washington Street
P.O. Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases by Wire. Investors may also purchase shares of a Fund by bank
wire. Prior to making an initial or additional investment by wire, an investor
should telephone the Fund at 1-800-773-3863. Investments by wire will not be
accepted until an Account Application has been received by mail or facsimile.
Federal funds and registration instructions should be wired through the Federal
Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA No. 053000219
FBO:
GrandView S&P(R) REIT Index Fund
Account No. 2000000861865
or
GrandView Realty Growth Fund
Account No. 2000000861784
For further credit to: [shareholder name and social security or tax
identification number]
Automatic Investment Plan. The Trust's Automatic Investment Plan enables
shareholders to make regular or quarterly investment in shares of a Fund through
automatic charges to their checking accounts. The minimum amount for initial and
additional investments under the Automatic Investment Plan is $50.00. An
investor may elect to participate in the Automatic Investment Plan by completing
the appropriate section of the Account Application. A shareholder may change the
amount of the investment or discontinue his or her participation in the
Automatic Investment Plan at any time by writing to the Fund at the address
shown on the back cover of this prospectus.
Public Offering Price. The public offering price per share of a Fund is the
net asset value per share next computed after receipt of a purchase order, plus
a sales charge as follows:
S&P(R) REIT Index Fund
Sales
Charge As Sales
% of Net Charge As Dealer Allowance
Amount of Offering % of Amount As % of Public
Purchase Price Invested Offering Price
-------- ----- -------- --------------
Less than $100,000 3.00% 3.09% 2.50%
$100,000 but less than $250,000 2.25% 2.30% 1.75%
$250,000 but less than $500,000 1.50% 1.52% 1.00%
$500,000 but less than $1 million 0.75% 0.76% 0.25%
$1 million or more 0.35% 0.35% 0.35%
Realty Growth Fund
Sales
Charge As Sales
% of Net Charge As Dealer Allowance
Amount of Offering % of Amount As % of Public
Purchase Price Invested Offering Price
-------- ----- -------- --------------
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.50%
$1 million or more 0.75% 0.76% 0.75%
A redemption fee of 1.00% is imposed in the event of a redemption of shares of
the S&P(R) REIT Index Fund within six months after purchase, and of 0.50% in the
event of a redemption of shares of the S&P(R) REIT Index Fund after six months
but within twelve months of purchase. See "How to Redeem Shares."
At times the Distributor may reallow the entire sales charge to dealers. 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 allowance may be suspended, terminated, or amended. Dealers who receive
90% or more of the sales charge may be deemed to be "underwriters" under the
federal securities laws.
The dealer allowance schedule above applies to all dealers who have agreements
with the Distributor. The Distributor, at its expense, may also provide
additional compensation to dealers in connection with sales of shares of the
Funds. 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 Funds; 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 Funds' 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 Funds
or their shareholders.
Elimination of Sales Charges. No sales charge is payable for investments by
certain group plans (see "Group Plans" below). Shares of each Fund may also be
sold at net asset value per share without a sales charge to: (a) current or
former Trustees and officers of the Trust; (b) current or former directors,
officers, employees or sales representatives of the Adviser, the Administrator,
the Transfer Agent, or the Distributor or their respective subsidiaries or
affiliates; (c) current or former officers, partners, employees or registered
representatives of broker-dealers which have entered into sales agreements with
the Distributor; (d) members of the immediate families of any of the foregoing
persons; (e) any trust, custodian, pension, profit-sharing or other benefit plan
for any of the foregoing persons; (f) investment advisory clients of the Adviser
or of any of its affiliates; (g) current subscribers to The Winsor Report, a
report published by an affiliate of the Adviser; (h) clients of fee-based
financial planners; (i) clients of a bank or registered investment adviser as to
which the bank or adviser exercises exclusive discretionary investment authority
or accounts held by a bank in a fiduciary, agency, custodial or similar
capacity; (j) governmental agencies and authorities; (k) employee benefit plans
qualified under Section 401 or 403 of the Internal Revenue Code, including
salary reduction plans qualified under Section 401(k) of the Code, subject to
minimum requirements with respect to number of participants or plan assets
established by the Trust; (l) tax-exempt organizations under Section
501(c)(3-13) of the Code; and (m) those investors who purchase shares without
the services of a commissioned broker or agent. However, if purchased through
various so-called "Fund Supermarkets" using the services of a broker or agent,
investors may be subject to various fees and charges. Shares of a Fund so
purchased are purchased for investment purposes and may not be resold except
through redemption or repurchase by or on behalf of the Fund. Elimination of a
sales charge is conditioned on the receipt by the Distributor of written
notification of eligibility. Shares of a Fund may also be sold at net asset
value without a sales charge in connection with certain reorganization,
liquidation or acquisition transactions involving other investment companies or
personal holding companies.
Reduced Sales Charge Plans.
Purchases by Family Members. Purchases of shares of the Funds by (i) an
individual, (ii) an individual, his or her spouse and children under the age of
21 and (iii) a trustee or other fiduciary of a trust, estate or fiduciary
account or related trusts or accounts, including pension, profit-sharing and
other employee benefit trusts qualified under Section 401 or 408 of the Internal
Revenue Code, may be aggregated for purposes of determining eligibility for
reduced sales charges even though more than one beneficiary is involved.
Rights of Accumulation. The sales charge applicable to a current purchase of
shares of a 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 Funds 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
Realty Growth Fund shares with an aggregate value of $50,000 and who currently
owns shares of the Funds with a value of $50,000 would pay a sales charge of
3.75% 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 as well as in the Statement of
Additional Information.
Group Plans. Shares of the Funds 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.
Additional Information About Purchases. In order to promote selling efforts
and to compensate dealers and banks for providing continuous services for their
clients, including processing purchase and redemptions transactions,
establishing shareholder accounts and providing certain information and
assistance with respect to the Funds, the Distributor may pay a periodic service
fee to qualified broker-dealers and banks. Payment of the service fee is
conditioned upon agreement by the broker-dealer or banks to assign an active
representative to each account and to meet other conditions designed to ensure
continuing service. The service fee may be discontinued or revised at any time,
and it will automatically terminate upon the termination of the Distribution
Plan described under "Distribution Plan." If authorized by the Board of
Trustees, the service fee, which will not exceed 0.25% of the value of the
client's account, will be accrued daily and paid quarterly. Banks are currently
prohibited under the Glass-Steagall Act from providing certain underwriting or
distribution services. If a bank were prohibited from acting in any capacity or
providing any of the described services, the Trust would consider what action,
if any, would be appropriate.
An order to purchase shares is not binding on, and may be rejected by, the Trust
or the Distributor until it is confirmed in writing by the Distributor and
payment has been received. The Trust and the Distributor reserve the right to
reject any purchase order and to suspend the offering of shares of a Fund for a
period of time. Under certain circumstances, the Trust may permit an investor to
pay for the purchase of Fund shares by delivering securities to the Trust, if in
the judgment of the Adviser such securities are suitable for investment by the
applicable Fund. For this purpose, securities will be valued as set forth below
under "Net Asset Value and Pricing of Orders" as of the day on which the
purchase order is accepted.
Shares of the Funds may be purchased by all types of tax-deferred retirement
plans, including IRAs, SEP-IRA plans, 401(k) plans, and other corporate pension
and profit-sharing plans. Documentation for these types of plans is available
from the Funds' Administrator. Investors should consult with their tax advisers
before establishing any of the tax-deferred retirement plans described above.
Net Asset Value and Pricing of Orders
Shares of each Fund are sold at their public offering price, which is the net
asset value per share plus the applicable sales charge, if any. Net asset value
per share of a Fund is determined by dividing the value of its assets, less
liabilities, by the number of shares outstanding. The net asset value is
computed once daily, on each day the New York Stock Exchange (the "Exchange") is
open, at the time trading closes on the Exchange (currently 4:00 p.m. New York
time).
Securities are valued at the last quoted sale price, at the time the valuation
is made, on the principal exchange or market where they are traded. Securities
which have not traded on the date of valuation, or securities for which sales
prices are not generally reported, are valued at the latest quoted bid price.
All assets of a Fund for which there is no other readily available valuation
method are valued at their fair value as determined in good faith at the
direction of the Trustees.
An order for shares received by a broker-dealer or bank prior to the time
trading closes on the Exchange (currently 4:00 p.m. New York time) is effected
at the offering price determined at such time on the day the order is received.
It is the responsibility of broker-dealers and banks to transmit orders promptly
so that they will be received by the Distributor. An order received by a
broker-dealer or bank after the close of trading on the Exchange, or on a day
the Exchange is not open for business, will be confirmed at the offering price
next determined.
An order to purchase shares is not binding on, and may be rejected by, the Trust
or the Distributor until it has been confirmed in writing by the Distributor and
payment has been received.
The Funds may enter into agreements with one or more brokers or other agents,
including discount brokers and other brokers associated with investment
programs, including mutual fund "supermarkets," and agents for qualified
employee benefit plans, pursuant to which such brokers or other agents may be
authorized to accept on the Funds' behalf purchase and redemption orders that
are in "good form." Such brokers or other agents may be authorized to designate
other intermediaries to accept purchase and redemption orders on the Funds'
behalf. Under such circumstances, the Funds will be deemed to have received a
purchase or redemption order when an authorized broker, agent, or, if
applicable, other designee, accepts the order. Such orders will be priced at
each Fund's public offering price, next determined after they are accepted by an
authorized broker, agent, or other designee. The Funds may pay fees to such
brokers or other agents for their services, including without limitation,
administrative, accounting, and recordkeeping services.
How to Exchange Shares
Shares of each Fund may be exchanged for shares of the other Fund. No initial
sales charge is imposed on shares being acquired through an exchange unless the
sales charge of the Fund being exchanged into is greater than the current sales
charge of the original Fund, such as an exchange of shares of the S&P(R) REIT
Index Fund for shares of the Realty Growth Fund (in which case an initial sales
charge will be imposed at a rate equal to the difference). No redemption fee is
imposed on shares being disposed of through an exchange; however, a redemption
fee may apply to redemptions of shares acquired through an exchange of shares of
the S&P(R) REIT Index Fund at the rate which would have been applicable if the
shareholder had continued to hold shares of the S&P(R) REIT Index Fund.
Shareholders must place exchange orders through the Funds and may do so by
telephone if their Account Applications so permit. For more information on
telephone transactions see "How to Redeem Shares" below. All exchanges will be
effected based on the relative net asset values per share next determined after
the exchange order is received by the Funds. See "Net Asset Value and Pricing of
Orders" above. Shares of the Funds may be exchanged only after payment for the
shares in good funds has been made.
This exchange privilege may be modified or terminated at any time, upon at least
60 days' notice when such notice is required by SEC rules, and is available only
in those jurisdictions where such exchanges legally may be made. See the
Statement of Additional Information for further details.
An exchange is treated as a sale of the shares exchanged and could result in
taxable gain or loss to the shareholder making the exchange.
How to Redeem Shares
Shares of the Funds may be redeemed at their net asset value next determined
after a redemption request in proper form is received by the Funds, subject to
any applicable redemption fee and possible charges for wiring redemption
proceeds. Shares may also be redeemed through a broker-dealer or bank, which may
charge a fee for its services. Any redemption proceeds may be more or less than
the original purchase price for the shares, depending on the market value of the
Funds' portfolio securities.
Redemption by Mail. A written request for redemption must be addressed to
the applicable Fund, 107 North Washington Street, P.O. Box 4365, Rocky Mount,
North Carolina 27803-0365, and must include:
1. Your letter of instruction or a stock assignment specifying the Fund from
which shares are to be redeemed, the account number and the number of
shares or dollar amount to be redeemed, signed by all registered
shareholders in the exact names in which they are registered.
2. Any required signature guarantees.
Redemption By Telephone. Shares may be redeemed by telephone if the
shareholder elects that option on the Account Application and if the shareholder
confirms redemption instructions in writing. Telephone redemption requests may
be made by calling the Funds at (800) 773-3863. Written confirmation of
redemption requests may be made by facsimile at (919) 972-1908. Confirmations
should include all of the information specified above for redemptions by mail.
A shareholder may not close his or her account by telephone. During periods of
drastic economic or market changes or severe weather or other emergencies, a
shareholder may find it difficult to implement a telephone redemption. If such a
case should occur, another method of redemption, such as written requests sent
via an overnight delivery service, should be considered. The Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures may include recording of the telephone instructions
and verification of a caller's identity by asking his or her name, address,
telephone number, Social Security number and account number. If these or other
reasonable procedures are not followed, the applicable Fund or the Transfer
Agent may be liable for any losses to a shareholder due to unauthorized or
fraudulent instructions. Otherwise, the shareholder will bear all risk of loss
relating to redemption by telephone.
Signature Guarantees. If a shareholder requests a redemption for an amount
in excess of $50,000, a redemption of any amount to be payable to anyone other
than the shareholder of record, or a redemption of any amount to be sent to any
address other than the shareholder's address of record (or in the case of
redemptions by wire, other than as provided in the shareholder's Account
Application), all account holders must sign a written redemption request, and
the signatures must be guaranteed by a member bank of the Federal Reserve
System, a savings and loan association or credit union (if authorized under
state law), or by a member firm of a domestic stock exchange.
Payment of Redemptions. Redemption proceeds are normally paid by check
within seven days after receipt of a redemption request. If a shareholder
requests a redemption of shares which were purchased recently, the Fund may
delay payment until it is assured that good payment has been received. In the
case of purchases by check, this can take up to fifteen days from the date of
purchase.
Proceeds of redemption can also be wired to a shareholder's bank ($5,000
minimum). Shares may not be redeemed by wire on days on which the shareholder's
bank is not open for business. The Funds in their discretion may choose to pass
through to redeeming shareholders any charges imposed by the Custodian for wire
redemptions. The Custodian currently charges the Funds $10.00 per transaction
for wiring redemption proceeds. If this cost is passed through to redeeming
shareholders by the Funds, the charge will be deducted automatically from a
shareholder's account by redemption of shares in the shareholder's account. A
shareholder's 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.
Reinstatement Privilege. Shareholders who have redeemed shares of any Fund
may reinstate their account without a sales charge up to the dollar amount
redeemed (but without any credit for any redemption fee paid on redemptions on
shares of the S&P(R) REIT Index Fund) by purchasing shares of the same Fund
within 30 days after the redemption. The availability of this privilege is
conditioned on the receipt by the Distributor of written notification of
eligibility.
Systematic Withdrawal Plan. A shareholder who holds shares of the Funds
having a net asset value of at least $10,000 may direct the Funds to send him or
her a regular monthly or quarterly check in a designated amount of not less than
$100. To establish a Systematic Withdrawal Plan, a shareholder should complete
the appropriate section of the Account Application or write or call the Funds
(see back cover for address and telephone number).
Redemption Fee--S&P(R) REIT Index Fund. Redemptions of shares of the S&P(R)
REIT Index Fund made within six months of purchase are subject to a redemption
fee in the amount of 1% of the net asset value of the shares redeemed.
Redemptions of shares of the S&P(R) REIT Index Fund made between six and twelve
months after purchase will be subject to a redemption fee of 0.50% of the net
asset value of the shares redeemed. No redemption fee is imposed if the proceeds
are immediately invested in shares of the Realty Growth Fund, but a further
redemption of shares of the Realty Growth Fund may result in a redemption fee at
the rate which would have been applicable if the shareholder had continued to
hold shares of the S&P(R) REIT Index Fund. A redemption fee that would otherwise
be imposed will be waived if the redemption is made within 60 days of notice
being given to the shareholder that the applicable Fund is changing its
investment objective. A redemption fee will also be waived for accounts set up
as "omnibus" accounts by various organizations approved by the Trust and may be
reduced or waived under other circumstances if approved by the Trust. All
redemption fees are payable to the applicable Fund.
Other Information About Redemptions. Due to the relatively high costs of
handling small investments, each Fund reserves the right to redeem, at net asset
value, the shares of any shareholder if, because of redemptions of shares by or
on behalf of the shareholder (and not solely because of market declines), the
account of the shareholder in the Fund has a value of less than $1,000, the
minimum initial purchase amount. Accordingly, an investor purchasing shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if he or she thereafter redeems any of these shares. This redemption
provision will not apply to shareholders who currently are participants in the
Trust's Automatic Investment Plan. Before a Fund exercises its right to redeem
such shares and to send the proceeds to the shareholder, the shareholder will be
given notice that the value of the shares in his or her account is less than the
minimum amount and will be allowed 60 days to make an additional investment in
the Fund in an amount which will increase the value of the account to at least
the minimum amount. An account established under a tax-deferred retirement
program may be subject to involuntary redemption as described above only if the
account has a value of less than $250, the minimum initial purchase amount for
such accounts.
The right of any shareholder to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted or, to the extent otherwise
permitted by the Investment Company Act of 1940, as amended, if an emergency
exists.
Dividends and Distributions
Substantially all of each Fund's net income is paid to its shareholders of
record as a dividend quarterly on or about the last business day of each March,
June, September and December.
Each Fund's net realized short-term and long-term capital gains, if any, will
generally be distributed to the Fund's shareholders at least annually, in
December. Each Fund may also make additional distributions to its shareholders
to the extent necessary to avoid the application of the 4% non-deductible excise
tax on certain undistributed income and net capital gains of mutual funds. There
is no fixed dividend rate for the Funds, and there can be no assurance as to the
payment of any dividends or the realization of any gains.
Unless shareholders specify otherwise, all distributions from a Fund will be
automatically reinvested in additional shares of the Fund at their net asset
value without a sales charge.
A redemption is treated as a sale of the shares redeemed and could result in
taxable gain or loss to the shareholder making the redemption.
Tax Matters
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
Each Fund intends to meet requirements of the Internal Revenue Code (the "Code")
applicable to regulated investment companies so that it will not be liable for
any federal income or excise taxes. Each Fund will generally distribute all of
its net investment income and realized gains at least annually.
For the fiscal year ended March 31, 1998, the S&P(R) REIT Index was considered a
"personal holding company" under the Code since 50% of the value of the Fund's
shares was owned directly or indirectly by five or fewer individuals at certain
times during the last half of the year. As a result, the Fund was unable to meet
the requirements for taxation as a regulated investment company and will be
unable to meet such requirements as long as it is classified as a personal
holding company. As a personal holding company, the Fund is subject to federal
income taxes on undistributed personal holding company income at the maximum
individual income tax rate. For the fiscal year ended March 31, 1998, however,
no provision was made for federal income taxes since substantially all taxable
income was distributed to shareholders. For the current fiscal year, the Fund
anticipates that either it will qualify as a regulated investment company under
the Code or, if still considered a personal holding company, it will distribute
substantially all of its taxable income for the current fiscal year to
shareholders in order to avoid federal income taxes.
Fund dividends and capital gain distributions are subject to federal income tax,
and may also be subject to state and local taxes. Dividends and distributions
are treated in the same manner for federal tax purposes whether they are paid in
cash or as additional shares. Generally, distributions from a Fund's net
investment income and short-term capital gains will be taxed as ordinary income.
A portion of distributions from net investment income may be eligible for the
dividends-received deduction available to corporations. Distributions of
long-term net capital gains will be taxed as such regardless of how long the
shares of a Fund have been held.
Recent legislation creates additional categories of capital gains taxable at
different rates.
Fund distributions will reduce the distributing Fund's net asset value per
share. Shareholders who buy shares just before a Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
Early each year, each Fund will notify its shareholders of the amount and tax
status of distributions paid to shareholders for the preceding year, including
the portion, if any, taxable as ordinary income, the portion taxable as
long-term capital gain, the portion representing a return of capital (which is
generally free from income tax, but results in a basis adjustment) and the
amount, if any, of federal income tax withheld.
Each Fund is required by federal law to withhold and remit to the Internal
Revenue Service 31% of the dividends, capital gain distributions, and in certain
cases, proceeds of redemptions paid to any shareholder who fails to furnish the
Funds with a correct taxpayer identification number, who under-reports dividends
or interest income, or who fails to provide certification of a tax
identification number. Instructions to exchange or transfer shares held in
established accounts will be refused until the certification has been provided.
To avoid this withholding requirement, shareholders must certify on their
Account Application, or on a separate W-9 Form supplied by the Funds, that their
taxpayer identification number is correct and that they are not currently
subject to backup withholding, or they are exempt from backup withholding. For
individuals, their taxpayer identification number is their social security
number.
Investors should consult their own tax advisers regarding the status of their
accounts under state and local laws.
Performance Information
Fund performance may be quoted in advertising, shareholder reports and other
communications in terms of yield, effective yield or total rate of return. All
performance information is historical and is not intended to indicate future
performance. Yields and total rates of return fluctuate in response to market
conditions and other factors, and the value of a Fund's shares when redeemed may
be more or less than their original cost.
Each Fund may provide its period and average annualized "total rates of return."
The "total rate of return" refers to the change in the value of an investment in
the Fund over a stated period which was made at the maximum public offering
price and reflects any change in net asset value per share and is compounded to
include the value of any shares purchased with any dividends or capital gains
declared during such period. Period total rates of return may be "annualized."
An "annualized" total rate of return assumes that the period total rate of
return is generated over a one-year period. These total rates of return
quotations may be accompanied by quotations which do not reflect the reduction
in value of the investment due to sales charges, and which are thus higher.
Each Fund may provide annualized "yield" and "effective yield" quotations. The
"yield" of a Fund refers to the income generated by an investment in the Fund
over a 30-day or one-month period (which period is stated in any such
advertisement or communication). This income is then annualized; that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of the
maximum public offering price on the last day of that period. The "effective
yield" is calculated similarly, but when annualized the income earned by the
investment during that 30-day or one-month period is assumed to be reinvested.
The effective yield is slightly higher than the yield because of the compounding
effect of this assumed reinvestment. A "yield" quotation, unlike a total rate of
return quotation, does not reflect changes in net asset value.
Description of Shares and Voting Rights
The Trust is an open-end management investment company which was organized on
February 6, 1995, as a Massachusetts business trust under a Declaration of Trust
(the "Declaration of Trust"). Under the Declaration of Trust, the Trustees are
authorized to issue an unlimited number of shares of beneficial interest. The
Trustees of the Trust are responsible for the overall management and supervision
of its affairs. The Trustees of the Trust have authority under the Declaration
of Trust to create and classify shares of beneficial interest in separate series
without further action by shareholders. The Funds are the only current series of
the Trust. Additional series may be added in the future. The Trustees also have
authority to classify or reclassify shares of any series or portfolio into one
or more classes.
When issued, shares are fully paid and nonassessable. In the event of
liquidation, shareholders of a Fund are entitled to share pro rata the net
proceeds of the sale of the Fund's assets after payment of the liabilities of
the Fund. All shares entitle their holders to one vote per share and have no
preemptive, subscription or conversion rights.
Under Massachusetts law, there is a remote possibility that shareholders of a
business trust could, under certain circumstances, be held personally liable as
partners for the obligations of such trust. The Declaration of Trust contains
provisions intended to limit such liability and to provide indemnification out
of property of a Fund of any shareholder charged or held personally liable for
obligations or liabilities of that Fund solely by reason of being or having been
a shareholder of that Fund and not because of such shareholder's acts or
omissions or for some other reason. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations.
Unless otherwise required by the Investment Company Act of 1940, as amended,
ordinarily it will not be necessary for the Trust or any Fund to hold annual
meetings of shareholders. Shareholders may remove a Trustee by the affirmative
vote of at least two-thirds of the Trust's outstanding shares, and the Trustees
must promptly call a meeting for such purpose when requested to do so in writing
by the record holders of not less than 10% of the outstanding shares of the
Trust. Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
The Board of Trustees, however, will call a special meeting for the purpose of
electing Trustees if, at any time, less than a majority of Trustees holding
office at the time were elected by shareholders.
In the interest of economy and convenience, the Funds do not issue certificates
representing Fund shares. Instead, the Funds maintain a record of each
shareholder's ownership.
The Statement of Additional Information dated the date hereof contains more
detailed information about the Funds, including information related to (i)
investment policies and restrictions; (ii) Trustees, officers, the Adviser,
Administrator, Transfer Agent, Distributor, and Custodian; (iii) securities
transactions; (iv) the Funds' shares, including rights and liabilities of
shareholders; (v) the method used to calculate performance information; (vi)
programs for the purchase of shares; and (vii) the determination of net asset
value.
<PAGE>
APPENDIX A: DESCRIPTION OF BOND RATINGS
The following descriptions of ratings of Moody's Investors Service, Inc.,
Standard & Poor's Ratings Services and Fitch Investors Service, Inc. are based
on descriptions published by the rating agencies. Ratings are not absolute
standards of quality. Consequently, debt securities with the same maturity,
coupon and rating may have different yields while debt securities of the same
maturity and coupon with different ratings may have the same yield. Ratings are
generally given to securities at the time of issuance. While the rating agencies
may from time to time revise such ratings, they undertake no obligation to do
so.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best of bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked short-
comings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
Al, Baa1 and B1.
Standard & Poor's Ratings Services1
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
D: Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Unrated: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligations as a matter of policy.
Fitch Investors Service, Inc.
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. 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 considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which,if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for a potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
<PAGE>
APPENDIX B: CERTAIN INVESTMENT PRACTICES
This Appendix provides a brief description of certain securities in which the
Funds may invest and certain practices in which they may engage. Some of the
investments and investment practices described in Appendix B are limited to the
Realty Growth Fund and will not be engaged in by the S&P(R) REIT Index Fund. For
a more complete discussion of certain of these securities and practices, see
"Investment Objectives, Policies and Risk Factors" in this Prospectus and
"Investment Policies and Restrictions" in the Statement of Additional
Information.
Mortgage-Backed Securities and Associated Risks
The Realty Growth Fund may invest in mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage investment
conduits ("REMIC") pass-through certificates, collateralized mortgage
obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"). The
Realty Growth Fund also may invest in other types of Mortgage-Backed Securities
that may be available in the future, but not without first amending this
Prospectus to disclose the specific types of securities and their attendant
risks.
Guaranteed Mortgage Pass-Through Securities. The Realty Growth Fund may
invest in guaranteed mortgage pass-through securities which represent
participation interests in pools of residential mortgage loans and are issued by
U.S. Governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full
faith and credit of the United States government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately-owned corporation for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage
Obligations. The Realty Growth Fund may also invest in CMOs and REMIC
pass-through or participation certificates, which may be issued by, among
others, U.S Government agencies and instrumentalities. CMOs and REMIC
certificates are issued in multiple classes and the principal of and interest on
the mortgage assets may be allocated among the several classes of CMOs or REMIC
certificates in various ways. Each class of CMOs or REMIC certificates, often
referred to as a "tranche," is issued at a specific adjustable or fixed interest
rate and must be fully retired no later than its final distribution date.
Generally, interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Funds do not
intend to invest in residual interests.
Stripped Mortgage-Backed Securities. The Realty Growth Fund may invest in
SMBS, which are derivative multiple-class mortgage-backed securities. SMBS are
usually structured with two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets. A typical
SMBS will have one class receiving some of the interest and most of the
principal, while the other class will receive most of the interest and the
remaining principal. In the most extreme case, one class will receive all of the
interest (the interest only class) while the other class will receive all of the
principal (the principal only class). The staff of the SEC considers privately
issued SMBS to be illiquid.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. These
risks include the failure of a counter-party to meet its commitments, adverse
interest rate changes and the effects of prepayments on mortgage cash flows. In
addition, investing in the lowest tranche of CMOs and REMIC certificates
involves risks similar to those associated with investing in equity securities.
When interest rates decline, the value of an investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of an investment in fixed rate obligations can be expected to decline. In
contrast, as interest rates on adjustable rate mortgage loans are reset
periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which the Realty Growth Fund may invest, differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the Realty Growth Fund may fail to recoup
fully its investment in Mortgage-Backed Securities notwithstanding any direct or
indirect governmental or agency guarantee. When the Realty Growth Fund reinvests
amounts representing payments and unscheduled prepayments of principal, it may
receive a rate of interest that is lower than the rate on existing adjustable
rate mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Lower-Rated Debt Securities and Associated Risk Factors
The Realty Growth Fund may invest up to 25% of its total assets in debt
securities which may be rated below Baa by Moody's or BBB by Standard & Poor's
or Fitch or which, if unrated, are of comparable quality as determined by the
Adviser. Debt securities rated Ba or below by Moody's or BB or below by Standard
& Poor's or Fitch (or comparable unrated securities), commonly called "junk
bonds," are considered speculative and payment of principal and interest thereon
may be questionable. In some cases, such securities may be highly speculative,
have poor prospects for reaching investment grade standing and be in default. As
a result, investment in such bonds will entail greater speculative risks than
those associated with investment in investment-grade debt securities (i.e., debt
securities rated Baa or higher by Moody's or BBB or higher by Standard & Poor's
or Fitch). The Realty Growth Fund will not invest in debt securities rated lower
than Caa by Moody's or CCC by Standard & Poor's or Fitch or equivalent unrated
securities. Debt securities rated Caa by Moody's or CCC by Standard & Poor's or
Fitch, and equivalent unrated securities, are speculative and may be in default.
These securities may present significant elements of danger with respect to the
repayment of principal or interest.
Corporate debt securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated (i.e., junk bond)
securities are more likely to react to developments affecting market and credit
risk than are more highly rated securities, which react primarily to movements
in the general level of interest rates. The Adviser considers both credit risk
and market risk in making investment decisions for the Realty Growth Fund.
Foreign Investments
The Realty Growth Fund may invest up to 10% of its total assets in equity and
debt securities of foreign real estate companies. See "Foreign Real Estate
Companies and Associated Risks" in the Statement of Additional Information.
Repurchase Agreements
Each Fund may enter into repurchase agreements in order to earn a return on
temporarily available cash. Repurchase agreements are transactions in which an
institution sells the Fund a security at one price, subject to the Fund's
obligation to resell and the selling institution's obligation to repurchase that
security at a higher price normally within a seven day period. There may be
delays and risks of loss if the seller is unable to meet its obligation to
repurchase.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed upon price, date and interest
payment. When a Fund enters into reverse repurchase transactions, securities of
a dollar amount equal in value to the securities subject to the agreement will
be maintained in a segregated account with the Fund's custodian. The segregation
of assets could impair the Fund's ability to meet it current obligations or
impede investment management if a large portion of the Fund's assets are
involved. Reverse repurchase agreements are considered to be a form of
borrowing.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements and in order to generate
additional income, each Fund may lend its portfolio securities to broker-dealers
and other institutional borrowers. Such loans may be callable at any time and
must be continuously secured by collateral (cash or U.S. Government securities)
in an amount not less than the market value, determined daily, of the securities
loaned. It is intended that the value of securities loaned by a Fund would not
exceed 30% of the Fund's net assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, a Fund could experience
delays in recovering either the securities lent or cash. The Fund could
experience a loss to the extent that the value of the securities lent has
increased or the value of the securities purchased has decreased in the
meantime.
Illiquid Securities
Each Fund may invest up to 15% of its net assets in illiquid securities. An
illiquid security is any security that may not be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued the investment. The absence of a trading market can
make it difficult to ascertain a market value for illiquid securities. The Board
of Trustees of the Trust has ultimate responsibility of ascertaining a fair
value for illiquid securities in which a Fund invests. Disposing of illiquid
securities may involve time-consuming negotiation and legal expenses, and it may
be difficult or impossible for the Fund to sell them promptly at an acceptable
price. Illiquid securities may include privately placed restricted securities
for which no institutional market exists.
Restricted Securities and Private Placements. Each Fund may purchase
restricted securities that are not registered for sale to the general public,
but which can be resold to "qualified institutional buyers." Qualified
institutional buyers must meet certain size tests. Institutional trading in
restricted securities is relatively new, and the liquidity of a Fund's
investments could be impaired if trading declines. The Board of Trustees of the
Trust will determine the liquidity of such restricted securities, based on the
trading market for the specific security. Provided that the Board retains
oversight, the Board may delegate this task to the Adviser. If the Board or the
Adviser determines that a sufficient trading market in such securities exists,
restricted securities will not be treated as illiquid securities for purposes of
a Fund's investment limitations.
"When-Issued" Securities
In order to ensure the availability of suitable securities, each Fund may
purchase securities on a "when-issued" or on a "forward delivery" basis, which
means that the securities would be delivered to a Fund at a future date beyond
customary settlement time. Under normal circumstances, the Fund takes delivery
of the securities. In general, a Fund does not pay for the securities until
received and does not start earning interest until the contractual settlement
date. While awaiting delivery of the securities, a Fund establishes a segregated
account consisting of cash, cash equivalents or high quality debt securities
equal to the amount of the Fund's commitments to purchase "when-issued"
securities. Furthermore, in purchasing securities on a "when-issued" basis, the
Fund bears the risk that the value of the securities at the time of its purchase
may be lower than the cost which the Fund must pay for the securities. An
increase in the percentage of a Fund's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net asset
value.
Limitations and Risks Associated with Transactions in Options and Futures
Contracts
Each Fund may employ certain management techniques including options on
securities indices, futures contracts and options on futures contacts. Each of
these management techniques involves transaction costs as well as (1) liquidity
risk that contractual positions cannot be easily closed out in the event of
market changes or generally in the absence of a liquid secondary market, (2)
correlation risk that changes in the value of hedging positions may not match
the securities market fluctuations intended to be hedged, and (3) market risk
that an incorrect prediction of securities prices by the Adviser may cause the
Fund to perform less well than if such positions had not been entered. The
ability to terminate over-the-counter options is more limited than with exchange
traded options and may involve the risk that the counter-party to the Option
will not fulfill its obligations. A Fund will treat purchased over-the-counter
options as illiquid securities. The use of options and futures contracts are
highly specialized activities which involve investment techniques and risks that
are different from those associated with ordinary portfolio transactions. The
loss that may be incurred by a Fund in entering into futures contracts and
written options thereon is potentially unlimited. Except as set forth below
under "Futures Contracts and Options on Futures Contracts," there is no limit on
the percentage of a Fund's assets that may be invested in futures contracts and
related options. A Fund may not invest more than 5% of its total assets in
purchased options other than protective put options.
A Fund's transactions in options, futures contracts and options on futures
contracts may be limited by the requirements for qualification of the Fund as a
regulated investment company for tax purposes. See "Tax Status" in the Statement
of Additional Information.
Options on Securities Indices. Each Fund may purchase put and call options
on securities indices that are based on securities in which it may invest to
manage cash flow and to manage its exposure to stocks instead of or in addition
to, buying and selling stock. A Fund may also purchase options in order to hedge
against risks of market-wide price fluctuations.
A Fund may purchase put options in order to hedge against an anticipated decline
in securities prices that might adversely affect the value of the Fund's
portfolio securities. If the Fund purchases a put option on a securities index,
the amount of the payment it would receive upon exercising the option would
depend on the extent of any decline in the level of the securities index below
the exercise price. Such payments would tend to offset a decline in the value of
the Fund's portfolio securities. However, if the level of the securities index
increases and remains above the exercise price while the put option is
outstanding, the Fund will not be able to profitably exercise the option and
will lose the amount of the premium and any transaction costs. Such loss may be
partially offset by an increase in the value of the Fund's portfolio securities.
A Fund may purchase call options on securities indices in order to remain fully
invested in a particular stock market or to lock in a favorable price on
securities that it intends to buy in the future. If the Fund purchases a call
option on a securities index, the amount of the payment it receives upon
exercising the option depends on the extent of an increase in the level of other
securities indices above the exercise price. Such payments would in effect allow
the Fund to benefit from securities market appreciation even though it may not
have had sufficient cash to purchase the underlying securities. Such payments
may also offset increases in the price of securities that the Fund intends to
purchase. If, however, the level of the securities index declines and remains
below the exercise price while the call option is outstanding, the Fund will not
be able to exercise the option profitably and will lose the amount of the
premium and transaction costs. Such loss may be partially offset by a reduction
in the price the Fund pays to buy additional securities for its portfolio.
A Fund may sell an option it has purchased or a similar option prior to the
expiration of the purchased option in order to close out its position in an
option which it has purchased. The Fund may also allow options to expire
unexercised, which would result in the loss of the premium paid.
Futures Contracts and Options on Futures Contracts. To hedge against
changes in securities prices or interest rates, each Fund may purchase and sell
various kinds of futures contracts, and purchase and write call and put options
on any of such futures contracts. A Fund may also enter into closing purchase
and sale transactions with respect to any of such contracts and options. The
futures contracts may be based on various securities and other financial
instruments and indices. A Fund will engage in futures and related options
transactions for bona fide hedging or other non-hedging purposes as are
permitted by regulations of the Commodity Futures Trading Commission.
A Fund may not purchase or sell non-hedging futures contracts or purchase or
sell related non-hedging options, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial margin
deposits on the Fund's existing non-hedging futures and related non-hedging
options positions and the amount of premiums paid for existing non-hedging
options on futures (net of the amount the positions are "in the money") would
exceed 5% of the market value of the Fund's total assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities and currencies, require the
Fund to segregate assets to cover such contracts and options.
____________
(1) Rates all governmental bodies having $1,000,000 or more of debt
outstanding, unless adequate information is not available.
<PAGE>
- --------------------------------------------------------------------------------
THE GRANDVIEW FUNDS
- --------------------------------------------------------------------------------
Series of GrandViewSM Investment Trust
PROSPECTUS
August 1, 1998
GrandView S&P(R) REIT Index Fund
GrandView Realty Growth Fund
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-773-3863
INVESTMENT ADVISER
Grandview Advisers, Inc.
Post Office Box 164
East Glastonbury, Connecticut 06025-0164
DISTRIBUTOR
Capital Investment Group, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
GrandView S&P(R) REIT Index Fund
GrandView Realty Growth Fund
August 1, 1998
Series of
GrandViewSM Investment Trust
107 North Washington Street,
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Telephone 1-800-773-3863
Table of Contents
1. THE FUNDS............................................................... 2
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................ 2
3. PERFORMANCE INFORMATION................................................. 11
4. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL PURCHASE AND REDEMPTION INFORMATIO............... 12
5. MANAGEMENT.............................................................. 14
6. PORTFOLIO TRANSACTIONS.................................................. 20
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES.................... 21
8. CERTAIN ADDITIONAL TAX MATTERS.......................................... 22
9. SPECIAL SHAREHOLDER SERVICES............................................ 23
10. FINANCIAL STATEMENTS.............................................. Attached
GrandViewSM Investment Trust (the "Trust") is an open-end, registered investment
company offering two mutual funds which are described in this Statement of
Additional Information: GrandView S&P(R) REIT Index Fund and GrandView Realty
Growth Fund (the "Funds"). The GrandView Realty Growth Fund is a non-diversified
fund. The address and telephone number of the Trust are 107 North Washington
Street, P.O. Drawer 69, Rocky Mount, North Carolina 27803, 1-800-773-3863.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED
BY, ANY BANK OR INSURED DEPOSITARY INSTITUTION, NOR ARE THEY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY. INVESTMENTS IN MUTUAL FUNDS INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Trust's
Prospectus, dated the same date as this Statement of Additional Information, by
which shares of the Funds are offered. This Statement of Additional Information
should be read in conjunction with the Prospectus, a copy of which may be
obtained by an investor without charge by contacting the Funds at
1-800-773-3863.
================================================================================
On July 1, 1998, the Board of Trustees of the GrandViewSM Investment Trust
approved a plan to reorganize the Funds of the Trust into a new series of the
FBR Family of Funds to be called the FBR Realty Growth Fund. The FBR Realty
Growth Fund will have substantially identical objectives and policies to those
of the GrandView Realty Growth Fund, as described in this prospectus. Management
of the FBR Realty Growth Fund will be by FBR Advisers, Inc. who will hire, as
employees, the same personnel who are managing the GrandView Realty Growth Fund,
as described in this prospectus. This Plan of Reorganization will be submitted
to shareholders of the GrandView Realty Growth Fund and the GrandView S&P(R)
REIT Index Fund for consideration at a special shareholder meeting scheduled for
mid-September. There can no assurance that this Plan of Reorganization will be
completed. Further information can be found in proxy material for the special
meeting, which will be sent to shareholders, or by calling GrandView Advisers,
Inc. at 860-633-4301.
================================================================================
This Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by an
effective prospectus.
<PAGE>
1. THE FUNDS
GrandViewSM Investment Trust (the "Trust") is an open-end management investment
company that was organized as a business trust under the laws of the
Commonwealth of Massachusetts on February 6, 1995. This Statement of Additional
Information describes shares of the GrandView S&P(R) REIT Index Fund ("REIT
Index Fund") and the GrandView Realty Growth Fund ("Realty Growth Fund"), which
are series of the Trust. References in this Statement of Additional Information
to the "Prospectus" are to the Trust's Prospectus, dated the same date as this
Statement of Additional Information, by which shares of the Funds are offered.
Organized in 1995, the Funds have no prior operating history.
GrandView Advisers, Inc. (the "Adviser") is investment adviser to each of the
Funds. The Adviser manages the investments of the Funds from day to day in
accordance with each Fund's investment objective and policies. The selection of
investments for the Funds and the way they are managed depend on the conditions
and trends in the economy and the financial marketplaces.
The Board of Trustees of the Trust provides broad supervision over the affairs
of the Funds. The Nottingham Company ("Nottingham" or the "Administrator"), the
administrator and fund accounting agent of each Fund, supervises the overall
administration of the Funds. North Carolina Shareholder Services, LLC (the
"Transfer Agent") serves as dividend disbursing and transfer agent of each Fund.
Shares of the Funds are continuously sold by Capital Investment Group, Inc., the
Funds' distributor ("Capital Investment Group" or the "Distributor"). Shares of
each Fund are sold at net asset value, plus any applicable sales charge. The
sales charge may be reduced on purchases involving substantial amounts and may
be eliminated in certain circumstances. The Trust has adopted a Distribution
Plan (the "Distribution Plan") in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), which provides for
the possible payment, as approved by the Board of Trustees, of distribution
and/or service fees from each Fund to the Distributor and others to compensate
and reimburse them for activities intended to result in the sale of shares of
the Fund and/or the servicing of shareholder accounts.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives
The REIT Index Fund and the Realty Growth Fund seek both current income and
long-term growth of capital. Each Fund invests primarily in securities of real
estate investment trusts ("REITs") and other real estate industry companies. The
Funds differ in the degree to which they emphasize active or passive account
management and employ different policies to achieve their objectives.
The investment objective, effective as of January 1, 1998, of the REIT Index
Fund is to provide its investors with investment results corresponding to the
performance of the S&P REIT Index by investing in the stocks included in the
Index. The primary investment objective of the Realty Growth Fund is long-term
growth of capital. Current income is a secondary objective.
The investment objective of each Fund may be changed without approval by that
Fund's shareholders, but shareholders will be given written notice at least 30
days before any change is implemented. Of course, there can be no assurance that
either Fund will achieve its investment objective.
Investment Policies
The Prospectus contains a discussion of the various types of securities in which
each Fund may invest and the risks involved in such investments. The following
supplements the information contained in the Prospectus concerning the
investment objective, policies and techniques of each Fund.
The investment objective of the REIT Index Fund is to provide investment results
corresponding to the performance of the S&P REIT Index (the "Index") by
investing in the stocks included in the Index. The Fund attempts to duplicate
the investment results of the Index, which is made up of approximately 100
stocks constituting a representative sample of all publicly-traded REITs.
REITs pool investors' funds for investment primarily in income producing real
estate or real estate related loans or interests. A REIT is not taxed on income
distributed to its shareholders or unitholders if it complies with regulatory
requirements relating to its organization, ownership, assets and income and a
regulatory requirement that it distribute to its shareholders or unitholders at
least 95% of its taxable income for each taxable year. Generally, REITs can be
classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest
the majority of their assets directly in real property and derive their income
primarily from rents and capital gains from appreciation realized through
property sales. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive their income primarily from
interest payments. Mortgage REITs are sensitive to the credit quality of the
underlying borrowers. Hybrid REITs combine the characteristics of both Equity
and Mortgage REITs. The value of REITs may be affected by management skill, cash
flow and tax and regulatory requirements.
The investment objective of the Realty Growth Fund is long-term growth of
capital. Current income is a secondary objective. In selecting investments for
the Fund, the Adviser will emphasize equity securities of the real estate
industry which it believes exhibit above average growth prospects. Such
securities may include securities of real estate industry companies or REITs
that are large, well capitalized, and in favor; real estate industry companies
or REITs that are out of favor and/or the Adviser believes are undervalued; and
real estate industry companies or REITs that the Adviser believes have
significant "turnaround" potential. In determining whether a security meets any
of these requirements, the Adviser may take into account price-earnings ratios,
cash flows, relationships of asset value to market prices of the securities,
interest or dividend payment histories and other factors which it believes to be
relevant. The Adviser may determine that a company has "turnaround" potential
based on, for example, changes in management or financial restructurings. The
Fund's performance depends on conditions in the real estate industry.
For purposes of the Fund's investments, a "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate. The equity securities in
which the Fund will invest may include common stocks, shares of beneficial
interest and securities with common stock characteristics, such as preferred
stock, warrants and debt securities convertible into common stock. The debt
securities in which the Fund will invest may include bonds, notes and other
short-term debt obligations.
Because the Funds invest primarily in the real estate industry, their
investments may be subject to certain risks associated with the direct ownership
of real estate. These risks include: declines in the value of real estate; risks
related to general and local economic conditions, overbuilding and increased
competition; increases in property taxes and operating expenses; and variations
in rental income. For more information on these and other risks of investing in
the real estate industry, see "INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
- - Risks of Investing" in the Prospectus.
The policies described above and those described below are not fundamental and
may be changed without shareholder approval.
Mortgage-Backed Securities
The Realty Growth Fund may invest in securities that directly or indirectly
represent participations in, or are collateralized by and payable from, mortgage
loans secured by real property ("Mortgage-Backed Securities").
Mortgage-Backed Securities represent pools of mortgage loans assembled for sale
to investors by various governmental agencies such as the Government National
Mortgage Association ("Ginnie Mae") and government-related organizations such as
the Federal National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"), as well as by nongovernmental issuers
such as commercial banks, savings and loan institutions, mortgage bankers, and
private mortgage insurance companies. Although certain Mortgage-Backed
Securities are guaranteed by a third party or otherwise similarly secured, the
market value of the security, which may fluctuate, is not so secured. If the
Adviser purchases a Mortgage-Backed Security at a premium, that portion may be
lost if there is a decline in the market value of the security whether resulting
from changes in interest rates or prepayments in the underlying mortgage
collateral. As with other interest-bearing securities, the prices of such
securities are inversely affected by changes in interest rates. However, though
the value of a Mortgage-Backed Security may decline when interest rates rise,
the converse is not necessarily true since in periods of declining interest
rates the mortgages underlying the securities are prone to prepayment. For this
and other reasons, a Mortgage-Backed Security's stated maturity may be shortened
by unscheduled prepayments on the underlying mortgages and, therefore, it is not
possible to predict accurately the securities' return to the Realty Growth Fund.
In addition, regular payments received in respect of Mortgage-Backed Securities
include both interest and principal. No assurance can be given as to the return
the Realty Growth Fund will receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue Mortgage-Backed Securities
and among the securities that they issue. Mortgage-Backed Securities issued by
Ginnie Mae include Ginnie Mae Mortgage Pass-Through Certificates which are
guaranteed as to the timely payment of principal and interest by Ginnie Mae.
This guarantee is backed by the full faith and credit of the United States.
Ginnie Mae is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Mae certificates also are supported by
the authority of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-Backed Securities issued by Fannie Mae
include Fannie Mae Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are guaranteed as to timely payment of the principal and
interest by Fannie Mae. Fannie Maes are solely the obligations of Fannie Mae and
are not backed by or entitled to the full faith and credit of the United States.
Fannie Mae is a government-sponsored organization owned entirely by private
stockholders. Mortgage-Backed Securities issued by Freddie Mac include Freddie
Mac Mortgage Participation Certificates (also known as "Freddie Macs" or
"PC's"). Freddie Mac is a corporate instrumentality of the United States,
created pursuant to an Act of Congress, which is owned entirely by Federal Home
Loan Banks. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Banks and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by Freddie Mac. Freddie Mac
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When Freddie Mac does not guarantee
timely payment of principal, Freddie Mac may remit the amount due on account of
its guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
The Realty Growth Fund may also invest in Mortgage-Backed Securities which are
collateralized mortgage obligations structured on pools of mortgage pass-through
certificates or mortgage loans ("CMOs" and "REMICs") and derivative
multiple-class mortgage-backed securities ("Stripped Mortgage-Backed Securities"
or "SMBSs").
Short-Term Investments
For temporary defensive purposes, the Realty Growth Fund may invest up to 100%
of its total assets in short-term investments. Each Fund (including the REIT
Index Fund) may also make short-term investments for liquidity purposes (e.g.,
in anticipation of redemptions or purchases of securities). The Funds may invest
in short-term investments consisting of corporate commercial paper and other
short-term commercial obligations, in each case rated or issued by companies
with similar securities outstanding that are rated Prime-l, Aa or better by
Moody's Investors Service, Inc. ("Moody's") or A-1, AA or better by Standard &
Poor's Ratings Group ("Standard & Poor's"); obligations (including certificates
of deposit, time deposits, demand deposits and bankers' acceptances) of banks
with securities outstanding that are rated Prime-l, Aa or better by Moody's, or
A-1, AA or better by Standard & Poor's; obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities with remaining maturities
not exceeding 18 months; securities of registered investment companies, subject
to the provisions of the 1940 Act; and repurchase agreements. These investments
may have a lower yield than would be available from investments with a lower
quality or longer term.
Lower Rated Debt Securities
The Realty Growth Fund may invest in debt securities which are rated Caa or
higher by Moody's or CCC or higher by Standard & Poor's or Fitch Investors
Service, Inc. ("Fitch") or equivalent unrated securities. However, the Realty
Growth Fund may not invest more than 25% of its assets in debt securities rated
lower than Baa by Moody's or BBB by Standard & Poor's or Fitch or securities not
rated by Moody's, Standard & Poor's or Fitch which the Adviser deems to be of
equivalent quality. Bonds rated BB or Ba or below (or comparable unrated
securities) are commonly referred to as "junk bonds" and are considered
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment standing and be in default. As a result, investment in such
bonds will entail greater risks than those associated with investment in
investment-grade bonds (i.e., bonds rated BBB or better by Standard & Poor's or
Fitch or Baa or better by Moody's).
An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Factors having an adverse impact on the market value of lower rated
securities will have an adverse effect on the Realty Growth Fund's net asset
value to the extent it invests in such securities. In addition, the Realty
Growth Fund may incur additional expenses to the extent it is required to seek
recovery upon a default in payment of principal or interest on its portfolio
holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on the
Realty Growth Fund's ability to dispose of a particular security when necessary
to meet its liquidity needs. Under adverse market or economic conditions, the
secondary market for junk bond securities could contract further, independent of
any specific adverse changes in the condition of a particular issuer. As a
result, the Adviser could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities were
widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the Realty Growth Fund's net asset value.
Since investors generally perceive that there are greater risks associated with
the medium to lower rated securities of the type in which the Realty Growth Fund
may invest, the yields and prices of such securities may tend to fluctuate more
than those for higher rated securities. In the lower quality segments of the
fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities market
resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The Adviser will
attempt to reduce these risks through diversification of the Realty Growth
Fund's portfolio and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends in corporate
developments.
Foreign Real Estate Companies and Associated Risks
The Realty Growth Fund may invest in securities of non-U.S. real estate
companies. The risks of investing in real estate and real estate companies are
described in the Prospectus and above under "Investment Policies." Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in U.S. investments.
For example, the value of these securities fluctuates based on the relative
strength of the U.S. dollar. In addition, there is generally less publicly
available information about non-U.S. issuers, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Non-U.S.
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to U.S. issuers.
Investments in securities of non-U.S. issuers also involve the risk of possible
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
Fund, political or financial instability or diplomatic and other developments
which would affect such investments. Further, economies of other countries or
areas of the world may differ favorably or unfavorably from the economy of the
U.S.
It is anticipated that in most cases the best available market for securities of
non-U.S. real estate companies would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. real estate companies (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies. Non-U.S. security trading practices,
including those involving securities settlement where Realty Growth Fund assets
may be released prior to receipt of payments, may expose the Realty Growth Fund
to increased risk in the event of a failed trade or the insolvency of a non-U.S.
broker-dealer. In addition, non-U.S. brokerage commissions are generally higher
than commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
non-U.S. securities exchanges, brokers and listed companies than in the U.S.
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other forms of depositary receipts for
securities of non-U.S. issuers provide an alternative method for the Realty
Growth Fund to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
The Realty Growth Fund may invest in securities of non-U.S. real estate
companies that impose restrictions on transfer within the United States or to
United States persons. Although securities subject to such transfer restrictions
may be marketable abroad, they may be less liquid than securities of non-U.S.
real estate companies of the same class that are not subject to such
restrictions.
Repurchase Agreements
Each Fund may invest in repurchase agreements collateralized by securities in
which that Fund may otherwise invest. Repurchase agreements are agreements by
which the Fund purchases a security and simultaneously commits to resell that
security to the seller (which is usually a member bank of the U.S. Federal
Reserve System or a member firm of the New York Stock Exchange (or a subsidiary
thereof)) at an agreed-upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed-upon market rate of interest which is unrelated to the coupon
rate or maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, for which the obligation
is in effect secured by the value of the underlying security, usually U.S.
Government or Government agency issues. Under the 1940 Act, repurchase
agreements may be considered to be loans by the buyer. The Fund's risk is
limited to the ability of the seller to pay the agreed-upon amount on the
delivery date. If the seller defaults, the underlying security constitutes
collateral for the seller's obligation to pay although that Fund may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered into
by the Funds are fully collateralized, with such collateral being marked to
market daily.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed upon price, date and interest
payment. When the Fund enters into reverse repurchase transactions, securities
of a dollar amount equal in value to the securities subject to the agreement
will be maintained in a segregated account with the Fund's custodian. The
segregation of assets could impair the Fund's ability to meet its current
obligations or impede investment management if a large portion of the Fund's
assets are involved. Reverse repurchase agreements are considered to be a form
of borrowing.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements and in order to generate
income, each Fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks of
the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. The Fund would have the right to call a
loan and obtain the securities loaned at any time on customary industry
settlement notice (which will not usually exceed five days). During the
existence of a loan, the Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation based on investment of the collateral. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially. However, the
loans would be made only to entities deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the consideration which can
be earned currently from loans of this type justifies the attendant risk. If the
Adviser determines to make loans, it is not intended that the value of the
securities loaned by the Fund would exceed 30% of the value of its net assets.
Restricted Securities and Illiquid Investments
The Trust may purchase securities for the Funds that are not registered
("restricted securities") under the Securities Act of 1933 (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. Provided that a dealer or institutional
trading market in such securities exists, these restricted securities are not
treated as illiquid securities for purposes of the Fund's investment
limitations.
The Trust does not invest more than 15% of either Fund's net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restrictions on resale and restricted
securities, unless the Trustees determine, based on the trading markets for the
specific restricted security, that it is liquid. The Trust's Trustees may adopt
guidelines and delegate to the Adviser the daily function of determining and
monitoring liquidity of restricted securities. The Trust's Trustees, however,
retain sufficient oversight and are ultimately responsible for the
determinations.
"When-Issued" Securities
Each Fund may purchase securities on a "when-issued" or on a "forward delivery"
basis. It is expected that, under normal circumstances, the applicable Fund
would take delivery of such securities. When the Fund commits to purchase a
security on a "when-issued" or on a "forward delivery" basis, it sets up
procedures consistent with SEC policies. Since those policies currently require
that an amount of the Fund's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, the Fund will always
have cash, cash equivalents or high quality debt securities sufficient to cover
any commitments or to limit any potential risk. However, even though the Funds
do not intend to make such purchases for speculative purposes and intend to
adhere to the provisions of SEC policies, purchases of securities on such bases
may involve more risk than other types of purchases. For example, the Fund may
have to sell assets which have been set aside in order to meet redemptions.
Also, if the Adviser determines it is advisable as a matter of investment
strategy to sell the "when-issued" or "forward delivery" securities, the Fund
would be required to meet its obligations from the then available cash flow or
the sale of securities, or, although it would not normally expect to do so, from
the sale of the "when-issued" or "forward delivery" securities themselves (which
may have a value greater or less than the Fund's payment obligation).
Options and Futures Contracts
To hedge against changes in securities prices, each Fund may purchase and sell
various kinds of futures contracts, and purchase and write (sell) call and put
options on any of such futures contracts. Each Fund may also purchase put and
call options on securities indices that are based on securities in which it may
invest. The futures contracts may be based on various securities (such as U.S.
Government securities), securities indices and other financial instruments and
indices. A Fund may engage in futures and related options transactions for bona
fide hedging and non-hedging purposes as described below. All futures contracts
entered into by a Fund are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the Commodity Futures Trading Commission (the "CFTC")
or on foreign exchanges.
A futures contract may generally be described as an agreement between two
parties to buy and sell particular financial instruments for an agreed price
during a designated month (or to deliver the final cash settlement price, in the
case of a contract relating to an index or otherwise not calling for physical
delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can seek
to offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, a Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. A clearing corporation associated with the exchange on which futures
on securities are traded guarantees that, if still open, the sale or purchase
will be performed on the settlement date.
Hedging, by use of futures contracts, seeks to establish with more certainty the
effective price and rate of return on portfolio securities and securities that a
Fund owns or proposes to acquire. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts in order to hedge
against an anticipated rise in interest rates that would adversely affect the
value of the Fund's portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by a Fund or securities
with characteristics similar to those of a Fund's portfolio securities. If, in
the opinion of the Adviser, there is a sufficient degree of correlation between
price trends for a Fund's portfolio securities and futures contracts based on
securities indices, a Fund may also enter into such futures contracts as part of
its hedging strategy. Although under some circumstances prices of securities in
a Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
The acquisition of put and call options on futures contracts will give a Fund
the right (but not the obligation) for a specified price to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, a Fund obtains the
benefit of the futures position if prices move in a favorable direction but
limits its risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium, to sell a futures
contract, which may have a value higher than the exercise price. Conversely, the
writing of a put option on a futures contract generates a premium which may
partially offset an increase in the price of securities that a Fund intends to
purchase; however, a Fund becomes obligated to purchase a futures contract which
may have a value lower than the exercise price. Thus, the loss incurred by a
Fund in writing options on futures is potentially unlimited and may exceed the
amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
A Fund may use options on futures contracts for bona fide hedging or non-hedging
purposes as discussed below.
A Fund will engage in futures and related options transactions only for bona
fide hedging or non-hedging purposes in accordance with CFTC regulations which
permit investment companies registered under the 1940 Act to engage in such
transactions without requiring their sponsors to be registered as commodity pool
operators. No Fund is permitted to engage in speculative futures trading. A Fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or in securities which it expects to
purchase. Except as stated below, a Fund's futures transactions will be entered
into for traditional hedging purposes -- i.e., futures contracts will be sold to
protect against a decline in the price of securities that the Fund owns, or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. In particular cases, when it is
economically advantageous for a Fund to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.
No Fund may purchase or sell non-hedging futures contracts or purchase or sell
related non-hedging options, except for closing purchase or sale transactions,
if immediately thereafter the sum of the amount of initial margin deposits on
the Fund's existing non-hedging futures and related non-hedging options
positions and the amount of premiums paid for existing non-hedging options on
futures (net of the amount the positions are "in the money") would exceed 5% of
the market value of the Fund's total assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities and currencies, require the
Fund to segregate assets to cover such contracts and options.
Transaction costs associated with futures contracts and related options involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require a Fund
to segregate assets to cover such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for a Fund than if it had not entered into any
futures contracts or options transactions. In the event of an imperfect
correlation between a futures position and a portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.
Investment Restrictions
Fundamental Restrictions
The Trust, on behalf of the Funds, has adopted the following policies which may
not be changed with respect to either Fund without approval by holders of a
majority of the outstanding voting securities of that Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding voting securities of the respective Fund present at a
meeting at which the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (ii) more than
50% of the outstanding voting securities of the respective Fund. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act.
A Fund may not:
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow from banks and enter into reverse
repurchase agreements in an amount not to exceed 33 1/3% of the current
value of its respective net assets, including the amount borrowed (and
no Fund may purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund, taken at market value). It
is intended that a Fund would borrow money only from banks and only to
accommodate requests for the repurchase of shares of the Fund while
effecting an orderly liquidation of portfolio securities.
(2) Make short sales of securities or purchase securities on margin, except
that the Trust may purchase and sell various types of futures contracts
and may obtain short term credits as necessary for the clearance of
security transactions.
(3) Underwrite securities issued by other persons, except to the extent
that the Fund may be considered an underwriter within the meaning of
the Securities Act of 1933 in the disposition of restricted securities.
(4) Make loans to other persons except (a) through the lending of its
portfolio securities, but not in excess of 33 1/3% of the Fund's net
assets, (b) through the use of fixed time deposits or repurchase
agreements or the purchase of short-term obligations or (c) by
purchasing all or a portion of an issue of debt securities; for
purposes of this paragraph 4 the purchase of short-term commercial
paper or a portion of an issue of debt securities which are part of an
issue to the public shall not be considered the making of a loan.
(5) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts in the ordinary course of business, except that the Fund may
purchase and sell mortgage-related securities and may hold and sell
real estate acquired as a result of the ownership of securities by the
Fund.
(6) Issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, except as appropriate to
evidence a debt incurred without violating Investment Restriction (1)
above.
(7) In the case of the REIT Index Fund, with respect to 75% of its total
assets, purchase securities of any issuer if such purchase at the time
thereof would cause more than 5% of the Fund's assets (taken at market
value) to be invested in the securities of such issuer (other than
securities or obligations issued or guaranteed by the United States
government or any agency or instrumentality thereof); provided that,
for purposes of this restriction the issuer of an option or futures
contract shall not be deemed to be the issuer of the security or
securities underlying such contract.
(8) In the case of the REIT Index Fund, with respect to 75% of its total
assets, purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such
issuer to be held by the Fund.
(9) Invest 25% or more of its assets in securities of issuers in any one
industry (other than securities or obligations issued or guaranteed by
the United States government or any agency or instrumentality thereof),
except that it will invest at least 25% of its assets in securities of
issuers in the real estate industry.
Non-Fundamental Restrictions
Each Fund does not as a matter of operating policy: (i) borrow money for any
purpose in excess of 10% of the net assets of the Fund (taken at cost) (the Fund
will not purchase any securities for the Fund at any time at which borrowings
exceed 5% of the total assets of the Fund (taken at market value)), (ii) sell
any security which the Fund does not own unless by virtue of the ownership of
other securities there is at the time of sale a right to obtain securities,
without payment of further consideration, equivalent in kind and amount to the
securities sold and provided that if such right is conditional the sale is made
upon the same conditions, (iii) invest for the purpose of exercising control or
management, (iv) purchase securities issued by any registered investment
company, except by purchase in the open market where no commission or profit to
a sponsor or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market, is
part of a plan of merger or consolidation; provided, however, that the Fund will
not purchase the securities of any registered investment company if such
purchase at the time thereof would cause more than 10% of the total assets of
the Fund (taken in each case at the greater of cost or market value) to be
invested in the securities of such issuers or would cause more than 3% of the
outstanding voting securities of any such issuer to be held for the Fund, (v)
invest more than 15% of the net assets of the Fund in securities that are not
readily marketable or which are subject to legal or contractual restrictions on
resale including debt securities for which there is no established market and
fixed time deposits and repurchase agreements maturing in more than seven days,
(vi) purchase or retain any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust, or is an officer or director of the Adviser, if after the purchase of
the securities of such issuer by the Fund, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value, (vii) make short sales of
securities, except that the Trust may purchase and sell various types of futures
contracts and may obtain short term credits as necessary for the clearance of
security transactions, (viii) invest more than 5% of the Fund's net assets in
warrants (valued at the lower of cost or market), but not more than 2% of the
Fund's net assets may be invested in warrants not listed on the New York Stock
Exchange or the American Stock Exchange, (ix) with respect to 50% of the Fund's
total assets, invest more than 5% of its total assets in the securities of any
one issuer and, as to the remaining 50% of the Fund's total assets, invest more
than 25% in the securities of any one issuer, (x) purchase securities of any
issuer if, as to 75% of the assets of the Fund at the time of purchase, more
than 10% of the voting securities of any issuer would be held by the Fund, or
(xi) invest more than 15% of the Fund's total assets in the securities of
issuers which together with any predecessors (including public and private
predecessor operating companies) have a record of less than three years of
continuous operating or securities of issuers which are restricted as to
disposition, despite any determinations made by the Board of Trustees that such
securities are liquid.
These policies are not fundamental and may be changed by each Fund without the
approval of its shareholders in response to changes in state and federal
requirements.
Percentage Restrictions
If a percentage restriction on investment or utilization of assets set forth
above or referred to in the Prospectus is adhered to at the time an investment
is made or assets are so utilized, a later change in percentage resulting from
changes in the value of the securities held for a Fund generally will not be
considered a violation of policy. If the limitation on illiquid securities is
exceeded, however, through a change in values, net assets, or other
circumstances, the affected Fund will take appropriate steps to protect
liquidity by changing its portfolio.
3. PERFORMANCE INFORMATION
From time to time, the total return and yield of each Fund may be quoted in
advertisements, sales literature, shareholder reports, or other communications.
A total rate of return quotation for each Fund is calculated for any period by
(a) dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains distributions declared during such
period with respect to a share held at the beginning of such period and with
respect to shares purchased with such dividends and capital gains distributions,
by (ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. Any annualized total rate of return quotation
is calculated by (x) adding 1 to the period total rate of return quotation
calculated above, (y) raising such sum to a power which is equal to 365 divided
by the number of days in such period, and (z) subtracting 1 from the result.
Total rates of return may also be calculated on investments at various sales
charge levels or at net asset value. Any performance data which is based on a
reduced sales charge or net asset value per share would be reduced if the
maximum sales charge were taken into account.
Any current yield quotation for a Fund consists of an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a 30
calendar day or one month period and is calculated by (a) raising to the sixth
power the sum of 1 plus the quotient obtained by dividing the Fund's net
investment income earned during the period by the product of the average daily
number of shares outstanding during the period that were entitled to receive
dividends and the maximum public offering price per share on the last day of the
period, (b) subtracting 1 from the result, and (c) multiplying the result by 2.
The average annual total return for the REIT Index Fund for the fiscal year
ended March 31, 1998, and for the period from commencement of operations (July
3, 1995) through March 31, 1998, was 12.07% and 16.94%, respectively. The
cumulative total return for such Fund from commencement of operations through
March 31, 1998, was 53.65%. These quotations assume the 3.0% maximum sales load
was deducted from the initial investment. Without the deduction of the 3.0%
maximum sales load, the average annual total return for the fiscal year ended
March 31, 1998, and from the commencement of operations through March 31, 1998,
for such Fund was 15.54% and 18.24%, respectively. The cumulative total return
for such Fund from commencement of operations through March 31, 1998, without
the deduction of the 3.0% maximum sales load, was 58.40%.
The average annual total return for the Realty Growth Fund for the fiscal year
ended March 31, 1998, and for the period from commencement of operations (July
3, 1995) through March 31, 1998, was 19.18% and 24.58%, respectively. The
cumulative total return for such Fund from commencement of operations through
March 31, 1998, was 82.81%. These quotations assume the maximum 4.5% sales load
was deducted from the initial investment. Without the deduction of the 4.5%
maximum sales load, the average annual total return for the fiscal year ended
March 31, 1998, and from the commencement of operations through March 31, 1998,
for such Fund was 24.80% and 26.69%, respectively. The cumulative total return
for such Fund from commencement of operations to March 31, 1998, without the
deduction of the 4.5% maximum sales load, was 91.43%.
These performance quotations should not be considered as representative of the
Fund's performance for any specific period in the future.
Each 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, each Fund may compare its performance to
the S&P 500 Index, as a comparison to the overall market, the Dow Jones Utility
Index, as a comparison to another income-oriented equity group, and the
GrandView REIT Index (see "Investment Policies" above), as a comparison to the
Funds' investment benchmark as described in the Prospectus. Each Fund may also
compare its performance to the National Association of Real Estate Investment
Trust's ("NAREIT") Total Return Index, as a comparison to the REIT market. Each
Fund may also compare its performance to the S&P Real Estate Investment Trust
Composite Price Index (the "S&P REIT Index" or the "Index"), as a comparison to
the REIT market. 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. Each Fund may also
occasionally cite statistics to reflect its volatility and risk. Each 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 that any Fund will experience the same
results. Performance comparisons may be useful to investors who wish to compare
a Fund's past performance to that of other mutual funds and investment products.
Of course, past performance is not a guarantee of future results.
Each 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, each 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 Funds' Prospectus to obtain a
more complete view of each Fund's performance before investing. Of course, when
comparing a 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 compute offering price. Advertisements and
other sales literature for each 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 each Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. Each 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). Each 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.
Each 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.
4. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The net asset value of each share of each Fund is determined each day during
which the New York Stock Exchange is open for trading (a "Business Day"). As of
the date of this Statement of Additional Information, the New York Stock
Exchange is open for trading every weekday except for the following holidays (or
the days on which they are observed): New Year's Day, Presidents' Day, Martin
Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. This determination of net asset value of
shares of a Fund is made once each day at the time trading closes on the New
York Stock Exchange (currently 4 p.m. New York time) by dividing the value of
each Fund's net assets (i.e., the value of its assets less its liabilities,
including expenses payable or accrued) by the number of shares of the Fund
outstanding at the time the determination is made. A share's net asset value is
effective for orders received by the Distributor prior to its calculation and
prior to the close of the Business Day on which such net asset value is
determined.
For the fiscal year ended March 31, 1998, the total expenses of the Funds after
fee waivers and expense reimbursements were $16,108 for the REIT Index Fund and
$33,678 for the Realty Growth Fund.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the principal exchange or market
where they are traded. Securities which have not traded on the date of
valuation, or securities for which sales prices are not generally reported, are
valued at the mean between the current bid and asked prices. Securities listed
on a non-U.S. exchange are valued at the last quoted sale price available before
the time when net assets are valued. Bonds and other fixed income securities
(other than short-term obligations) are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Trustees. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques that take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations (maturing in 60 days or less) are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures contracts are normally valued at the settlement price on the exchange on
which they are traded. Securities for which there are no such valuations are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.
Trading in securities on most non-U.S. exchanges and over-the-counter markets is
normally completed before the close of regular trading on the New York Stock
Exchange and may also take place on days on which the New York Stock Exchange is
closed. If events materially affecting the value of non-U.S. securities occur
between the time when the exchange on which they are traded closes and the time
when a Fund's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees.
Interest income on long-term obligations held for a Fund is determined on the
basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued less amortization of any premium.
Subject to compliance with applicable regulations, the Trust has reserved the
right to pay the redemption price of shares of each Fund, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares being
sold. If a holder of shares received a distribution in kind, that holder could
incur brokerage or other charges in converting the securities to cash.
Redemptions of shares of the REIT Index Fund made within six months of purchase
are subject to a redemption fee in the amount of 1% of the net asset value of
the shares redeemed. Redemptions of shares of the REIT Index Fund made between
six and twelve months after purchase will be subject to a redemption fee of
0.50% of the net asset value of the shares redeemed. No redemption fee is
imposed if the proceeds are immediately invested in shares of the Realty Growth
Fund, but a further redemption of shares of the Realty Growth Fund may result in
a redemption fee at the rate which would have been applicable if the shareholder
had continued to hold shares of the REIT Index Fund. Redemption fees may also be
waived or reduced for "omnibus" accounts or in other circumstances as described
in the Prospectus. All redemption fees are payable to the applicable Fund.
Redemption proceeds are normally paid by check within seven days after receipt
of a redemption request. However, the right of any shareholder to receive
payment with respect to any redemption may be suspended or the payment of the
redemption proceeds postponed during any period in which (a) trading in the
markets a Fund normally utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC, exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the New York Stock Exchange is closed (other than customary weekend and
holiday closings); or (c) the SEC has by order permitted such suspension.
Letter of Intent
If an investor anticipates purchasing sufficient shares to entitle the investor
to a quantity discount alone or in combination with any shares of other series
of the Trust within a 13-month period, the investor may obtain such shares at
the same reduced sales charge as though the total quantity were invested in one
lump sum by completing a Letter of Intent on the terms described below. Subject
to acceptance by the Distributor and the conditions mentioned below, each
purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent. The
shareholder must inform the Distributor that the Letter of Intent is in effect
each time shares are purchased. The shareholder makes no commitment to purchase
additional shares, but if his or her purchases within 13 months plus the value
of shares credited toward completion of the Letter of Intent do not total the
sum specified, an increased sales charge will apply as described below. A
purchase not originally made pursuant to a Letter of Intent may be included
under a subsequent Letter of Intent executed within 90 days of the original
purchase if the Distributor is informed in writing of this intent within the
90-day period. The value of shares of a Fund held prior to the commencement of a
Letter of Intent may be included, at their cost or maximum offering price
(whichever is higher), as a credit toward the completion of a Letter of Intent,
but the reduced sales charge applicable to the amount covered by such Letter is
applied only to new purchases. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion of the
Letter of Intent. The value of any shares redeemed or otherwise disposed of by
the purchaser prior to termination or completion of the Letter of Intent is
deducted from the total purchases made under such Letter.
If the investment specified in the Letter of Intent is not completed (either
prior to or by the end of the 13-month period), the Distributor will redeem,
within 20 days of the expiration of the Letter of Intent, an appropriate number
of the shares in order to realize the difference between the reduced sales
charge that would apply if the investment under the Letter of Intent had been
completed and the sales charge that would normally apply to the number of shares
actually purchased. By completing and signing the Letter of Intent, the
shareholder irrevocably appoints the Distributor his or her attorney to
surrender for redemption any or all shares purchased under the Letter of Intent
with full power of substitution in the premises.
Right of Accumulation
A shareholder qualifies for cumulative quantity discounts on the purchase of
shares when his or her new investment, together with the current offering price
value of all holdings of that shareholder in the Funds, reaches a discount
level. See "INFORMATION ABOUT FUND SHARES - How to Purchase Shares" in the
Prospectus for the sales charges on quantity discounts. A shareholder must
provide the Distributor with information to verify that the quantity sales
charge discount is applicable at the time the investment is made.
Exchange Privilege
Shares of each Fund for which payment has been received (i.e., an established
account) may be exchanged at their net asset value for shares of the other Fund.
No initial sales charge is imposed on shares being acquired through an exchange
unless the sales charge of the Fund being exchanged into is greater than the
current sales charge of the Fund (in which case an initial sales charge will be
imposed at a rate equal to the difference). No redemption fee is imposed on
shares being disposed of through an exchange; however, a redemption fee may
apply to redemptions of shares acquired through an exchange of shares of the
REIT Index Fund at the rate which would have been applicable if the shareholder
had continued to hold shares of the REIT Index Fund. Exchanges will be made only
after proper instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Distributor.
Each Exchange Request must be in proper form (see "How to Redeem Shares" in the
Prospectus), and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the shareholder's account. Each
exchange involves the redemption of the shares of a Fund to be exchanged and the
purchase at net asset value of the shares of the other Fund. Any gain or loss on
the redemption of the shares exchanged is reportable on the shareholder's
Federal income tax return, unless such shares were held in a tax-deferred
retirement plan or other tax-exempt account. If the Exchange Request is received
by the Distributor in writing or by telephone on any business day prior to the
time trading closes on the New York Stock Exchange, the exchange usually will
occur on that day if all the restrictions set forth above have been complied
with at that time. However, payment of the redemption proceeds by a Fund, and
thus the purchase of shares of the other Fund, may be delayed for up to seven
days if the Fund determines that such delay would be in the best interest of all
of its shareholders.
5. MANAGEMENT
The Trustees and officers of the Trust, their addresses and ages, and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate that those
Trustees are "interested persons" (as defined in the 1940 Act) of the Trust.
Trustees of the Trust
Winsor H. Aylesworth* (age 50) - President and Trustee of the Trust; President,
Treasurer, Director, and controlling shareholder, GrandView Advisers, Inc.
(since March, 1995); President, Director, and controlling shareholder, WHA
Enterprises, Inc. (since September, 1991); Executive Vice President, Loan Review
Department, Bank of Boston Connecticut (1990 - 1993). His address is 127
Grandview Drive, Glastonbury CT 06033.
Arthur Collins (age 68) - Trustee of the Trust; President, Collins Enterprises
LLC/Collins Development Corporation (since 1972); Director, Connecticut National
Bank (1986 - 1992). His address is 53 Forest Avenue, Old Greenwich, CT 06870.
Richard W. Jagolta (age 63) - Trustee of the Trust; Business Development
Manager, Polaroid Corporation (1957 - April, 1995). His address is 40 Blueridge
Avenue, Saugus, MA 01906.
Raymond H. Weaving (age 56) - Trustee of the Trust; Director of Lending,
Massachusetts Housing Investment Corporation (since November, 1993); Vice
President and Team Leader, Baybank Boston, Inc. (1992 - 1993); Consultant,
Malden Trust Co. (1991 - 1992). His address is 11 Perry Henderson Drive,
Framingham, MA 01701.
Officers of the Trust
Winsor H. Aylesworth (age 50) - President of the Trust; President, Treasurer,
Director, and controlling shareholder, GrandView Advisers, Inc. (since March,
1995); President, Director, and controlling shareholder, WHA Enterprises, Inc.
(since September, 1991); Executive Vice President, Loan Review Department, Bank
of Boston Connecticut (1990 - 1993). His address is 127 Grandview Drive,
Glastonbury CT 06033.
Lucille C. Carlson (age 39) - Vice President of the Trust; Executive Vice
President and Director, GrandView Advisers, Inc. (since March, 1995); Director
of Research, WHA Enterprises, Inc. (since July, 1993); Assistant Vice President,
Loan Review Department, Bank of Boston Connecticut (1991 - April, 1995). Her
address is 127 Grandview Drive, Glastonbury CT 06033.
David F. Wolf (age 50) - Vice President of the Trust; Executive Vice President
and Director, GrandView Advisers, Inc. (since March, 1995); Director of
Marketing, WHA Enterprises, Inc. (since July, 1993); Financial Planning
Consultant, John Hancock Financial Services, Inc. (1992 - May, 1995); real
estate developer (1991 - 1992). Mr. Wolf is a registered representative of the
Funds' Distributor, Capital Investment Group, Inc. His address is 127 Grandview
Drive, Glastonbury CT 06033.
C. Frank Watson III (age 27) - Secretary of the Trust; Vice President, The
Nottingham Company (since 1992). His address is 105 North Washington Street,
Rocky Mount, NC 27802.
Julian G. Winters (age 29) - Treasurer of the Trust; Legal and Compliance
Director, The Nottingham Company (since 1996); Operations Manager, Tar Heel
Medical (1993-1996). His address is 105 North Washington Street, Rocky Mount, NC
27802.
The Declaration of Trust of the Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Trust. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees of the
Trust, or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Compensation of Trustees and Officers
Each Trustee who is not an "interested person" of the Trust receives a retainer
fee of $25 per Fund per meeting, plus a fee per meeting based on the amount of
assets of each Fund. The asset-based fee is waived if Fund assets do not exceed
$5 million. For assets between $5 million and $10 million, the fee is $100 per
meeting per Fund ($50 per meeting for the REIT Index Fund). For assets between
$10 million and $25 million, the fee is $200 per meeting per Fund ($100 per
meeting for the REIT Index Fund). For assets between $25 million and $50
million, the fee is $400 per meeting per Fund ($200 per meeting for the REIT
Index Fund). For assets between $50 million and $75 million, the fee is $600 per
meeting per Fund ($300 per meeting for the REIT Index Fund). Finally, for assets
greater than $75 million, the fee is $800 per meeting per Fund ($400 per meeting
for the REIT Index Fund). In addition, a Trustee who is a member of the Audit or
Nominating Committee will be paid $500 for attendance at each meeting of such
committee not held in conjunction with a meeting of the Board of Trustees of the
Trust. The officers of the Trust will not receive compensation from the Trust
for performing the duties of their offices. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Compensation Table*
Pension Total
Aggregate Retirement Benefits Estimated Compensation
Compensation Accrued As Annual from the Trust
Name of Person, from the Part of Fund Benefits Upon Paid to
Position Trust Expenses Retirement Trustees
-------- ----- -------- ---------- --------
Winsor H. Aylesworth None None None None
Trustee
Arthur Collins $50 None None $50
Trustee
Richard W. Jagolta $200 None None $200
Trustee
Raymond H. Weaving $200 None None $200
Trustee
*Figures are for the fiscal year ended March 31, 1998.
</TABLE>
Principal Holders of Voting Securities
As of July 9, 1998, the Trustees and officers of the Trust as a group owned
beneficially (i.e. had voting and/or investment power) 22.422% and 8.232%,
respectively, of the then outstanding shares of the REIT Index Fund and the
Realty Growth Fund, respectively. On the same date the following shareholders
owned of record more than 5% of the outstanding shares of beneficial interest of
the Funds. 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 the Funds as of
July 9, 1998.
REIT INDEX FUND
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership* Percent
------------------- -------------------- -------
Schwab Omnibus 7,449.677 shares 8.766%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
First Union National Bank 6,773.644 shares 7.970%
Winsor H. Aylesworth, IRA
127 Grandview Drive
Glastonbury, CT 06033
Lucille C. Carlson & 6,584.268 shares 7.748%
Suk-Ying Chan
99 Westmont
West Hartford, CT 06107
First Union National Bank 5,456.274 shares 6.420%
Maryanne S. Aylesworth, IRA
127 Grandview Drive
Glastonbury, CT 06033
FTC & Co. 4,806.545 shares 5.656%
Attn: Datalynx #155
Post Office Box 173736
Denver, CO 80217
First Union National Bank 4,471.614 shares 5.262%
Frank P. Meadows Jr., IRA
Post Office Box 353
Rocky Mount, NC 27802-0353
Ellen S. Nusblatt 4,378.817 shares 5.153%
2182 NW Hoyt Street #2
Portland, OR 97210
* The shares indicated are believed by the Trust to be owned both of record and
beneficially by the indicated shareholders.
REALTY GROWTH FUND
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership* Percent
------------------- -------------------- -------
Schwab Omnibus 25,860.725 shares 13.288%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Chuck & Elizabeth Chan 11,343.778 shares 5.829%
2146 Woodleaf Way
Mountain View, CA 94040
* The shares indicated are believed by the Trust to be owned both of record and
beneficially by the indicated shareholders.
Adviser
GrandView Advisers, Inc. manages the assets of each Fund pursuant to separate
investment advisory agreements (the "Advisory Agreements"). Subject to such
policies as the Board of Trustees may determine, the Adviser manages the
securities of each Fund and makes investment decisions for each Fund. The
Adviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
securities transactions for each Fund. Each of the Advisory Agreements will
continue in effect until April 26, 1999, and thereafter as long as such
continuance is specifically approved at least annually by the Board of Trustees
or by a vote of a majority of the outstanding voting securities of the
applicable Fund, and, in either case, by a majority of the Trustees of the Trust
who are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory Agreement.
Winsor H. Aylesworth, Lucille C. Carlson and David F. Wolf, who are all
directors, officers, and shareholders of the Adviser, serve as co-portfolio
managers for the Funds. They collectively have over 50 years experience in the
commercial real estate finance and management and securities businesses. Winsor
H. Aylesworth, President, Treasurer, Director, and the controlling shareholder
of the Adviser, has had over ten years of experience with Bank of Boston
Corporation and Bank of Boston Connecticut. At Bank of Boston, Mr. Aylesworth's
responsibilities included forming and managing workout and OREO groups and
overseeing the disposition of real estate properties and other assets by the
OREO groups. Mr. Aylesworth was also responsible for managing Bank of Boston
Corporation's Florida Loan Production Office and for overseeing the granting of
construction loans on investment grade real estate. Lucille C. Carlson,
Executive Vice President and a Director of the Adviser, has managed cases on
non-performing assets, including loan restructuring and OREO management and
disposition, for Bank of Boston Connecticut. Ms. Carlson has served as a real
estate asset management officer, managing an institutional grade real estate
portfolio comprised of commercial property and other portfolios consisting of
real estate property and mortgages for John Hancock Properties Inc. and Cigna
Investments Inc., and has served as a securities and equity analyst. David F.
Wolf, Executive Vice President and a Director of the Adviser, has over eight
years of experience as a financial consultant, serving as a consultant for John
Hancock Financial Services and Shearson Lehman Brothers. Mr. Wolf has acted as
an account executive for NCNB Securities and has professional experience in the
areas of real estate developing, lending, workouts and asset management. Mr.
Aylesworth, Ms. Carlson and Mr. Wolf also control WHA Enterprises, Inc., which
since 1991 has published a monthly newsletter on the REIT industry known as The
Winsor Report. The Adviser was organized in March, 1995, and has no previous
experience as an investment adviser.
Each of the Advisory Agreements provides that the Adviser may render services to
others. Each Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Trust when authorized
either by a vote of a majority of the outstanding voting securities of the
applicable Fund or by a vote of a majority of the Board of Trustees, or by the
Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. Each Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for the applicable Fund, except for willful misfeasance, bad faith or gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement.
Upon termination of any contract with GrandView Advisers, Inc., or any
corporation affiliated therewith, acting as investment adviser or manager, the
Board of Trustees will promptly change the name of the Trust and of each of the
Funds to a name which does not include "GrandView" or any approximation or
abbreviation thereof.
The Prospectus contains a description of the fees payable to the Adviser for
services under the Advisory Agreements.
For the fiscal years ended March 31, 1998 and 1997, and the period from July 3,
1995, to March 31, 1996, the Adviser voluntarily waived its advisory fee for the
REIT Index Fund in the amount of $5,370, $2,126, and $314, respectively, and
voluntarily reimbursed $49,107, $37,598, and $17,159, respectively, of the
Fund's operating expenses. For the fiscal years ended March 31, 1998 and 1997,
and the period from July 3, 1995, to March 31, 1996, the Adviser voluntarily
waived its advisory fee for the Realty Growth Fund in the amount of $16,842,
$5,537, and $675, respectively, and voluntarily reimbursed $42,126, $35,736, and
$18,489, respectively, of the Fund's operating expenses.
Administrator and Transfer Agent
Pursuant to an administrative services agreement (the "Administrative Services
Agreement"), Nottingham serves as the administrator and fund accounting agent
for the Funds. Under the Administrative Services Agreement Nottingham provides
the Trust with general office facilities and supervises the overall
administration of the Trust, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the Trust's independent contractors and agents; the preparation and
filing of all documents required for compliance by the Trust with applicable
laws and regulations; and arranging for the maintenance of books and records of
the Trust. The Administrator provides persons satisfactory to the Board of
Trustees to serve as Trustees and officers of the Trust. Such Trustees and
officers, as well as certain other employees and Trustees of the Trust, may be
directors, officers or employees of Nottingham or its affiliates.
The Administrative Services Agreement with the Trust provides that Nottingham
may render administrative services to others. The Administrative Services
Agreement with the Trust terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the outstanding voting
securities of the Trust or by either party on not more than 90 days' written
notice. The Administrative Services Agreement with the Trust also provides that
neither Nottingham, as the Administrator, nor its personnel shall be liable for
any error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by reason
of reckless disregard of its or their obligations and duties under the Trust's
Administrative Services Agreement.
The Prospectus contains a description of the fees payable to the Administrator
under the Administrative Services Agreement.
For the fiscal years ended March 31, 1998 and 1997, and the period from July 3,
1995, to March 31, 1996, the Administrator received registration and filing
administration fees of $2,425, $1,699, and $786, respectively, Fund
administration fees of $3,452, $1,366, and $198, respectively, and Fund
accounting fees of $16,200, $9,300, and $0, respectively, from the REIT Index
Fund, in addition to reimbursement for various securities pricing, registration,
filing, shareholder servicing, and other Fund expenses. For the fiscal years
ended March 31, 1998 and 1997, and the period from July 3, 1995, to March 31,
1996, the Administrator received registration and filing administration fees of
$3,099, $1,694, and $794, respectively, Fund administration fees of $5,053,
$1,661, and $186, respectively, and Fund accounting fees of $16,200, $9,300 and
$0, respectively, from the Realty Growth Fund (having waived $43 of such fees
for the period from July 3, 1995 to March 31, 1996), in addition to
reimbursement for various securities pricing, registration, filing, shareholder
servicing, and other Fund expenses.
With the approval of the Trust, the Administrator has contracted with North
Carolina Shareholder Services, LLC (the "Transfer Agent"), a North Carolina
limited liability company, to serve as transfer, dividend paying, and
shareholder servicing agent for the Funds. The Transfer Agent is compensated for
its services by the Administrator and not directly by the Funds.
Distributor
Capital Investment Group serves as the Distributor of each Fund's shares
pursuant to a Distribution Agreement (the "Distribution Agreement") with the
Trust. Unless otherwise terminated, the Distribution Agreement for the Funds
remains in effect until April 26, 1999, and, for each Fund, thereafter will
continue from year to year upon annual approval by the Trust's Board of
Trustees, or by the vote of a majority of the outstanding voting securities of
the Trust and by the vote of a majority of the Board of Trustees who are not
parties to the Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Agreement
will terminate in the event of its assignment, as defined in the 1940 Act.
The Trust has adopted a Distribution Plan in accordance with Rule 12b-1 under
the 1940 Act with respect to shares of the Funds after concluding that there is
a reasonable likelihood that the Distribution Plan will benefit each Fund and
its shareholders. The Distribution Plan provides that each Fund may expend up to
0.25% of such Fund's average daily net assets annually to finance any activity
primarily intended to result in the sale of shares of the Fund and/or the
servicing of shareholder accounts, provided the 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 shares of the Funds may not exceed 0.25%
of the shares' average net asset value.
Potential benefits of the Distribution Plan to the Funds include improved
shareholder services, savings to the Funds in transfer agency costs, benefits to
the investment process through growth and stability of assets, and maintenance
of a financially healthy management organization.
The Distribution Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Trust's Trustees
and 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
Distribution Plan or in any agreement related to the Plan (for purposes of this
paragraph "Qualified Trustees"). The Distribution Plan requires that the Trust
and the Distributor provide to the Board of Trustees, and the Board of Trustees
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Distribution Plan. The Distribution Plan further
provides that the selection and nomination of the Qualified Trustees is
committed to the discretion of the disinterested Trustees (as defined in the
1940 Act) then in office. The Distribution Plan may be terminated with respect
to any Fund at any time by a vote of a majority of the Trust's Qualified
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund. The Distribution Plan may not be amended to increase materially the amount
of a Fund's permitted expenses thereunder without the approval of a majority of
the outstanding securities of that Fund and may not be materially amended in any
case without a vote of a majority of both the Trustees and Qualified Trustees.
The Distributor will preserve copies of any plan, agreement or report made
pursuant to the Distribution Plan for a period of not less than six years from
the date of the Plan, and for the first two years the Distributor will preserve
such copies in an easily accessible place.
David F. Wolf, a registered representative of the Funds' Distributor, may
receive brokerage commissions from the Distributor in connection with sales of
shares of the Funds. He may also receive payments under the Distribution Plan in
connection with the sale of shares of the Funds and/or the servicing of
shareholder accounts. Mr. Wolf is a Vice President of the Trust and is an
Executive Vice President and a Director of GrandView Advisers, Inc.
For the fiscal years ended March 31, 1998 and 1997, and the period from July 3,
1995, to March 31, 1996, the aggregate dollar amount of sales charges paid on
the sale of shares of the REIT Index Fund was $468, $2,564, and $311,
respectively, of which the Distributor retained $78, $426 and $52, respectively,
after reallowances to broker-dealers and sales representatives.
For the fiscal years ended March 31, 1998 and 1997, and the period from July 3,
1995, to March 31, 1996, the aggregate dollar amount of sales charges paid on
the sale of shares of the Realty Growth Fund was $6,828, $247 and $89,
respectively, of which the Distributor retained $759, $27 and $10, respectively,
after reallowances to broker-dealers and sales representatives.
Custodian
The Trust has entered into a Custodian Agreement with First Union National Bank
of North Carolina, Two First Union Center, Charlotte, North Carolina 28288,
pursuant to which custodial services are provided for the Trust and the Funds.
Independent Auditors
The firm of Deloitte & Touche, LLP, 2500 One PPG Place, Pittsburgh, Pennsylvania
15222-5401, serves as independent auditors for the Funds, audits the annual
financial statements of the Funds, and prepares the Funds' federal and state tax
returns. A copy of the most recent annual report of each Fund will accompany
this Statement of Additional Information whenever it is requested by a
shareholder or prospective investor.
6. PORTFOLIO TRANSACTIONS
The Trust trades securities for a Fund if it believes that a transaction net of
costs (including custodian charges) will help achieve the Fund's investment
objective. Changes in the portfolio of the REIT Index Fund will be effected
primarily to accommodate cash flows into and out of the Fund and changes in the
GrandView REIT Index. Changes in a Fund's investments are generally made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. It is anticipated that
the portfolio turnover rate of the REIT Index Fund and of the Realty Growth Fund
will not exceed 50% and 200%, respectively, in the coming year. The amount of a
Fund's brokerage commissions and realization of taxable capital gains will tend
to increase as the level of portfolio activity increases.
The primary consideration in placing portfolio securities transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of each Fund on the basis of
their professional capability, the value and quality of their brokerage
services, and the level of their brokerage commissions. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the Adviser
normally seeks to deal directly with the primary market makers, unless in its
opinion, best execution is available elsewhere. In the case of securities
purchased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. From time to time, soliciting
dealer fees are available to the Adviser on the tender of a Fund's securities in
so-called tender or exchange offers. Such soliciting dealer fees are in effect
recaptured for the Funds by the Adviser. At present no other recapture
arrangements are in effect.
Under the Advisory Agreements, in connection with the selection of such brokers
or dealers and the placing of such orders, the Adviser is directed to seek for
each Fund in its best judgment, prompt execution in an effective manner at the
most favorable price. Subject to this requirement of seeking the most favorable
price, securities may be bought from or sold to broker-dealers who have
furnished statistical, research and other information or services to the Adviser
or the Funds, subject to any applicable laws, rules and regulations.
The investment advisory fee that each Fund pays to the Adviser will not be
reduced as a consequence of the Adviser's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff.
In certain instances there may be securities that are suitable as an investment
for a Fund, as well as for one or more of the Adviser's other clients (including
other Funds). When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could adversely affect the price of or the size of the
position obtainable in a security for a Fund. When purchases or sales of the
same security for a Fund and for other portfolios managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large volume purchases or sales.
For the fiscal years ended March 31, 1998 and 1997, and the period from July 3,
1995, to March 31, 1996, the REIT Index Fund paid brokerage commissions of
$5,857, $3,502 and $1,931, respectively, and the Realty Growth Fund paid
brokerage commissions of $28,575, $12,994 and $3,149, respectively.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of each series and
to divide or combine the shares of any series into a greater or lesser number of
shares of that series without thereby changing the proportionate beneficial
interests in that series. While there are at present no series of the Trust
other than the Funds, the Trust has reserved the right to create and issue
additional series of shares, as well as classes of shares within each series.
Each share of each Fund represents an equal proportionate interest in the Fund
with each other share. Shares of each series participate equally in the
earnings, dividends and distribution of net assets of the particular series upon
liquidation or dissolution. Shares of each series are entitled to vote
separately to approve advisory agreements or changes in investment policy, but
shares of all series may vote together in the election or selection of Trustees
and accountants for the Trust. In matters affecting only a particular Fund, only
shares of that particular Fund are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on which
they are entitled to vote. Shareholders in the Trust do not have cumulative
voting rights, and shareholders owning more than 50% of the outstanding shares
of the Trust may elect all of the Trustees of the Trust if they choose to do so
and in such event the other shareholders in the Trust would not be able to elect
any Trustee. The Trust is not required to hold, and has no present intention of
holding, annual meetings of shareholders, but the Trust will hold special
meetings of shareholders when in the judgment of the Trustees it is necessary or
desirable to submit matters for a shareholder vote. Shareholders have, under
certain circumstances (e.g., upon the application and submission of certain
specified documents to the Trustees by a specified number of shareholders), the
right to communicate with other shareholders in connection with requesting a
meeting of shareholders for the purpose of removing one or more Trustees.
Shareholders also have under certain circumstances the right to remove one or
more Trustees without a meeting by a declaration in writing by a specified
number of shareholders. No material amendment may be made to the Trust's
Declaration of Trust without the affirmative vote of the holders of a majority
of the outstanding shares of each series affected by the amendment. Shares have
no preference, pre-emptive, conversion or similar rights. Shares, when issued,
are fully paid and non-assessable, except as set forth below.
The Trust may enter into a merger or consolidation, or sell all or substantially
all of its assets (or all or substantially all of the assets belonging to any
series of the Trust), if approved by a vote of the holders of two-thirds of the
Trust's outstanding shares, voting as a single class, or of the affected series
of the Trust, as the case may be, except that if the Trustees of the Trust
recommend such sale of assets, merger or consolidation, the approval by vote of
the holders of a majority of the Trust's outstanding shares, or of the affected
series, would be sufficient. The Trust or any series of the Trust, as the case
may be, may be terminated (i) by a vote of a majority of the outstanding voting
securities of the Trust or the affected series or (ii) by the Trustees by
written notice to the shareholders of the Trust or the affected series. If not
so terminated, the Trust will continue indefinitely.
It is not contemplated that share certificates will be issued for the shares.
However, upon the written request of a shareholder, the Trustees, in their
discretion, may authorize the issuance of share certificates and promulgate
appropriate rules and regulations as to their use.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (e.g., fidelity bonding, and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to act,
but nothing in the Declaration of Trust protects a Trustee against any liability
to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
8. CERTAIN ADDITIONAL TAX MATTERS
Each of the Funds has elected to be treated and intends to qualify each year as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of a Fund's gross income,
the amount of Fund distributions, and the composition and holding period of a
Fund's portfolio assets. Provided all such requirements are met, no U.S. federal
income or excise taxes will be required to be paid by the Funds, although
non-U.S. source income earned by each Fund may be subject to non-U.S.
withholding taxes. If a Fund should fail to qualify as a "regulated investment
company" for any year, the Fund would incur a regular corporate federal income
tax upon its taxable income, and distributions by that Fund would generally be
taxable as ordinary income to shareholders.
The portion of each Fund's ordinary income dividends attributable to dividends
received in respect of equity securities of U.S. issuers is normally eligible
for the dividends received deduction for corporations subject to U.S. federal
income taxes. Availability of the deduction for particular shareholders is
subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Any dividend
that is declared by a Fund in October, November or December of any calendar
year, that is payable to shareholders of record in such a month and that is paid
the following January will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of any distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
any of the Funds by a shareholder that holds such shares as a capital asset will
be treated as long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in a Fund held for six
months or less will be treated as long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of shares of a Fund within 90 days after their purchase followed by
any purchase (including purchases by exchange or by reinvestment) of shares of
that same Fund.
The Funds' transactions in forward contracts will be subject to special tax
rules that may affect the amount, timing and character of Fund income and
distributions to shareholders. For example, certain positions held by a Fund on
the last business day of each taxable year will be marked to market (i.e.,
treated as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by a Fund that substantially diminish its risk of
loss with respect to other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules that would cause deferral
of Fund losses, adjustments in the holding periods of Fund securities and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Funds will
limit their activities in forward contracts to the extent necessary to meet the
requirements of Subchapter M of the Code.
Special tax considerations apply with respect to non-U.S. investments of the
Funds. Investment income received by a Fund from non-U.S. securities may be
subject to non-U.S. income taxes withheld at the source. The United States has
entered into tax treaties with many other countries that may entitle a Fund to a
reduced rate of tax or an exemption from tax on such income. The Funds intend to
qualify for treaty-reduced rates where available. It is not possible, however,
to determine the Funds' effective rate of non-U.S. tax in advance since the
amount of the Funds' respective assets to be invested within various countries
is not known.
9. SPECIAL SHAREHOLDER SERVICES
Each 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 Funds, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a 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 investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Funds will automatically charge the checking account for the amount specified
($50 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 Funds.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Funds to redeem the necessary number of shares periodically
(each month, or quarterly in the months of March, June, September and December)
in order to make the payments requested. Each Fund has the capacity 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 available by calling the Funds. 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 7 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 Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Funds upon sixty days written notice or by a shareholder upon written notice to
the Funds. Applications and further details may be obtained by calling the Funds
at 1-800-773-3863, or by writing to:
The GrandView Funds
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. Each 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 Adviser 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 Adviser may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "Net Asset Value and Pricing of Orders" in the Prospectus.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Board of
Trustees, make it undesirable for the Funds to pay for all redemptions in cash.
In such case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Funds. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein each Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-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 applicable 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 Funds.
10. FINANCIAL STATEMENTS
Attached.
<PAGE>
1998 Annual Report
GrandView Investment Trust
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
May 25, 1998
Telephone: 919-972-9922
U.S. WATS: 800-525-FUND
Facsimile: 919-0442-4226
To the Shareholders of the GrandView S&P(R) REIT Index Fund:
We are pleased to present our third annual report for the GrandView S&P(R) REIT
Index Fund. The table below presents our results for the year along with the
appropriate market benchmarks.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Period Ending Dow Jones S&P 500 REIT Benchmark GrandView GrandView
Utility Index Index Composite S&P REIT(R) Index S&P REIT(R) Index
(Total (Total Return) (GrandView Fund (NAV) Fund (MOP)
Return) /S&P)* (Total Return) (Total Return)
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Three Month 5.68% 13.95% -0.62% -1.22% -4.18%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Six Months 22.38% 17.22% 0.13% -0.33% -3.32%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
One Year 36.65% 48.00% 15.27% 15.54% 12.07%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Two Year 48.21% 77.34% 49.36% 48.87% 44.40%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Since Inception 62.48% 112.93% 66.64% 58.40% 53.65%
From 7/03/95
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
NAV = Net Asset Value (Without Sales Load)
MOP = Maximum Offering price (With Sales Load)
</TABLE>
The role of an index fund is to provide you, the investor, with a cost
efficient, "market" return that correlates well with its underlying benchmark.
With that as the Fund's objective, last year can be viewed as a success. Your
Fund's returns (less operating expenses) were representative of the REIT market
as measured by the Fund's benchmark with a correlation co-efficient that
exceeded 99.9%. However, the overall REIT market did not compare favorably with
the rest of the equity markets for the last twelve months. REIT industry total
returns trailed both the S&P 500 and the Dow Jones Utility indexes. Being
representative of the REIT industry, your Fund also trailed these indices. The
Fund paid out $0.6425 per share in dividends and $2.75 in capital gains over the
last twelve months. The dividend payout was an increase over last year as
numerous REITs raised their dividends throughout the year. The high capital
gains distribution was unusual for a fund of this type but was attributable to
redemptions as investor interest in the REIT industry and hence your Fund ebbed
over the period.
Of particular note, now that the Fund is developing some significant performance
data, is how it correlates (a Fund's Beta) with the S&P 500. Many investors use
individual REITs or a REIT Fund as an asset class for diversification purposes.
It is believed that by adding investments that have different Betas you can
reduce the risk of an overall investment portfolio. Real estate has long been an
asset class that has been held as a balance against the more volatile general
equity market. We are pleased that Micropal, Inc., a non-affiliated data
service, has published data on your Fund's Beta. That data indicates that its
beta is one of the lowest in the industry with a range of 0.20-0.25 for the year
versus the S&P 500 beta of 1.00. For comparison, most utility funds are in the
0.50 range. This would suggest that your Fund is a good candidate for those who
are seeking appropriate diversification in relation to the overall market.
<PAGE>
In last year's report we indicated that Fund investors should anticipate total
returns throughout a prolonged investment period (3-5 years) in the low to mid
teens. Well, at just over 15.5% for the year it seems that we are right on
target. However, during the last six months, the Fund has not been meeting that
type of return. Are we in a lull or the beginning of the end for the great bull
REIT market? No one knows for sure but we can identify two negatives in the
market today that were not there this time last year. The first is that Congress
has indicated that they want to change some of the tax regulations for a certain
type of REIT called a "paired share". Although only impacting four REITs out of
over two hundred, the fear of this unknown impact of future legislation has had
a dampening effect on the overall REIT market. The second issue that has not
gotten as much attention as the first, is the flat shape of the interest rate
curve. This curve measures the difference between short and long term rates.
This rate spread is used to determine profitability for all mortgage and many
hybrid REITs. Historically, interest rates for longer-term money yields far more
than short-term money. But over the last six months, this "spread" has been
historically small. This "flatness" has provided good opportunities to borrow or
refinance long term debt but it has not been good for profits at some REITs.
These two "negative" events, occurring within the same general time frame, have
more than offset what continues to be a good overall real estate market.
Property construction still is under control, the overall economy is good and
rents are generally rising as demand for well-located real estate exceeds
supply.
We continue to think the future is positive for real estate securities. With a
good economy and stable interest rates, real estate supply and demand is still
in the demand side of the cycle. There are many institutional owners of real
estate who are interested in selling to public real estate companies providing
good opportunities for continued public company growth. There will always be
occasional bumps in the road such as "tax" issues, interest rate curves and
foreign economies, but these bumps also provide good investment opportunities.
We think that by investing in your Fund, you are in a good position to take
advantage of these opportunities. We continue to expect low to mid-teen annual
returns throughout a 3-5 year investment period for the REIT industry and hence
for your Fund.
Finally, we want to take this opportunity to address the much publicized "Year
2000" problem for our shareholders. All major service providers to our Fund,
First Union National Bank, the Fund's custodian; The Nottingham Company, the
Fund administrator and North Carolina Shareholder Services, the Fund's transfer
agent all have implementation plans that address the issue. These service
providers indicate that their year 2000 plan will be completed prior to the
occurrence of any problem. Although issues may develop as the time gets closer,
we want to assure you that your management team is aware of the issue and is
doing everything within its power to minimize its impact on the Fund.
We want to again thank you for your support as shareholders. If you ever have
any questions or desire additional information, please feel free to contact the
Fund Administrator at 1-800-525-3862, or the offices of GrandView Advisers at
1-800-578-4301.
Winsor H. Aylesworth
President
GrandView Advisers, Inc.
- ---------
* Benchmark used in the table and assoicated graph is a combination of two
indices. The GrandView Total Return REIT Index is used from Fund inception until
December 31, 1997. At that time, the Fund's objective was changed to provide
returns that correspond and are highly correlated to the S&P REIT Index. All
benchmark references incorporates this change.
<PAGE>
GrandView S&P(R) REIT Index Fund
Performance Update - $10,000 Investment
For the period from July 3, 1995 (commencement of operations) to
March 31, 1998
Grandview
GrandView S&P(R) S&P 500 Dow Jones Total Return/
REIT Index Fund Index Utility Index S&P REIT Index
7/3/95 9,700 10,000 10,000 10,000
9/30/95 9,991 10,748 10,722 10,472
12/31/95 10,351 11,395 11,451 10,944
3/31/96 10,321 12,007 10,963 11,157
6/30/96 10,726 12,545 11,503 11,646
9/30/96 11,335 12,933 11,491 12,353
12/31/96 13,413 14,011 12,488 14,512
3/31/97 13,298 14,387 11,890 14,457
6/30/97 13,935 16,899 12,490 15,142
9/30/97 15,415 18,164 13,277 16,642
12/31/97 15,554 18,686 15,374 16,768
3/31/98 15,365 21,293 16,248 16,664
This graph depicts the performance of the GrandView S&P(R)REIT Index Fund versus
the S&P 500 Index, the Dow Jones Utility Index, and the GrandView Total Return
Index (prior to 12/31/97)/ S&P REIT Index (subsequent to 12/31/97). It is
important to note that the GrandView S&P(R) REIT Index Fund is a professionally
managed mutual fund while the indexes are not available for investment and are
unmanaged. The comparison is shown for illustrative purposes only.
Annualized Total Return
- --------------------------------------------------------------
Since Inception One Year
- --------------------------------------------------------------
No Sales Load 18.24% 15.54%
- --------------------------------------------------------------
Maximum 3% Sales Load 16.94% 12.07%
- --------------------------------------------------------------
The graph assumes an initial $10,000 investment at July 3, 1995 ($9,700 after
maximum sales load of 3.0%). All dividends and distributions are reinvested.
At March 31, 1998, the GrandView S&P REIT Index Fund would have grown to $15,365
- - total investment return of 53.65% since July 3, 1995. Without the deduction of
the 3.0% maximum sales load, the GrandView S&P REIT Index Fund would have grown
to $15,840 - total investment return of 58.40% since July 3, 1995.
At March 31, 1998, a similar investment in the S&P 500 Index would have grown to
$21,293 - total investment return of 112.93%; the Dow Jones Utility Index would
have grown to $16,248 - total investment return of 62.48%; the GrandView Total
Return/S&P REIT Total Return Index would have grown to $16,664 - total
investment return of 66.64% since July 3, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 99.41%
Real Estate Investment Trusts - 99.41%
American Health Properties, Inc. ........................................... 273 $ 7,234
Apartment Investment & Management Company .................................. 357 13,611
Arden Realty, Inc. ......................................................... 423 12,056
Avalon Properties, Inc. .................................................... 305 8,769
Bay Apartment Communities, Inc. ............................................ 197 7,314
Boston Properties, Inc. .................................................... 480 16,890
Bradley Real Estate, Inc. .................................................. 265 5,515
CBL & Associates Properties, Inc. .......................................... 279 6,853
CCA Prison Realty Trust .................................................... 153 6,340
CRIIMI MAE, Inc. ........................................................... 465 7,178
Camden Property Trust ...................................................... 235 6,962
Capstead Mortgage Corporation .............................................. 432 8,532
Capstone Capital Corporation ............................................... 250 6,078
CarrAmerica Realty Corporation ............................................. 475 14,250
CenterPoint Properties Corporation ......................................... 228 7,909
Charles E. Smith Residential Realty, Inc. .................................. 172 5,719
Chateau Communities, Inc. .................................................. 186 5,533
Chelsea GCA Realty, Inc. ................................................... 132 4,884
Colonial Properties Trust .................................................. 245 7,794
Commercial Net Lease Realty ................................................ 313 5,458
Cornerstone Properties, Inc. ............................................... 771 13,974
Cousins Properties, Inc. ................................................... 233 7,194
Crescent Real Estate Equities Company ...................................... 650 23,400
Developers Diversified Realty Corporation .................................. 209 8,543
Duke Realty Investments, Inc. .............................................. 604 14,723
Dynex Capital, Inc. ........................................................ 506 6,072
Equity Inns Inc. ........................................................... 402 6,206
Equity Office Properties Trust ............................................. 1,753 53,686
Equity Residential Properties Trust ........................................ 632 31,758
Essex Property Trust, Inc. ................................................. 194 6,657
Excel Realty Trust, Inc. ................................................... 155 5,522
Federal Realty Investment Trust ............................................ 290 7,123
FelCor Suite Hotels, Inc. .................................................. 294 10,896
First Industrial Realty Trust, Inc. ........................................ 279 10,044
Gables Residential Trust ................................................... 257 6,987
General Growth Properties .................................................. 287 10,476
Glenborough Realty Trust, Inc. ............................................. 234 6,801
Glimcher Realty Trust ...................................................... 277 6,059
Health Care Property Investors, Inc. ....................................... 230 8,496
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Real Estate Investment Trusts - (Continued)
Health and Retirement Property Trust ....................................... 805 $ 16,301
Healthcare Realty Trust, Inc. .............................................. 225 6,356
Highwoods Properties, Inc. ................................................. 388 13,677
Horizon Group, Inc. ........................................................ 386 4,753
Hospitality Properties Trust ............................................... 313 11,092
INMC Mortgage Holdings, Inc. ............................................... 500 12,500
Irvine Apartment Communities, Inc. ......................................... 232 7,308
JDN Realty Corporation ..................................................... 215 7,350
JP Realty, Inc. ............................................................ 202 5,126
Kilroy Realty Corporation .................................................. 179 5,113
Kimco Realty Corporation ................................................... 310 10,966
LTC Properties, Inc. ....................................................... 288 5,562
Liberty Property Trust ..................................................... 379 10,186
Mack-Cali Realty Corporation ............................................... 413 16,133
Manufactured Home Communities, Inc. ........................................ 287 7,426
Meditrust Companies ........................................................ 501 15,406
Merry Land & Investment Company, Inc. ...................................... 305 6,824
Mid-America Apartment Communities, Inc ..................................... 198 5,581
Mills Corp. ................................................................ 269 7,044
National Health Investors, Inc. ............................................ 187 7,457
Nationwide Health Properties, Inc. ......................................... 332 8,217
New Plan Realty Trust ...................................................... 509 12,789
OMEGA Healthcare Investors, Inc. ........................................... 142 5,538
Pacific Gulf Properties, Inc. .............................................. 218 5,000
Patriot American Hospitality, Inc. ......................................... 590 15,930
Post Properties, Inc. ...................................................... 254 10,144
Prentiss Properties Trust .................................................. 279 7,289
Price REIT, Inc. ........................................................... 137 6,139
Public Storage, Inc. ....................................................... 658 20,316
RFS Hotel Investors, Inc. .................................................. 285 5,219
Realty Income Corporation .................................................. 301 8,183
Reckson Associates Realty Corporation ...................................... 277 7,306
Security Capital Group - WT ................................................ 279 924
Security Capital Pacific Trust ............................................. 803 19,322
Security Capital Atlantic Incorporated ..................................... 356 7,476
Security Capital Industrial Trust .......................................... 657 16,836
Shurgard Storage Centers, Inc. ............................................. 210 5,906
Simon DeBartolo Group, Inc. ................................................ 686 23,538
Spieker Properties, Inc. ................................................... 274 11,303
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Real Estate Investment Trusts - (Continued)
Starwood Hotels & Resorts .................................................. 1,285 $ 68,667
Storage USA, Inc. .......................................................... 210 8,059
Summit Properties, Inc. .................................................... 274 5,514
Sun Communities, Inc. ...................................................... 187 6,498
Taubman Centers, Inc. ...................................................... 604 7,852
The Macerich Company ....................................................... 192 5,712
TriNet Corporate Realty Trust, Inc. ........................................ 50 1,916
United Dominion Realty Trust ............................................... 679 9,845
Urban Shopping Centers, Inc. ............................................... 203 6,699
Vornado Realty Trust ....................................................... 416 18,122
Walden Residential Properties, Inc. ........................................ 206 5,201
Washington Real Estate Investment Trust .................................... 416 7,150
Weingarten Realty Investors ................................................ 205 9,174
--------
Total Common Stocks (Cost $904,751) ........................................ 949,441
--------
INVESTMENT COMPANY - 0.73%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares (Cost $6,971)............... 6,971 6,971
--------
Total Value of Investments (Cost $911,722 (b)) ......................................... 100.14 % $956,412
Liabilities In Excess of Other Assets .................................................. (0.14)% (1,345)
------ --------
Net Assets ...................................................................... 100.00 % $955,067
====== ========
(a) Aggregate cost for federal income tax purposes is $919,325. Unrealized appreciation (depreciation) of investments for
federal income tax purposes is as follows:
Unrealized appreciation $55,322
Unrealized depreciation (18,235)
-------
Net unrealized appreciation $37,087
=======
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
ASSETS
Investments, at value (cost $911,722) ......................................................... $956,412
Income receivable ............................................................................. 5,139
Receivable for investments sold ............................................................... 19,432
Deferred organization expenses, net (note 4) .................................................. 12,253
Other assets .................................................................................. 1,232
Due from advisor (note 2) ..................................................................... 4,735
--------
Total assets ............................................................................. 999,203
--------
LIABILITIES
Accrued expenses .............................................................................. 7,228
Distributions payable ......................................................................... 21,395
Payable for investment purchases .............................................................. 8,789
Disbursements in excess of cash on demand deposit ............................................. 6,724
--------
Total liabilities ........................................................................ 44,136
--------
NET ASSETS
(applicable to 86,343 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ....................................... $955,067
========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($955,067 / 86,343 shares) .................................................................... $ 11.06
========
OFFERING PRICE PER SHARE
(100 / 97% of $11.06) ......................................................................... $ 11.40
========
NET ASSETS CONSIST OF
Paid-in capital ............................................................................... $911,481
Distribution in excess of net realized loss ................................................... (1,104)
Net unrealized appreciation on investments .................................................... 44,690
--------
$955,067
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
STATEMENT OF OPERATIONS
March 31, 1998
INVESTMENT INCOME
Income
Dividends ..................................................................................... $ 72,221
--------
Expenses
Investment advisory fees (note 2) ............................................................. 5,370
Fund administration fees (note 2) ............................................................. 3,452
Distribution and service fees (note 3) ........................................................ 1,912
Custody fees .................................................................................. 5,866
Registration and filing administration fees (note 2) .......................................... 2,425
Fund accounting fees (note 2) ................................................................. 16,200
Audit fees .................................................................................... 7,500
Legal fees .................................................................................... 5,254
Securities pricing fees ....................................................................... 2,595
Shareholder recordkeeping fees ................................................................ 629
Shareholder servicing expenses ................................................................ 3,464
Registration and filing expenses .............................................................. 8,710
Printing expenses ............................................................................. 1,585
Amortization of deferred organization expenses (note 4) ....................................... 5,442
Trustee fees and meeting expenses ............................................................. 512
Other operating expenses ...................................................................... 3,318
--------
Total expenses ........................................................................... 74,234
--------
Less:
Expense reimbursements (note 2) .................................................... (49,107)
Investment advisory fees waived (note 2) ........................................... (5,370)
Securities pricing fees waived ..................................................... (2,595)
Distribution and service fees waived (note 3) ...................................... (1,054)
--------
Net expenses ............................................................................. 16,108
--------
Net investment income .............................................................. 56,113
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 232,663
Decrease in unrealized appreciation on investments ................................................. (46,110)
--------
Net realized and unrealized gain on investments ............................................... 186,553
--------
Net increase in net assets resulting from operations ..................................... $242,666
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income ................................................................... $ 56,113 $ 26,606
Net realized gain (loss) from investment transactions ................................... 232,663 (3,402)
Increase (decrease) in unrealized appreciation on investments ........................... (46,110) 91,681
---------- ----------
Net increase in net assets resulting from operations ............................... 242,666 114,885
---------- ----------
Distributions to shareholders from
Net investment income ................................................................... (56,113) (26,606)
Tax return of capital ................................................................... (14,856) (5,692)
Net realized gain from investment transactions .......................................... (229,983) (479)
---------- ----------
Decrease in net assets resulting from distributions ................................ (300,952) (32,777)
---------- ----------
Capital share transactions
Increase (decrease) in net assets resulting from capital share transactions (a) ......... (453,745) 1,132,197
---------- ----------
Total increase (decrease) in net assets ....................................... (512,031) 1,214,305
NET ASSETS
Beginning of year ........................................................................... 1,467,098 252,793
---------- ----------
End of year ................................................................................. $ 955,067 $1,467,098
========== ==========
(a) A summary of capital share activity follows:
--------------------------------------------------------------------------
Year ended Year ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
--------------------------------------------------------------------------
Shares sold ............................................ 23,316 $ 304,629 100,474 $1,238,757
Shares issued for reinvestment
of distributions .................................. 21,072 253,406 2,066 24,781
---------- ---------- ---------- ----------
44,388 558,035 102,540 1,263,538
Shares redeemed ........................................ (75,098) (1,011,780) (10,250) (131,341)
---------- ---------- ---------- ----------
Net increase (decrease) ........................... (30,710) $ (453,745) 92,290 $1,132,197
========== ========== ========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW S&P(R) REIT INDEX FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the
period from
July 3, 1995
(commencement of
Year ended Year ended operations) to
March 31, March 31, March 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................................... $12.53 $10.21 $10.00
Income from investment operations
Net investment income ......................................... 0.49 0.50 0.33
Net realized and unrealized gain on investments ............... 1.45 2.38 0.32
---------- ---------- ----------
Total from investment operations .......................... 1.94 2.88 0.65
---------- ---------- ----------
Distributions to shareholders from
Net investment income ......................................... (0.49) (0.50) (0.33)
Tax return of capital ......................................... (0.17) (0.05) 0.00
Net realized gain from investment transactions ................ (2.75) (0.01) (0.11)
---------- ---------- ----------
Total distributions ....................................... (3.41) (0.56) (0.44)
---------- ---------- ----------
Net asset value, end of period ........................................... $11.06 $12.53 $10.21
========== ========== ==========
Total return (a) ......................................................... 15.54 % 25.85 % 6.40 %
========== ========== ==========
Ratios/supplemental data
Net assets, end of period .......................................... $ 955,067 $1,467,098 $ 252,793
========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ................. 4.84 % 7.59 % 20.63 % (b)
After expense reimbursements and waived fees .................. 1.05 % 1.04 % 1.05 % (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ................. (0.13)% (2.16)% (13.66)% (b)
After expense reimbursements and waived fees .................. 3.66 % 4.38 % 5.86 % (b)
Portfolio turnover rate ............................................ 63.15 % 23.38 % 47.46 %
Average broker commissions per share (c) ........................... $0.0697 $0.0698 -
(a) Total return does not reflect payment of sales charge.
(b) Annualized
(c) Represents total commission paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
GRANDVIEW S&P(R) REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The GrandView S&P(R) REIT Index Fund (the "Fund") is a diversified
series of shares of beneficial interest of the GrandView Investment
Trust (the "Trust"). The Trust, an open-ended investment company, was
organized on February 6, 1995 as a Massachusetts Business Trust and is
registered under the Investment Company Act of 1940, as amended. The
primary objective of the Fund is long-term growth of capital by
selecting investments which are equity securities of real estate
industry companies which are undervalued or have significant
"turnaround" potential. The Fund began operations on July 3, 1995.
Shares of the Fund purchased are subject to a maximum sales charge of
3.00%. Shares of the Fund redeemed are subject to a 1.00% redemption
fee, which applies to redemptions during the first six months after
share purchases. The redemption fee is subsequently reduced after the
first six months and is eliminated after one year. The following is a
summary of significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted on a
national market system are valued at the last sales price as of
4:00 p.m., New York time on the day of valuation. Other
securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued
at the most recent bid price. Securities for which market
quotations are not readily available, if any, are valued by using
an independent pricing service or by following procedures
approved by the Board of Trustees. Short-term investments are
valued at cost which approximates value.
B. Federal Income Taxes - At March 31, 1998, the Fund was considered
a personal holding company as defined under Section 542 of the
Internal Revenue Code since 50% of the value of the Fund's shares
were owned directly or indirectly by five or fewer individuals at
certain times during the last half of the year. As a personal
holding company the Fund is subject to federal income taxes on
undistributed personal holding company income at the maximum
individual income tax rate. No provision has been made for
federal income taxes since substantially all taxable income has
been distributed to shareholders. It is the policy of the Fund to
comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to make
sufficient distributions of taxable income to relieve it from all
federal income taxes.
The character of distributions made during the year from net
investment income or net realized gains from investment
transactions may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains are
recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded on
the trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is recorded
on the ex-dividend date.
The Fund records distributions received from its investments in
real estate investment trusts that represent a tax return of
capital as a reduction of the cost basis of investments.
(Continued)
<PAGE>
GRANDVIEW S&P(R) REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
D. Distributions to Shareholders - The Fund generally declares
dividends quarterly, payable on a date selected by the Trust's
Trustees. In addition, distributions may be made annually in
December out of net realized gains through October 31 of that
year. Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental distribution
subsequent to the end of its fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amount of assets, liabilities, expenses and revenues reported in
the financial statements. Actual results could differ from those
estimated.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, GrandView Advisers, Inc.
(the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its
portfolio, and furnishes advice and recommendations with respect to
investments, investment policies and the purchase and sale of
securities. As compensation for its services, the Advisor receives a
fee at the annual rate of 0.35% of the Fund's average daily net assets.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and reimburse expenses of the Fund to limit total Fund
operating expenses to 1.05% of the average daily net assets of the
Fund. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has voluntarily
waived its fee amounting to $5,370 ($0.06 per share) and has
voluntarily reimbursed $49,107 of the Fund's operating expenses for the
year ended March 31, 1998.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.225% of the Fund's first $25 million of average daily
net assets, 0.20% of the next $25 million of average daily net assets,
and 0.175% of average daily net assets over $50 million. The
Administrator also receives a monthly fee of $1,500 for accounting and
recordkeeping services. Additionally, the Administrator charges the
Fund for servicing of shareholder accounts and registration of the
Fund's shares. The Administrator also charges the Fund for certain
expenses involved with the daily valuation of portfolio securities.
NC Shareholder Services, LLC (the "Transfer Agent") has been retained
by the Administrator to serve as the Fund's transfer, dividend paying,
and shareholder servicing agent. The Transfer Agent maintains the
records of each shareholder's account, answers shareholder inquiries
concerning accounts, processes purchases and redemptions of Fund
shares, acts as dividend and distribution disbursing agent, and
performs other shareholder servicing functions. The Transfer Agent is
compensated for its services by the Administrator and not directly by
the Fund.
(Continued)
<PAGE>
GRANDVIEW S&P(R) REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's
principal underwriter and distributor. The Distributor receives any
sales charges imposed on purchases of shares and re-allocates a portion
of such charges to dealers through whom the sale was made, if any. For
the year ended March 31, 1998, the Distributor retained sales charges
in the amount of $78.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the Distributor or the Administrator.
At March 31, 1998, the Advisor, its officers, and Trustees of the Fund
held 22,825 shares or 26% of the Fund shares outstanding.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company
Act of 1940 (the "Act"), adopted a distribution plan pursuant to Rule
12b-1 of the Act (the "Plan"). The Act regulates the manner in which a
regulated investment company may assume expenses of distributing and
promoting the sales of its shares and servicing of its shareholder
accounts.
The Plan provides that the Fund may incur certain expenses, which may
not exceed 0.25% per annum of the Fund's average daily net assets for
each year elapsed subsequent to adoption of the Plan, for payment to
the Distributor and others for items such as advertising expenses,
selling expenses, commissions, travel or other expenses reasonably
intended to result in sales of shares of the Fund or support servicing
of shareholder accounts. Expenditures incurred as service fees may not
exceed 0.25% per annum of the Fund's average daily net assets. The Fund
waived $1,054 of such expenses under the Plan for the year ended March
31, 1998.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $925,019 and $1,565,710, respectively, for the year ended
March 31, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of GrandView Investment Trust and Shareholders of
GrandView S&P REIT Index Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of GrandView S&P REIT Index Fund (a portfolio of
GrandView Investment Trust) as of March 31, 1998, and the related statements of
operations and changes in net assets, and financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended March 31, 1997
and the financial highlights for the two years in the period ended March 31,
1997 were audited by other auditors, whose reports thereon dated April 25, 1997,
expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of March 31, 1998 by
correspondence with the custodian and brokers; where replies were not received,
we performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
GrandView S&P REIT Index Fund as of March 31, 1998, the results of its
operations, the changes in its net assets and its financial highlights for the
year then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 24, 1998
<PAGE>
1998 Annual Report
GrandView Investment Trust
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
May 20, 1998
Telephone: 919-972-9922
U.S. WATS: 800-525-FUND
Facsimile: 919-0442-4226
To the Shareholders of the GrandView Realty Growth Fund:
We are pleased to present the annual report for the GrandView Realty Growth
Fund. The table below presents our results for the year along with the
appropriate market benchmarks.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Period Ending Dow Jones S&P 500 NAREIT GrandView GrandView
Utility Index Index Total Return Realty Growth Realty Growth
(Total (Total Return) Index Fund (NAV) Fund (MOP)
Return) (Total Return) (Total Return)
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Three Month 5.68% 13.95% -0.54% 2.81% -1.81%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Six Months 22.38% 17.22% 0.51% 4.27% -0.42%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
One Year 36.65% 48.00% 17.90% 24.80% 19.18%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Two Year 48.21% 77.34% 54.48% 81.10% 72.95%
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
Since Inception 62.48% 112.93% 76.16% 91.43% 82.81%
From 7/03/95
Ending 3/31/98
- ------------------- -------------- ---------------- ------------------ ------------------- -----------------
NAV = Net Asset Value (Without Sales Load)
MOP = Maximum Offering price (With Sales Load)
</TABLE>
For fiscal year ending March 31, 1998 we again achieved our primary goal of
outperforming the overall REIT market as measured by the National Association of
Real Estate Trust's (NAREIT) Total Return Index. We have switched to using the
NAREIT Index as your Fund's industry benchmark this year from the GrandView
Total Return Index used in previous annual reports. This was done to provide you
a more independently generated and more broadly recognized standard to measure
your Fund's performance. Your Fund ranked 9th out of 71 real estate funds (4th
not including various share classes of the same Fund) as measured by Lipper
Analytical for the twelve month period ending March 31, 1998*. We did not,
however, outperform the overall stock market as measured by the S&P 500 or the
Dow Jones Utility Index for the same twelve-month period. Although
disappointing, we did have more favorable results against these standards for
longer investment periods.
Of particular note, now that the Fund is developing some significant performance
data, is how it correlates (a Fund's Beta) with the S&P 500. Many investors use
individual REITs or a REIT Fund as an asset class for diversification purposes.
It is believed that investments that have different Betas can reduce the risk of
an overall investment portfolio. Real estate has long been an asset class that
has been held as a balance against the more volatile general equity market. We
are pleased that Micropal, Inc., a non-affiliated data service, has published
data on your Fund's Beta. That data indicates that its beta is one of the lowest
in the industry with a range of 0.15-0.18 for the year versus the S&P 500 beta
of 1.00. For comparison, most utility funds are in the 0.50 range. This would
suggest that your Fund is a good candidate for those who are seeking appropriate
diversification in relation to the overall market.
<PAGE>
Last year's performance, as good as it was, did not meet the previous year's
45.12% return. The reasons for this are many. In general, the real estate
capital markets had plenty of cash available for companies to make acquisitions.
This provided increased competition for all the various real estate property
types. This competition led to increasing property prices and reduced returns
for investors. In addition, the first three months of this year had two
extraordinary events that, in our opinion, reduced returns. First, Congress
announced that it wanted to examine the "tax favored" status of REITs and
announced that it would address these REIT tax breaks in new legislation.
Although not enacted as of yet, the fear of this unknown has sent a chill
throughout the REIT market as evidenced by the REIT's overall poor returns so
far in 1998. The second event, that has not gotten as much attention as the
first, is the flat shape of the interest rate curve. This curve measures the
difference between short and long term rates. This rate spread is used to
determine profitability for all mortgage and many hybrid REITs. Historically,
interest rates for longer-term money yields far more than short-term money. But
over the last six months, this "spread" has been historically low. This
"flatness" has provided good opportunities to borrow or refinance long term debt
but it has not been good for profits at some REITs. These two "negative" events
occurring within the same general time frame have more than off set what
continues to be a good overall real estate market. Property construction still
seems under control, the overall economy is good and rents are generally rising
as demand for well-located real estate exceeds supply.
In light of this current environment, we thought it would be of interest to
review our five largest holdings as of March 31, 1998.
Capital Trust (NYSE, Symbol: CT, Yield 0.00%): This real estate finance company
was formerly a microcap REIT known as California REIT. Recently Sam Zell gained
control and recapitalized the company into what is now one of the largest
specialty real estate finance companies. Currently the company's current
strategy is to provide flexible mezzanine financing and advisory services to the
real estate industry. We first began investing in what was then California REIT
in 1996 at under $2.00 per share. Research had identified the company as a
possible recapitalization opportunity. Our investment has certainly paid off, as
CT was the largest percentage gainer on the New York Stock Exchange in calendar
year 1997. Our annualized return on our investment as of March 31st was in
excess of 260%.
Starwood Finance Trust (ASE, Symbol APT, Yield: 0.00%): This is almost a
duplicate of the above story with the exception that Barry Sternlich of Starwood
Capital rather than Sam Zell gained control of what was formerly known as
Angeles Participating Mortgage Trust. This company was on our top five list last
year and was one of our first investments in 1995 when we began accumulating
shares at $0.50 per share. Recently, this company has been recapitalized to over
a billion dollars in market value and has purchased a portfolio of various real
estate investments from various Starwood entities. Our annualized return on our
investment as of March 31st was in excess of 151%.
Realty Refund Corporation (NYSE, Symbol RRF, Yield 0.00%): One of our
significant new investments in 1997 has been this microcap REIT that is in the
midst of transforming itself from a mortgage REIT to a Hotel REIT. At the time
of our initial investment, this company exhibited characteristics that were in
both Capital Trust and Starwood Finance when we first invested in them. RRF's
balance sheet was liquid with minimal debt and was looking to identify an
appropriate strategy for the future. Recently, the company acquired a hotel
portfolio, changed management and established a new strategy to enhance
shareholder value going forward. We believe that it is too early in our
investment cycle to measure our performance. Our annualized return as of March
31st was a minus 14%.
Redwood Trust (NYSE, Symbol RWT, Yield 4.55%): This holding was one of our big
losers this past fiscal year. Redwood is a classic mortgage REIT that invests in
large dollar single family mortgages. Since its current profits come from the
spread it earns from its borrowing costs and its lending revenues, it has been
hurt by the flat rate curve environment. We believe that the rate curve will, at
some point, return to its historical shape. Because of this belief, we have
chosen to add to our position as the stock fell and lower our basis. We expect
Redwood to be one of this year's big winners but to date our annualized return
on our investment as of March 31st was a minus 41%.
<PAGE>
Tarragon Realty Trust (NASDAQ, Symbol: VIPT, Yield 0.00%): One of GrandView's
initial investments, VIPT continues to provide steady returns to our portfolio.
Over the past twelve months, VIPT has changed its name from Vinland to Tarragon
and has become a self managed REIT. These steps were all in preparation for the
recently announced merger with National Income Realty Trust, another Fund
holding. Once the merger is completed, VIPT will be a much larger apartment REIT
with properties throughout the southeast. With this growth, we are expecting
significant share appreciation. Our annualized return on our investment as of
March 31st was 22%.
We continue to think the future is positive for real estate securities. The
economy is good, interest rates are stable and real estate supply and demand is
in general equilibrium. There are many institutional owners of real estate who
are interested in selling to public real estate companies providing good
opportunities for continued growth. There will always be occasional bumps in the
road such as "tax" issues, interest rate curves and foreign economies, but these
bumps also provide good investment opportunities. We think that a well managed
real estate fund such as the GrandView Realty Growth Fund is in a position to
invest in these opportunities as well as in companies that offer good management
and value for shareholders. Last year we indicated that it was our intent to
provide superior returns to the overall REIT market. We accomplished this with
your support. The same objective remains for the upcoming year.
Finally, we want to take this opportunity to address the much publicized "Year
2000" problem for our shareholders. All major service providers to our Fund,
First Union National Bank, the Fund's custodian; The Nottingham Company, the
Fund administrator and North Carolina Shareholder Services, the Fund's transfer
agent all have implementation plans that address the issue. Service providers
indicate that their year 2000 plan will be completed prior to the occurrence of
any problem. Although issues may develop as the time gets closer, we want to
assure you that your management team is aware of the issue and is doing
everything within its power to minimize its impact on the Fund.
We want to again thank you for your support as shareholders. If you ever have
any questions or desire additional information, please feel free to contact the
Fund Administrator at 1-800-525-3862, or the offices of GrandView Advisers at
1-800-578-4301.
Winsor H. Aylesworth
President
GrandView Advisers, Inc.
- --------
* Ranked 9th out of 71 real estate funds based on total return for the 52 week
period ending March 31, 1998, as reported by Lipper Analytical Services, Inc.
Total returns are based on Net Asset Value (NAV) and does not take into account
any sales charges which, if paid, would reduce overall returns. Past performance
is no guarantee of future results. During the period covered by the rankings,
the Fund's Adviser waived its fee and reimbursed a portion of the Fund's
expenses, which increased the stated return of the Fund.
<PAGE>
GrandView Realty Growth Fund
Performance Update - $10,000 Investment
For the period from July 3, 1995 (commencement of operations) to
March 31, 1998
GrandView Realty S&P 500 Dow Jones NAREIT Total
Growth Fund Index Utility Index Return Index
7/3/95 9,550 10,000 10,000 10,000
9/30/95 9,383 10,748 10,722 10,496
12/31/95 9,513 11,395 11,451 10,977
3/31/96 10,095 12,007 10,963 11,257
6/30/96 10,825 12,545 11,503 11,760
9/30/96 11,957 12,933 11,491 12,559
12/31/96 13,358 14,011 12,488 14,902
3/31/97 14,649 14,387 11,890 14,941
6/30/97 15,503 16,899 12,489 15,791
9/30/97 17,533 18,164 13,277 17,528
12/31/97 17,781 18,686 15,374 17,712
3/31/98 18,281 21,293 16,248 17,617
This graph depicts the performance of the GrandView Realty Growth Fund versus
the S&P 500 Index, the Dow Jones Utility Index, and the NAREIT Total Return
Index. It is important to note that the GrandView Realty Growth Fund is a
professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
Annualized Total Return
- ---------------------------------------------------------------
Since Inception One Year
- ---------------------------------------------------------------
No Sales Load 26.69% 24.80%
- ---------------------------------------------------------------
Maximum 4.5% Sales Load 24.58% 19.18%
- ---------------------------------------------------------------
The graph assumes an initial $10,000 investment at July 3, 1995 ($9,550 after
maximum sales load of 4.5%). All dividends and distributions are reinvested.
At March 31, 1998, the GrandView Realty Growth Fund would have grown to $18,281
- - total investment return of 82.81% since July 3, 1995. Without the deduction of
the 4.5% maximum sales load, the GrandView Realty Growth Fund would have grown
to $19,143 - total investment return of 91.43% since July 3, 1995.
At March 31, 1998, a similar investment in the S&P 500 Index would have grown to
$21,293 - total investment return of 112.93%; the Dow Jones Utility Index would
have grown to $16,248 - total investment return of 62.48%; the NAREIT Total
Return Index would have grown to $17,617 - total investment return of 76.17%
since July 3, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 96.03%
Agriculture - 1.66%
(a) Cadiz Land Company, Inc. ................................................. 3,300 $ 39,393
----------
Engineering & Construction - 1.90%
Dames & Moore Group ...................................................... 3,400 45,263
----------
Financial - Banks, Savings/Loans/Thrifts - 5.70%
(a) Capital Trust ............................................................ 13,900 135,525
----------
Real Estate - 2.49%
(a) Catellus Development Corporation ......................................... 3,200 59,200
----------
Real Estate Investment Trust - 80.83%
Alexandria Real Estate Equities, Inc. .................................... 800 25,350
(a) American Industrial Properties REIT ...................................... 5,700 79,087
(a) BRT Realty Trust ......................................................... 5,300 40,743
(a) Banyan Hotel Investment Fund ............................................. 25,000 37,500
Bedford Property Investors, Inc. ......................................... 1,000 19,313
Boston Properties, Inc. .................................................. 1,000 35,187
Burnham Pacific Properties, Inc. ......................................... 2,000 29,250
Crescent Real Estate Equities Company .................................... 1,400 50,400
Duke Realty Investments, Inc. ............................................ 800 19,500
Dynex Capital, Inc. ...................................................... 500 6,000
(a) EQK Realty Investors I ................................................... 46,800 55,575
EastGroup Properties, Inc. ............................................... 2,950 60,844
Entertainment Properties Trust ........................................... 900 17,663
Equity Office Properties Trust ........................................... 1,600 49,000
Equity Residential Properties Trust ...................................... 600 30,150
(a) FAC Realty Trust Inc. .................................................... 7,500 73,594
FelCor Suite Hotels, Inc. ................................................ 800 29,650
First Union Real Estate Investments ...................................... 5,700 66,619
Health Care Property Investors, Inc. ..................................... 1,200 44,325
Health and Retirement Property Trust ..................................... 1,000 20,250
Hospitality Properties Trust ............................................. 1,300 46,069
Humphrey Hospitality Trust, Inc. ......................................... 5,400 62,100
JP Realty, Inc. .......................................................... 800 20,300
LTC Properties, Inc. ..................................................... 1,100 21,244
(a) Liberte Investors, Inc. .................................................. 16,800 67,200
Meditrust Companies ...................................................... 2,400 73,800
(a) Meridian Point Realty Trust '83 .......................................... 26,742 40,113
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Real Estate Investment Trust - (Continued)
National Income Realty Trust ............................................. 3,760 $ 66,270
Patriot American Hospitality, Inc. ....................................... 2,500 67,500
RFS Hotel Investors, Inc. ................................................ 1,700 31,131
Realty Refund Trust ...................................................... 25,200 108,675
Redwood Trust, Inc. ...................................................... 4,000 94,000
(a) Resort Income Investors, Inc. ............................................ 70,000 15,400
Security Capital Pacific Trust ........................................... 1,200 28,875
Security Capital Industrial Trust ........................................ 900 23,062
Semele Group, Inc. ....................................................... 4,651 4,070
Simon DeBartolo Group, Inc. .............................................. 600 20,588
Sovran Self Storage, Inc. ................................................ 800 23,750
Spieker Properties, Inc. ................................................. 1,300 53,625
(a) Starwood Financial Trust ................................................. 27,800 128,575
Starwood Hotels & Resorts ................................................ 600 32,062
(a) TIS Mortgage Investment Company .......................................... 8,400 17,325
Tarragon Realty Investors Inc. ........................................... 8,600 84,925
----------
1,920,659
----------
Utilities - Water - 3.45%
(a) Western Water Company .................................................... 7,800 81,900
----------
Total Common Stocks (Cost $2,165,623) .................................... 2,281,940
----------
INVESTMENT COMPANY - 4.46%
Evergreen Money Market Institutional Money
Market Fund Institutional Service Shares (Cost $105,868) ................. 105,868 105,868
----------
Total Value of Investments (Cost $2,271,491 (b)) ..................................... 100.49 % $2,387,808
Liabilities In Excess of Other Assets ................................................ (0.49)% (11,587)
------ ----------
Net Assets .................................................................... 100.00 % $2,376,221
====== ==========
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1998
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is the $2,300,599. Unrealized appreciation (depreciation) of investments
for federal income tax purposes is as follows:
Unrealized appreciation $146,797
Unrealized depreciation (59,588)
--------
Net unrealized appreciation $ 87,209
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
ASSETS
Investments, at value (cost $2,271,491) .......................................................... $2,387,808
Cash ............................................................................................. 28,795
Income receivable ................................................................................ 5,032
Receivable for investments sold .................................................................. 23,929
Receivable for fund shares sold .................................................................. 2,500
Prepaid expenses ................................................................................. 2,547
Deferred organization expenses, net (note 4) ..................................................... 12,253
Due from advisor (note 2) ........................................................................ 5,849
----------
Total assets ................................................................................ 2,468,713
----------
LIABILITIES
Accrued expenses ................................................................................. 8,537
Payable for investment purchases ................................................................. 79,550
Payable for fund shares redeemed ................................................................. 4,405
----------
Total liabilities ........................................................................... 92,492
----------
NET ASSETS
(applicable to 163,820 shares outstanding; unlimited
shares of no par value beneficial interest authorized) .......................................... $2,376,221
==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,376,221 / 163,820 shares) .................................................................... $ 14.51
==========
OFFERING PRICE PER SHARE
(100 / 95.5 of $14.51) ........................................................................... $ 15.19
==========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $2,090,161
Undistributed net realized gain on investments ................................................... 169,743
Net unrealized appreciation on investments ....................................................... 116,317
----------
$2,376,221
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1998
INVESTMENT INCOME
Income
Dividends ..................................................................................... $ 43,596
--------
Expenses
Investment advisory fees (note 2) ............................................................. 16,842
Fund administration fees (note 2) ............................................................. 5,053
Distribution fees (note 3) .................................................................... 4,211
Custody fees .................................................................................. 8,883
Registration and filing administration fees (note 2) .......................................... 3,099
Fund accounting fees (note 2) ................................................................. 16,200
Audit fees .................................................................................... 7,500
Legal fees .................................................................................... 5,095
Securities pricing fees ....................................................................... 2,878
Shareholder recordkeeping fees ................................................................ 1,475
Shareholder servicing expenses ................................................................ 4,473
Registration and filing expenses .............................................................. 9,190
Printing expenses ............................................................................. 1,846
Amortization of deferred organization expenses (note 4) ....................................... 5,442
Trustee fees and meeting expenses ............................................................. 410
Other operating expenses ...................................................................... 3,103
--------
Total expenses ........................................................................... 95,700
--------
Less:
Expense reimbursements (note 2) .................................................... (42,126)
Investment advisory fees waived (note 2) ........................................... (16,842)
Distribution fees waived (note 3) .................................................. (3,054)
--------
Net expenses ............................................................................. 33,678
--------
Net investment income .............................................................. 9,918
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 327,769
Increase in unrealized appreciation on investments ................................................. 25,711
--------
Net realized and unrealized gain on investments ............................................... 353,480
--------
Net increase in net assets resulting from operations ..................................... $363,398
========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ............................................................. $ 9,918 $ 17,274
Net realized gain from investment transactions .................................... 327,769 125,083
Increase in unrealized appreciation on investments ................................ 25,711 86,406
---------- ----------
Net increase in net assets resulting from operations ......................... 363,398 228,763
---------- ----------
Distributions to shareholders from
Net investment income ............................................................. (9,918) (17,274)
Tax return of capital ............................................................. 0 (948)
Net realized gain from investment transactions .................................... (158,026) (125,083)
---------- ----------
Decrease in net assets resulting from distributions .......................... (167,944) (143,305)
---------- ----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .............. 1,022,744 890,543
---------- ----------
Total increase in net assets ............................................ 1,218,198 976,001
NET ASSETS
Beginning of year ..................................................................... 1,158,023 182,022
---------- ----------
End of year ........................................................................... $2,376,221 $1,158,023
========== ==========
(a) A summary of capital share activity follows:
-------------------------------------------------------------------------------
Year ended Year ended
March 31, 1998 March 31, 1997
Shares Value Shares Value
-------------------------------------------------------------------------------
Shares sold .................................... 105,845 $1,463,197 120,300 $1,552,510
Shares issued for reinvestment
of distributions .......................... 10,869 153,559 9,716 123,136
---------- ---------- ---------- ----------
116,714 1,616,756 130,016 1,675,646
Shares redeemed ................................ (44,171) (594,012) (56,779) (785,103)
---------- ---------- ---------- ----------
Net increase .............................. 72,543 $1,022,744 73,237 $ 890,543
========== ========== ========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
GRANDVIEW REALTY GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the
period from
July 3, 1995
(commencement of
Year ended Year ended operations) to
March 31, March 31, March 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................................. $12.69 $10.09 $10.00
Income from investment operations
Net investment income ...................................... 0.11 0.33 0.20
Net realized and unrealized gain on investments ............ 3.00 4.14 0.36
---------- ---------- ----------
Total from investment operations ....................... 3.11 4.47 0.56
---------- ---------- ----------
Distributions to shareholders from
Net investment income ...................................... (0.11) (0.33) (0.20)
Tax return of capital ...................................... 0.00 (0.01) (0.05)
Net realized gain from investment transactions ............. (1.18) (1.53) (0.22)
---------- ---------- ----------
Total distributions .................................... (1.29) (1.87) (0.47)
---------- ---------- ----------
Net asset value, end of period ........................................ $14.51 $12.69 $10.09
========== ========== ==========
Total return (a) ...................................................... 24.80 % 45.12 % 5.70 %
========== ========== ==========
Ratios/supplemental data
Net assets, end of period ....................................... $2,376,221 $1,158,023 $ 182,022
========== ========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees .............. 5.68 % 9.59 % 31.34 % (c)
After expense reimbursements and waived fees ............... 2.00 % 1.89 % 2.00 % (c)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees .............. (3.09)% (4.58)% (25.55)% (c)
After expense reimbursements and waived fees ............... 0.59 % 3.12 % 3.62 % (c)
Portfolio turnover rate ......................................... 170.19 % 197.90 % 44.44 %
Average broker commissions per share (b) ........................ $0.0429 $0.0367 -
(a) Total return does not reflect payment of a sales charge.
(b) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which
commissions were charged.
(c) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
GRANDVIEW REALTY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The GrandView Realty Growth Fund (the "Fund") is a diversified series
of shares of beneficial interest of the GrandView Investment Trust (the
"Trust"). The Trust, an open-ended investment company, was organized on
February 6, 1995 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The primary
objective of the Fund is long-term growth of capital by selecting
investments which are equity securities of real estate industry
companies which are undervalued or have significant "turnaround"
potential. The Fund began operations on July 3, 1995. Shares of the
Fund purchased are subject to a maximum sales charge of 4.50%. The
following is a summary of significant accounting policies followed by
the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at the last sales price
as of 4:00 p.m., New York time on the day of valuation. Other
securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are
valued at the most recent bid price. Securities for which
market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The character of distributions made during the year from net
investment income or net realized gains from investment
transactions may differ from their ultimate characterization
for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or
realized gains are recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded
on the trade date. Realized gains and losses are determined
using the specific identification cost method. Interest income
is recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date.
The Fund records distributions received from its investments
in real estate investment trusts that represent a tax return
of capital as a reduction of the cost basis of investments.
D. Distributions to Shareholders - The Fund generally declares
dividends quarterly, payable on a date selected by the Trust's
Trustees. In addition, distributions may be made annually in
December out of net realized gains through October 31 of that
year. Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution subsequent to the end of its fiscal year ending
March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the assets, liabilities, expenses and revenues reported
in the financial statements. Actual results could
differ from those estimated.
(Continued)
<PAGE>
GRANDVIEW REALTY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
F. Repurchase Agreements - The Fund may acquire U. S. Government
Securities or corporate debt securities subject to repurchase
agreements. A repurchase agreement transaction occurs when the
Fund acquires a security and simultaneously resells it to the
vendor (normally a member bank of the Federal Reserve or a
registered Government Securities dealer) for delivery on an
agreed upon future date. The repurchase price exceeds the
purchase price by an amount which reflects an agreed upon
market interest rate earned by the Fund effective for the
period of time during which the repurchase agreement is in
effect. Delivery pursuant to the resale typically will occur
within one to five days of the purchase. The Fund will not
enter into a repurchase agreement which will cause more than
10% of its net assets to be invested in repurchase agreements
which extend beyond seven days. In the event of the bankruptcy
of the other party to a repurchase agreement, the Fund could
experience delays in recovering its cash or the securities
loaned. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could
experience a loss. In all cases, the creditworthiness of the
other party to a transaction is reviewed and found
satisfactory by the Advisor. Repurchase agreements are, in
effect, loans of Fund assets. The Fund will not engage in
reverse repurchase transactions, which are considered to be
borrowings under the Investment Company Act of 1940, as
amended.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, GrandView Advisers, Inc.
(the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its
portfolio, and furnishes advice and recommendations with respect to
investments, investment policies and the purchase and sale of
securities. As compensation for its services, the Advisor receives a
fee at the annual rate of 1.00% of the Fund's average daily net assets.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and reimburse expenses of the Fund to limit total Fund
operating expenses to 2.00% of the average daily net assets of the
Fund. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has voluntarily
waived its fee amounting to $16,842 ($0.14 per share) and has
voluntarily reimbursed $42,126 of the Fund's operating expenses for the
year ended March 31, 1998.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.30% of the Fund's first $25 million of average daily
net assets, 0.275% of the next $25 million of average daily net assets,
and 0.225% of average daily net assets over $50 million. The
Administrator also receives a monthly fee of $1,500 for accounting and
recordkeeping services. Additionally, the Administrator charges the
Fund for servicing of shareholder accounts and registration of the
Fund's shares. The Administrator also charges the Fund for certain
expenses involved with the daily valuation of portfolio securities.
NC Shareholder Services, LLC (the "Transfer Agent") has been retained
by the Administrator to serve as the Fund's transfer, dividend paying,
and shareholder servicing agent. The Transfer Agent maintains the
records of each shareholder's account, answers shareholder inquiries
concerning accounts, processes purchases and redemptions of Fund
shares, acts as dividend and distribution disbursing agent, and
performs other shareholder servicing functions. The Transfer Agent is
compensated for its services by the Administrator and not directly by
the Fund.
(Continued)
<PAGE>
GRANDVIEW REALTY GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's
principal underwriter and distributor. The Distributor receives any
sales charges imposed on purchases of shares and re-allocates a portion
of such charges to dealers through whom the sale was made, if any. For
the year ended March 31, 1998, the Distributor retained sales charges
in the amount of $759.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the Distributor or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company
Act of 1940 (the "Act"), adopted a distribution plan pursuant to Rule
12b-1 of the Act (the "Plan"). The Act regulates the manner in which a
regulated investment company may assume expenses of distributing and
promoting the sales of its shares and servicing of its shareholder
accounts.
The Plan provides that the Fund may incur certain expenses, which may
not exceed 0.25% per annum of the Fund's average daily net assets for
each year elapsed subsequent to adoption of the Plan, for payment to
the Distributor and others for items such as advertising expenses,
selling expenses, commissions, travel or other expenses reasonably
intended to result in sales of shares of the Fund or support servicing
of shareholder accounts. Expenditures incurred as service fees may not
exceed 0.25% per annum of the Fund's average daily net assets. The Fund
waived $3,054 of such expenses under the Plan for the year ended March
31, 1998.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $3,605,994 and $2,791,534, respectively, for the year ended
March 31, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of GrandView Investment Trust and Shareholders of
GrandView Realty Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of GrandView Realty Growth Fund (a portfolio of
GrandView Investment Trust) as of March 31, 1998, and the related statements of
operations and changes in net assets, and financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended March 31, 1997
and the financial highlights for the two years in the period ended March 31,
1997 were audited by other auditors, whose reports thereon dated April 25, 1997,
expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of March 31, 1998 by
correspondence with the custodian and brokers; where replies were not received,
we performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
GrandView Realty Growth Fund as of March 31, 1998, the results of its
operations, the changes in its net assets and its financial highlights for the
year then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 24, 1998
<PAGE>
PART C
======
GRANDVIEW INVESTMENT TRUST
FORM N1-A
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements: Financial Highlights included
in Part A for each series of the Registrant for the
fiscal year ended March 31, 1998.
(b) Exhibits: Annual Report included in Part B for each
series of the Registrant for the fiscal year ended
March 31, 1998.
(1) (a) Declaration of Trust - Incorporated by reference; filed
2/22/95
(b) Amendment to Declaration of Trust - Incorporated by reference;
filed 1/9/96
(2) By-Laws - Incorporated by reference; filed 2/22/95
(3) Not Applicable
(4) Not Applicable
(5) Investment Advisory Agreements - Incorporated by reference;
filed 5/31/95
(6) Distribution Agreement - Incorporated by reference; filed
5/31/95
(7) Not Applicable
(8) Custodian Agreement - Incorporated by reference; filed 7/25/97
(9) (a) Fund Accounting, Dividend Disbursing & Transfer Agent and
Administration Agreement - Incorporated by reference; filed
5/31/95
(b) Amendment to Administration Agreement - Incorporated by
reference; filed 5/31/95
(c) Amendment to Administration Agreement - Incorporated by
reference; filed 7/25/97
(d) Amendment to Administration Agreement - Incorporated by
reference; filed 10/31/97
(10) (a) Opinion and consent of Counsel, Bingham, Dana & Gould, --
Incorporated by reference; filed 5/31/95
(b) Opinion and consent of Counsel, Poyner and Spruill, LLP, --
Incorporated by reference; filed 5/30/96 and 5/29/97 with
24f-2 notices
(11) Consent of Independent Auditors, Deloitte & Touche LLP, --
Enclosed Exhibit 11
(12) Not Applicable
(13) Initial Share Purchase Agreement - Incorporated by reference;
filed 5/31/95
(14) Not Applicable
(15) Distribution Plan - Incorporated by reference; filed 5/31/95
(16) Computation of Performance - Enclosed Exhibit 16
(17) Financial Data Schedule - Enclosed Exhibit 17
(24) Copies of Powers of Attorney - Incorporated by reference;
filed 7/25/97
ITEM 25. Persons Controlled by or Under Common Control with Registrant
No person is controlled by or under common control with the
Registrant.
ITEM 26. Number of Record Holders of Securities
As of July 29, 1998, the number of record holders of each
class of securities of Registrant was as follows:
Number of
Title of Class Record Holders
-------------- --------------
GrandView S&P(R) REIT Index Fund.....................61
GrandView Realty Growth Fund........................257
ITEM 27. Indemnification
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as Exhibit 1 herein.
The Trustees and officers of the Registrant and the personnel
of the Registrant's administrator are insured under an errors and
omissions liability insurance policy. The Registrant and its officers
are also insured under the fidelity bond required by Rule 17g-1 under
the Investment Company Act of 1940.
ITEM 28. Business and other Connections of Investment Advisor
Winsor H. Aylesworth is the President, Treasurer and Director
of GrandView Advisers, Inc. During the period from 1990 to 1993 Mr.
Aylesworth served as the Executive Vice President in the Loan Review
Department of the Bank of Boston Connecticut. From 1991 to the present
Mr. Aylesworth has served as President and Director of WHA Enterprises,
Inc. ("WHA"). The principal business address of WHA is 127 Grandview
Drive, Glastonbury, Connecticut 06033. At WHA Mr. Aylesworth is
responsible for publishing a financial newsletter on the REIT industry.
Lucille C. Carlson is a Director of GrandView Advisers, Inc. During the
period from 1991 to April, 1995 Ms. Carlson served as Assistant Vice
President in the Loan Review Department at the Bank of Boston
Connecticut. From 1993 to the present, Ms. Carlson has acted as
Director of Research at WHA. David F. Wolf is a Director of GrandView
Advisers, Inc. During the period from 1992 to May, 1995 Mr. Wolf was
employed as a financial planning consultant for John Hancock Financial
Services, Inc. From 1993 to the present, Mr. Wolf has served as
Director of Marketing for WHA. Maryanne S. Aylesworth is the Secretary
of GrandView Advisers, Inc. During the period from 1993 to 1994 Ms.
Aylesworth served as a substitute teacher in the Glastonbury,
Connecticut School District. From 1991 to the present Ms. Aylesworth
has served as Secretary of WHA, and from 1994 to the present, Ms.
Aylesworth has served as a medical laboratory technician.
ITEM 29. Principal Underwriter
(a) Capital Investment Group, Inc., the Registrant's distributor, is
also the underwriter and distributor for The Chesapeake Growth Fund,The
Chesapeake Fund, The Chesapeake Core Growth Fund, Capital Value Fund,
WST Growth & Income Fund, ZSA Asset Allocation Fund, The Brown Capital
Management Equity Fund, The Brown Capital Management Balanced Fund, and
The Brown Capital Management Small Company Fund.
(b)
Position(s) and Position(s) and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
Richard K. Bryant President No position with
17 Glenwood Avenue the Registrant or its
Raleigh, North Carolina Series
Elmer O. Edgerton, Jr. Vice President No position with
17 Glenwood Avenue the Registrant or its
Raleigh, North Carolina Series
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All account books and records not normally held by First Union
National Bank of North Carolina, the Custodian to the Registrant, are
held by the Registrant, in the offices of The Nottingham Company,
Fund Accountant and Administrator, NC Shareholder Services, Transfer
Agent to the Registrant, or by GrandView Advisers, Inc., the Advisor to
the Registrant.
The address of The Nottingham Company is 105 North Washington
Street, Post Office Drawer 69, Rocky Mount, North Carolina 17802-0069.
The address of NC Shareholder Services is 107 North Washington Street,
Post Office Box 4365, Rocky Mount, North Carolina 27803-0365. The
address of GrandView Advisers, Inc. is 127 Grandview Drive,
Glastonbury, Connecticut 06033. The address of First Union National
Bank of North Carolina is Two First Union Center, Charlotte, North
Carolina 28288-1151.
ITEM 31. Management Services
The substantive provisions of the Fund Accounting, Dividend
Disbursing & Transfer Agent and Administration Agreement between the
Registrant and The Nottingham Company are discussed in Part B hereof.
ITEM 32. Undertakings
The Registrant hereby undertakes to furnish each person to
whom a Prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
NOTICE
A copy of the Declaration of Trust for GrandView Investment Trust (the "Trust")
is on file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by an officer of the Trust as an officer and by its Trustees
as trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a)(ii) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 4 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 31st day of July, 1998.
GRANDVIEW INVESTMENT TRUST
By: /s/ Winsor H. Aylesworth
_______________________________
Winsor H. Aylesworth
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated below on July 31, 1998.
*
____________________________________
Winsor H. Aylesworth, President and Trustee (Principal Executive Officer)
*
____________________________________
Arthur Collins, Trustee
*
____________________________________
Richard W. Jagolta, Trustee
*
____________________________________
Raymond H. Weaving, Trustee
*
____________________________________
Julian G. Winters, Treasurer (Principal Financial Officer and
Principal Accounting Officer)
* By: /s/ Winsor H. Aylesworth
_____________________________
Winsor H. Aylesworth
Attorney-in-Fact Dated: July 31, 1998
<PAGE>
GRANDVIEW INVESTMENT TRUST
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
EXHIBIT 11 CONSENT OF AUDITORS
EXHIBIT 16 COMPUTATION OF PERFORMANCE
EXHIBIT 17 FINANCIAL DATA SCHEDULE
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees and Shareholders of
The GrandView Investment Trust:
We consent to the incorporation by reference in Post-Effective Amendment No. 5
to Registration Statement (No. 33-89628) of The GrandView Investment Trust
(which is comprised of the following portfolios: GrandView Realty Growth Fund
and GrandView S&P REIT Index Fund) of our reports dated April 24, 1998,
appearing in the Annual Reports, which are incorporated by reference in such
Registration Statement, and to the reference to us under the heading "Financial
Highlights" in such combined Prospectuses.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
July 28, 1998
EXHIBIT 16
Computation of Performance
THE GRANDVIEW FUNDS
The Fund computes the "average annual total return" 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 "cumulative total return" of the Fund, which is
calculated in a similar manner, except that the results are not annualized. This
calculation is as follows:
(ERV - P)/P = TR
Where: 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
TR = total return
The calculation of average annual total return and cumulative 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 average annual total return for the S&P(R) REIT Index Fund and the Realty
Growth Fund for the fiscal year ended March 31, 1998 was 12.07%, and 19.18%,
respectively. Without reflecting the effects of the maximum sales load the
average annual return for the period was 15.54%, and 24.80%, respectively. The
average annual total return for the S&P(R) REIT Index Fund and the Realty Growth
Fund since inception (July 3,1995 to March 31, 1998) was 16.94%, and 24.58%,
respectively. Without reflecting the effects of the maximum sales load the
average annual return for the period was 18.24%, and 26.69%, respectively.
The cumulative total return for the S&P(R) REIT Index Fund and the Realty Growth
Fund since inception (July 3, 1995 to March 31, 1998) was 53.65%, and 82.81%,
respectively. Without reflecting the effects of the maximum sales load, the
cumulative total return for the period was 58.40%, and 91.43%, respectively.
<PAGE>
S&P(R) REIT Index Fund:
Average Annual Total Return for the 12 months ended March 31, 1998 including
3.0% sales load:
1,000(1+T)^1 = 1,120.73
T = .1207
T = 12.07%
ERV = $1,120.73
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1998 including
3.0% sales load:
1,000(1+T)^2.75 = 1,536.47
T = .1694
T = 16.94%
ERV = $1,536.47
P = $1,000
n = 2.75
Cumulative Total Return since inception through March 31, 1998 including 3.0%
sales load:
(1,536.47-1,000)/1,000 = .5365
ERV = $1,536.47
P = $1,000
TR = 53.65%
Average Annual Total Return for the 12 months ended March 31, 1998 excluding
3.0% sales load:
1,000(1+T)^1 = 1,155.40
T = .1554
T = 15.54%
ERV = $1,155.40
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1998 excluding
3.0% sales load:
1,000(1+T)^2.75 = 1,583.99
T = .1824
T = 18.24%
ERV = $1,583.99
P = $1,000
n = 2.75
Cumulative Total Return since inception through March 31, 1998 excluding 3.0%
sales load:
(1,583.99-1,000)/1,000 = .5840
ERV = $1,583.99
P = $1,000
TR = 58.40%
<PAGE>
Realty Growth Fund:
Average Annual Total Return for the 12 months ended March 31, 1998 including
4.5% sales load:
1,000(1+T)^1 = 1,191.79
T = .1918
T = 19.18%
ERV = $1,191.79
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1998 including
4.5% sales load:
1,000(1+T)^2.75 = 1,828.14
T = .2458
T = 24.58%
ERV = $1,828.14
P = $1,000
n = 2.75
Cumulative Total Return since inception through March 31, 1998 including 4.5%
sales load:
(1,828.14-1,000)/1,000 = .8281
ERV = $1,828.14
P = $1,000
TR = 82.81%
Average Annual Total Return for the 12 months ended March 31, 1998 excluding
4.5% sales load:
1,000(1+T)^1 = 1,247.95
T = .2480
T = 24.80%
ERV = $1,247.95
P = $1,000
n = 1
Average Annual Total Return since inception through March 31, 1998 excluding
4.5% sales load:
1,000(1+T)^2.75 = 1,914.28
T = .2669
T = 26.69%
ERV = $1,914.28
P = $1,000
n = 2.75
Cumulative Total Return since inception through March 31, 1998 excluding 4.5%
sales load:
(1,914.28-1,000)/1,000 = .9143
ERV = $1,914.28
P = $1,000
TR = 91.43%
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