SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. ------
Post-Effective Amendment No. 33
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 33
------
(Check appropriate box or boxes.)
MIDWEST GROUP TAX FREE TRUST -
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File Nos. 2-72101 and 811-3174
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312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code:(513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor, Cincinnati,
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OH 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
__
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 75 days after filing pursuant to paragraph (a)
/X/ on February 1, 1996 pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal
year ended June 30, 1995 was filed with the Commission on August 29,
1995.
CROSS REFERENCE SHEET
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FORM N-1A
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ITEM SECTION IN PROSPECTUS
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1....................... Cover Page
2....................... Expense Information
3....................... Performance Information
4....................... Operation of the Fund, Investment Objective
and Policies
5....................... Operation of the Fund
6....................... Cover Page, Operation of the Fund,
Dividends and Distributions, Taxes
7....................... How to Purchase Shares, Operation of the
Fund, Calculation of Share Price, Exchange
Privilege, Distribution Plan, Application
8....................... How to Redeem Shares
9....................... None
ITEM SECTION IN STATEMENT OF ADDITIONAL
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INFORMATION
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10...................... Cover Page
11...................... Table of Contents
12...................... The Trust
13...................... Municipal Obligations, Definitions,
Policies and Risk Considerations,
Investment Limitations, Portfolio
Turnover
14...................... Trustees and Officers
15...................... None
16...................... The Investment Adviser and Underwriter,
Distribution Plan, Custodian, Auditors, MGF
Service Corp., Securities Transactions
17...................... Securities Transactions
18...................... The Trust
19...................... Calculation of Share Price, Redemption in
Kind
20...................... Taxes
21...................... The Investment Adviser and Underwriter
22...................... Historical Performance Information, Tax
Equivalent Yield Table
23...................... None
PROSPECTUS
February 1, 1996
MIDWEST GROUP TAX FREE TRUST
312 WALNUT STREET, 21st FLOOR
CINCINNATI, OHIO 45202-4094
GOVERNMENT HOUSING TAX-EXEMPT FUND
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The Government Housing Tax-Exempt Fund (the "Fund"), a separate
series of Midwest Group Tax Free Trust, is a professionally-managed,
no-load, diversified, open-end mutual fund which is designed primarily
for the investment of escrow and operating accounts maintained by
corporations, partnerships and individuals who own real property or
multifamily housing subject to mortgages held or insured by various
federal housing agencies.
The Fund seeks high current income that is exempt from federal
income tax, consistent with protection of capital. The Fund invests
primarily in pre-refunded municipal obligations, escrowed municipal
obligations and Government National Mortgage Association collateralized
mortgage obligations, which are rated AAA by Standard & Poor's Ratings
Group or Aaa by Moody's Investors Service, Inc.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
Midwest Group Financial Services, Inc. (the "Adviser") manages the
Fund's investments and its business affairs.
This Prospectus sets forth concisely the information about the Fund
that you should know before investing. Please retain this Prospectus
for future reference. A Statement of Additional Information dated
February 1, 1996 has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference in its entirety. A
copy of the Statement of Additional Information can be obtained at no
charge by calling one of the numbers listed below.
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
NATIONWIDE (TOLL-FREE). . . . . . . . . . . . . . . . . . .800-543-0407
CINCINNATI. . . . . . . . . . . . . . . . . . . . . . . . .513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
EXPENSE INFORMATION
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Shareholder Transaction Expenses
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Sales Load Imposed on Purchases................None
Sales Load Imposed on Reinvested Dividends.....None
Exchange Fee...................................None
Redemption Fee.................................None*
Check Redemption Processing Fee (per check):
First six checks per month...................None
Additional checks per month..................$0.25
* A wire transfer fee is charged by the Fund's Custodian in the case
of redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
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Management Fees After Waivers .25%(A)
12b-1 Fees .25%(B)
Other Expenses .49%
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Total Fund Operating Expenses .99%(C)
====
(A)Absent waivers of management fees, such fees would be .50%.
(B) Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales loads permitted by the National
Association of Securities Dealers.
(C) Absent waivers of management fees, total Fund operating expenses
would be 1.24%.
The purpose of this table is to assist the investor in
understanding the various costs and expenses that an investor in
the Fund will bear directly or indirectly. The percentages
expressing annual fund operating expenses are based on estimated
amounts for the current fiscal year. THE EXAMPLE BELOW SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example
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You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Years
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$10 $32
INVESTMENT OBJECTIVE AND POLICIES
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The Fund is a series of Midwest Group Tax Free Trust (the
"Trust"). The Fund seeks high current income exempt from federal
income tax, consistent with protection of capital. The Fund
seeks to achieve its investment objective by investing primarily
in pre-refunded municipal obligations, escrowed municipal
obligations and municipal obligations collateralized by
Government National Mortgage Association Certificates ("GNMA
collateralized mortgage obligations"), which are rated AAA by
Standard & Poor's Ratings Group or Aaa by Moody's Investors
Service, Inc.
The Fund is not intended to be a complete investment
program, and there is no assurance that its investment objective
can be achieved. The Fund's investment objective is fundamental
and as such may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. The term
"majority" of the outstanding shares means the lesser of (1) 67%
or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented at such meeting or
(2) more than 50% of the outstanding shares of the Fund. Unless
otherwise indicated, all investment practices and limitations of
the Fund are nonfundamental policies which may be changed by the
Board of Trustees without shareholder approval.
The Fund is primarily designed for the investment of escrow
and operating accounts maintained by corporations, partnerships
and individuals who own real property or multifamily housing
subject to mortgages held or insured by various federal housing
agencies. Mortgagors that obtain mortgage loans made directly or
insured by federal agencies are required to maintain and invest
several types of escrow accounts. Surplus Operating, Replacement
Reserve, Reserve Accounts and Residual Receipts are types of
escrow accounts that the federal agencies require, and the
agencies either mandate or suggest that the accounts be invested
to offset inflationary increases in repairs and replacement costs
and to enhance a project's financial condition. The Fund is an
appropriate investment vehicle for these accounts.
The Fund meets the qualifications of Change 6 to the
Department of Housing & Urban Development Handbook 4350.1 Rev.-1,
"Multifamily Asset Management and Project Servicing", approved on
February 10, 1994. Change 6 permits investment in a no-load,
open-end investment company that invests in pre-refunded,
escrowed and GNMA collateralized bonds which are rated AAA by
Standard & Poor's or Aaa by Moody's.
The Fund's dollar-weighted average maturity will be one year
or less. The Fund will invest only in municipal obligations with
remaining maturities of two years or less at the time of
purchase.
It is a fundamental policy that under normal market
conditions the Fund's assets will be invested so that at least
80% of its annual income will be exempt from federal income tax,
including the alternative minimum tax. This policy may not be
changed without the affirmative vote of a majority of the
outstanding shares of the Fund.
The Fund may, from time to time, invest in short-term U.S.
Treasury bills for liquidity purposes or for temporary defensive
purposes (subject to the fundamental policy that under normal
market conditions the assets of the Fund will be invested so that
at least 80% of annual income will be exempt from federal income
tax, including the alternative minimum tax).
Municipal Obligations
---------------------
Municipal obligations are debt obligations issued by or on
behalf of states, territories and possessions of the United
States and the District of Columbia, and their political
subdivisions, agencies, authorities and instrumentalities and
other qualifying issuers which pay interest that is, in the
opinion of bond counsel to the issuer, exempt from federal income
tax. Municipal obligations are issued to obtain funds to
construct, repair or improve various public facilities such as
airports, bridges, highways, hospitals, housing, schools, streets
and water and sewer works, to pay general operating expenses or
to refinance outstanding debts. They also may be issued to
finance various private activities, including the lending of
funds to public or private institutions for construction of
housing, educational or medical facilities or the financing of
privately owned or operated facilities.
PRE-REFUNDED AND ESCROWED MUNICIPAL OBLIGATIONS. It is
anticipated that the Fund will invest primarily in pre-refunded
and escrowed municipal obligations. Pre-refunded and escrowed
municipal obligations are issued originally as general obligation
or revenue bonds of governmental entities, but are now secured
until the call date or maturity of an escrow fund consisting
entirely of U.S. Government obligations that are sufficient for
paying the bondholders. Refunding bonds are bonds issued by
municipal agencies as a method to reduce debt service by
refunding and escrowing their outstanding bonds that otherwise
may not be "called" prior to maturity. A new issue of refunding
bonds is brought to the market and the proceeds are placed into
an escrow account to defease and, at a future date, to retire the
old issue. The escrow account is typically invested in direct
U.S. Treasury obligations or other U.S. Government securities.
The principal and interest flow through the escrow account to pay
the investor the debt service in the refunded or escrowed
municipal obligation.
GNMA COLLATERALIZED MUNICIPAL OBLIGATIONS. GNMA
collateralized municipal obligations generally are bonds issued
to provide funds to the issuer of the bonds to purchase fully-
modified pass-through certificates ("GNMA Certificates"), backed
by certain qualifying mortgage loans. The GNMA Certificates are
pledged as security for the bonds.
GNMA Certificates are U.S. Government obligations guaranteed
by the Government National Mortgage Association (the "GNMA") and
are mortgage-backed securities representing part ownership of a
pool of mortgage loans. The pool of mortgage loans underlying
the GNMA Certificates is assembled by the issuer, usually a
private mortgage lender. The loans in the pool, issued by
lenders such as mortgage bankers, commercial banks and savings
and loan associations, are either insured by the Federal Housing
Administration or the Farmers' Home Administration or guaranteed
by the Veterans Administration. If the pool is approved by the
GNMA, GNMA Certificates are issued and sold to investors such as
the Fund. GNMA Certificates entitle the holder to receive all
interest and principal payments owned on the pool of mortgage
loans, net of fees paid to the issuer and the GNMA. In addition,
the timely payment of interest and principal on this type of GNMA
Certificate is guaranteed by the GNMA, even in the event of the
foreclosure of underlying mortgage loans. The GNMA guarantee is
backed by the "full faith and credit" of the United States
Government. However, shares of the Fund are not guaranteed or
backed by either the GNMA or the United States Government.
Prepayments of and payments on foreclosures of mortgage loans
underlying a GNMA Certificate are passed through to the
registered holder with the regular monthly payments of principal
and interest, and have the effect of reducing future payments.
The mortgage loans underlying GNMA Certificates may be prepaid at
any time without penalty. If a prepayment of a mortgage loan
underlying a GNMA Certificate occurs, the return to the holder
may be lower if the holder acquired the security at a premium
over par or higher if the holder acquired the security at a
discount from par. In addition, prepayments of mortgage loans
underlying a GNMA Certificate will reduce the market value of the
security to the extent the market value of the security at the
time of prepayment exceeds it par value. In periods of declining
mortgage interest rates, prepayments may occur with increasing
frequency because, among other reasons, mortgagors may be able to
refinance outstanding mortgages at lower interest rates. In
general, a decline in interest rates will cause the value of GNMA
Certificates to increase to the extent that prepayments do not
occur, while a rise in interest rates will cause the value of
GNMA Certificates to decrease.
The market value of investments available to the Fund, and
therefore the Fund's yield and net asset value, will fluctuate
due to changes in interest rates, economic conditions, quality
ratings and other factors beyond the control of the Adviser. The
portfolio securities held by the Fund are subject to price
fluctuations based upon changes in the level of interest rates,
which will generally result in all those securities changing in
price in the same way, i.e., all those securities experiencing
appreciation when interest rates decline and depreciation when
interest rates rise. In addition, the financial condition of an
issuer or adverse changes in general economic conditions, or
both, may impair the issuer's ability to make payments of
interest and principal.
Certain provisions in the Internal Revenue Code relating to
the issuance of municipal obligations may reduce the volume of
municipal obligations qualifying for federal tax exemptions.
Shareholders should consult their tax advisors concerning the
effect of these provisions on an investment in the Fund.
Proposals that may further restrict or eliminate the income tax
exemptions for interest on municipal obligations may be
introduced in the future. If any such proposal were enacted that
would reduce the availability of municipal obligations for
investment by the Fund so as to adversely affect its
shareholders, the Fund would reevaluate its investment objective
and policies and submit possible changes in the Fund's structure
to shareholders for their consideration.
Other Investment Techniques
---------------------------
The Fund may also engage in the following investment
techniques, each of which may involve certain risks:
U.S. TREASURY BILLS. The Fund may invest in U.S. Treasury
bills for liquidity purposes or for temporary defensive purposes.
U.S. Treasury bills have initial maturities of one year or less.
U.S. Treasury bills are backed by the "full faith and credit" of
the United States Government. However, shares of the Fund are
not guaranteed or backed by the United States Government.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may invest
in floating or variable rate municipal obligations. Floating
rate obligations have an interest rate which is fixed to a
specified interest rate, such as a bank prime rate, and is
automatically adjusted when the specified interest rate changes.
Variable rate obligations have an interest rate which is adjusted
at specified intervals to a specified interest rate. Periodic
interest rate adjustments help stabilize the obligations' market
values. The Fund may purchase these obligations from the issuers
or may purchase participation interests in pools of these
obligations from banks or other financial institutions. Variable
and floating rate obligations usually carry demand features that
permit the Fund to sell the obligations back to the issuers or to
financial intermediaries at par value plus accrued interest upon
not more than 30 days' notice at any time or prior to specific
dates. Certain of these variable rate obligations, often
referred to as "adjustable rate put bonds," may have a demand
feature exercisable on specific dates once or twice each year.
The Fund will not invest more than 10% of its net assets in
floating or variable rate obligations as to which it cannot
exercise the demand feature on not more than seven days' notice
if the Adviser, under the direction of the Board of Trustees,
determines that there is no secondary market available for these
obligations and all other illiquid securities. If the Fund
invests a substantial portion of its assets in obligations with
demand features permitting sale to a limited number of entities,
the inability of the entities to meet demands to purchase the
obligations could affect the Fund's liquidity. However,
obligations with demand features frequently are secured by
letters of credit or comparable guarantees that may reduce the
risk that an entity would not be able to meet such demands. In
determining whether an obligation secured by a letter of credit
meets the Fund's quality standards, the Adviser will ascribe to
such obligation the same rating given to unsecured debt issued by
the letter of credit provider. In looking to the credit-
worthiness of a party relying on a foreign bank for credit
support, the Adviser will consider whether adequate public
information about the bank is available and whether the bank may
be subject to unfavorable political or economic developments,
currency controls or other governmental restrictions affecting
its ability to honor its credit commitment.
BORROWING AND PLEDGING. As a temporary measure for
extraordinary or emergency purposes, the Fund may borrow money
from banks or other persons in an amount not exceeding 10% of its
total assets. The Fund may pledge assets in connection with
borrowings but will not pledge more than 10% of its total assets.
The Fund will not make any additional purchases of portfolio
securities while borrowings are outstanding. Borrowing magnifies
the potential for gain or loss on the Fund's portfolio securities
and, therefore, if employed, increases the possibility of
fluctuation in its net asset value. This is the speculative
factor known as leverage. To reduce the risks of borrowing, the
Fund will limit its borrowings as described above. The Fund's
policies on borrowing and pledging are fundamental policies which
may not be changed without the affirmative vote of a majority of
its outstanding shares.
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in the Fund ordinarily must be at
least $10,000. Shares of the Fund are sold on a continuous basis
at the net asset value next determined after receipt of a
purchase order by the Trust.
INITIAL INVESTMENTS BY MAIL. You may open an account and
make an initial investment in the Fund by sending a check and a
complete account application to MGF Service Corp., P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to
the "Government Housing Tax-Exempt Fund." An account application
is included in this Prospectus.
You will be sent within five business days after the end of
each month a written statement disclosing each purchase or
redemption effected and each dividend or distribution credited to
your account during the month. Certificates representing shares
are not issued. The Trust and the Adviser reserve the rights to
limit the amount of investments and to refuse to sell to any
person.
Investors should be aware that the Fund's account
application contains provisions in favor of the Trust, MGF
Service Corp. and certain of their affiliates, excluding such
entities from certain liabilities (including, among others,
losses resulting from unauthorized shareholder transactions)
relating to the various services (for example, telephone
redemptions and exchanges and check redemptions) made available
to investors.
Should an order to purchase shares be canceled because your
check does not clear, you will be responsible for any resulting
losses or fees incurred by the Trust or MGF Service Corp. in the
transaction.
INITIAL INVESTMENTS BY WIRE. You may also purchase shares
of the Fund by wire. Please telephone MGF Service Corp.
(Nationwide call toll-free 800-543-0407; in Cincinnati call 629-
2050) for instructions. You should be prepared to give the name
in which the account is to be established, the address, telephone
number and taxpayer identification number for the account, and
the name of the bank which will wire the money.
Your investment will be made at the net asset value next
determined after your wire is received together with the account
information indicated above. If the Trust does not receive
timely and complete account information, there may be a delay in
the investment of your money and any accrual of dividends. To
make your initial wire purchase, you are required to mail a
completed account application to MGF Service Corp. Your bank may
impose a charge for sending your wire. There is presently no fee
for receipt of wired funds, but MGF Service Corp. reserves the
right to charge shareholders for this service upon thirty days'
prior notice to shareholders.
ADDITIONAL INVESTMENTS. You may purchase and add shares to
your account by mail or by bank wire. Checks should be sent to
MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354.
Checks should be made payable or endorsed to the "Government
Housing Tax-Exempt Fund." Bank wires should be sent as outlined
above. You may also make additional investments at the Trust's
offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202.
Each additional purchase request must contain the name of your
account and your account number to permit proper crediting to
your account. While there is no minimum amount required for
subsequent investments, the Trust reserves the right to impose
such requirement.
HOW TO REDEEM SHARES
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You may redeem shares of the Fund on each day that the Trust
is open for business. You will receive the net asset value per
share next determined after receipt by MGF Service Corp. of your
redemption request in the form described below. Payment is
normally made within three business days after tender in such
form, provided that payment in redemption of shares purchased by
check will be effected only after the check has been collected,
which may take up to fifteen days from the purchase date. To
eliminate this delay, you may purchase shares of the Fund by
certified check or wire.
BY TELEPHONE. You may redeem shares by telephone. The
proceeds will be sent by mail to the address designated on your
account or wired directly to your existing account in any
commercial bank or brokerage firm in the United States as
designated on your application. To redeem by telephone, call MGF
Service Corp. (Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050). The redemption proceeds will be sent
by mail or by wire within three business days after receipt of
your telephone instructions.
The telephone redemption privilege is automatically
available to all shareholders. You may change the bank or
brokerage account which you have designated under this procedure
at any time by writing to MGF Service Corp. with your signature
guaranteed by any eligible guarantor institution (including
banks, brokers and dealers, municipal securities brokers and
dealers, government securities brokers and dealers, credit
unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations) or by
completing a supplemental telephone redemption authorization
form. Contact MGF Service Corp. to obtain this form. Further
documentation will be required to change the designated account
if shares are held by a corporation, fiduciary or other
organization.
Neither the Trust, MGF Service Corp., nor their respective
affiliates will be liable for complying with telephone
instructions they reasonably believe to be genuine or for any
loss, damage, cost or expense in acting on such telephone
instructions. The affected shareholders will bear the risk of
any such loss. The Trust or MGF Service Corp., or both, will
employ reasonable procedures to determine that telephone
instructions are genuine. If the Trust and/or MGF Service Corp.
do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may
include, among others, requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of the transactions and/or tape recording telephone
instructions.
BY MAIL. You may redeem any number of shares from your
account by sending a written request to MGF Service Corp. The
request must state the number of shares or the dollar amount to
be redeemed and your account number. The request must be signed
exactly as your name appears on the Trust's account records. If
the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any of the eligible guarantor
institutions outlined above.
Written redemption requests may also direct that the
proceeds be deposited directly in the bank account or brokerage
account designated on your account application for telephone
redemptions. Proceeds of redemptions requested by mail are
mailed within three business days following receipt of
instructions in proper form.
BY CHECK. You may establish a special checking account with
the Fund for the purpose of redeeming shares by check. Checks
may be made payable to anyone for any amount, but checks may not
be certified.
When a check is presented to the Custodian for payment, MGF
Service Corp., as your agent, will cause the Fund to redeem a
sufficient number of full and fractional shares in your account
to cover the amount of the check. Checks will be processed at
the net asset value on the day the check is presented to the
Custodian for payment.
If the amount of a check is greater than the value of the
shares held in your account, the check will be returned.
Shareholders of the Fund should consider potential fluctuations
in the net asset value of the Fund's shares when writing checks.
A check representing a redemption request will take precedence
over any other redemption instructions issued by a shareholder.
As long as no more than six check redemptions are effected
in your account in any month, there will be no charge for the
check redemption privilege. However, after six check redemptions
are effected in your account in a month, MGF Service Corp. will
charge you $.25 for each additional check redemption effected
that month. MGF Service Corp. charges shareholders its costs for
each stop payment and each check returned for insufficient funds.
In addition, MGF Service Corp. reserves the right to make
additional charges to recover the costs of providing the check
redemption service. All charges will be deducted from your
account by redemption of shares in your account. The check
redemption procedure may be suspended or terminated at any time
upon written notice by the Trust or MGF Service Corp.
Shareholders should be aware that writing a check (a
redemption of shares) is a taxable event.
ADDITIONAL REDEMPTION INFORMATION. If your instructions
request a redemption by wire, you will be charged an $8
processing fee by the Fund's Custodian. The Trust reserves the
right, upon thirty days' written notice, to change the processing
fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage
firm may also impose a charge for processing the wire. In the
event that wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated
account.
Redemption requests may direct that the proceeds be
deposited directly in your account with a commercial bank or
other depository institution via an Automated Clearing House
(ACH) transaction. There is currently no charge for ACH
transactions. Contact MGF Service Corp. for more information
about ACH transactions.
At the discretion of the Trust or MGF Service Corp.,
corporate investors and other associations may be required to
furnish an appropriate certification authorizing redemptions to
ensure proper authorization. The Trust reserves the right to
require you to close your account if at any time the value of
your shares is less than $10,000 (based on actual amounts
invested, unaffected by market fluctuations) or such other
minimum amount as the Trust may determine from time to time.
After notification to you of the Trust's intention to close your
account, you will be given thirty days to increase the value of
your account to the minimum amount.
The Trust reserves the right to suspend the right of
redemption or to postpone the date of payment for more than three
business days under unusual circumstances as determined by the
Securities and Exchange Commission.
EXCHANGE PRIVILEGE
- ------------------
Shares of the Fund and of any other fund of the Midwest
Group of Funds may be exchanged for each other. A sales load
will be imposed equal to the excess, if any, of the sales load
rate applicable to the shares being acquired over the sales load
rate, if any, previously paid on the shares being exchanged. A
contingent deferred sales load may be imposed on a redemption of
shares of the Fund if such shares had previously been acquired in
connection with an exchange from another fund in the Midwest
Group which imposes a contingent deferred sales load, as
described in the Prospectus of such other fund.
The following are the funds of the Midwest Group of Funds
currently offered to the public. Funds which may be subject to a
front-end or contingent deferred sales load are indicated by an
asterisk.
Midwest Group Tax Free Trust Midwest Strategic Trust
- ---------------------------- -----------------------
Tax-Free Money Fund *U.S. Government Securities Fund
Ohio Tax-Free Money Fund *Equity Fund
California Tax-Free Money Fund *Utility Fund
Royal Palm Florida Tax-Free *Treasury Total Return Fund
Money Fund
Government Housing Tax-Exempt Fund
*Tax-Free Intermediate Term Fund
*Ohio Insured Tax-Free Fund
Midwest Trust
-------------
Short Term Government Income Fund
Institutional Government Income Fund
*Intermediate Term Government Income Fund
*Adjustable Rate U.S. Government Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to
MGF Service Corp. The request must be signed exactly as your
name appears on the Trust's account records. Exchanges may also
be requested by telephone. If you are unable to execute your
transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by
visiting the Trust's offices at 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202. An exchange will be effected at the next
determined net asset value (or offering price, if sales load is
applicable) after receipt of a request by MGF Service Corp.
Exchanges may only be made for shares of funds then offered
for sale in your state of residence and are subject to the
applicable minimum initial investment requirements. The exchange
privilege may be modified or terminated by the Board of Trustees
upon 60 days' prior notice to shareholders. An exchange results
in a sale of fund shares, which may cause you to recognize a
capital gain or loss. Before making an exchange, contact MGF
Service Corp. to obtain a current prospectus for any of the other
funds in the Midwest Group and more information about exchanges
among the Midwest Group of Funds.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
All of the net investment income of the Fund is declared as
a dividend to shareholders of record on each business day of the
Trust and paid monthly. The Fund expects to distribute any net
realized long-term capital gains at least once each year.
Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains. The
Fund will, at the time dividends are paid, designate as tax-
exempt the same percentage of the distribution as the actual tax-
exempt income earned during the period covered by the
distribution bore to total income earned during the period; the
percentage of the distribution which is tax-exempt may vary from
distribution to distribution.
Dividends are automatically reinvested in additional shares
of the Fund (the Share Option) unless cash payments are specified
on your application or are otherwise requested by contacting MGF
Service Corp. All distributions will be based on the net asset
value in effect on the payable date. If you elect to receive
dividends in cash and the U.S. Postal Service cannot deliver your
checks or if your checks remain uncashed for six months, your
dividends may be reinvested in your account at the then-current
net asset value and your account will be converted to the Share
Option.
TAXES
- -----
The Fund intends to qualify for the special tax treatment
afforded a "regulated investment company" under Subchapter M of
the Internal Revenue Code so that it does not pay federal taxes
on income and capital gains distributed to shareholders. The
Fund also intends to meet all IRS requirements necessary to
ensure that it is qualified to pay "exempt-interest dividends,"
which means that the Fund may pass on to shareholders the federal
tax-exempt status of its investment income.
The Fund intends to distribute substantially all of its net
investment income and any net realized capital gains to its
shareholders. For federal income tax purposes, a shareholder's
proportionate share of taxable distributions from the Fund's net
investment income as well as from net realized short-term capital
gains, if any, is taxable as ordinary income. Since the Fund's
investment income is derived from interest rather than dividends,
no portion of such distributions is eligible for the dividends
received deduction available to corporations. Distributions of
net realized long-term capital gains are taxable as long-term
capital gains regardless of how long you have held your Fund
shares.
Issuers of tax-exempt securities issued after August 31,
1986 are required to comply with various new restrictions on the
use and investment of proceeds of sales of the securities. Any
failure by the issuer to comply with these restrictions would
cause interest on such securities to become taxable to the
security holders as of the date the securities were issued.
Redemptions and exchanges of shares of the Fund are taxable
events on which a shareholder may realize a gain or loss. If a
shareholder buys shares of the Fund and sells them at a loss
within six months, any loss will be disallowed for federal income
tax purposes to the extent of the exempt-interest dividends
received on such shares. Any loss realized upon the sale of
shares of the Fund within six months from the date of their
purchase will be treated as a long-term capital loss to the
extent of amounts treated as distributions of net realized long-
term capital gains during such six month period. In addition,
shareholders should be aware that interest on indebtedness
incurred to purchase or carry shares of the Fund is not
deductible for federal income tax purposes. Shareholders
receiving Social Security benefits may be taxed on a portion of
those benefits as a result of receiving tax-exempt income.
The Fund will mail to each of its shareholders a statement
indicating the amount and federal income tax status of all
distributions made during the year. The Fund will report to its
shareholders the percentage and source of income earned on tax-
exempt obligations held by it during the preceding year. An
exemption from federal income tax may not result in similar
exemptions under the laws of a particular state or local taxing
authority.
Shareholders should consult their tax advisors about the tax
effect of distributions and withdrawals from the Fund and the use
of the Exchange Privilege. The tax consequences described in
this section apply whether distributions are taken in cash or
reinvested in additional shares. The Fund may not be an
appropriate investment for persons who are "substantial users" of
facilities financed by industrial development bonds or are
"related persons" to such users; such persons should consult
their tax advisors before investing in the Fund.
OPERATION OF THE FUND
- ---------------------
The Fund is a diversified series of Midwest Group Tax Free
Trust, an open-end management investment company organized as a
Massachusetts business trust on April 13, 1981. The Board of
Trustees supervises the business activities of the Trust. Like
other mutual funds, the Trust retains various organizations to
perform specialized services for the Fund.
The Trust retains Midwest Group Financial Services, Inc.,
312 Walnut Street, Cincinnati, Ohio (the "Adviser"), to manage
the Fund's investments and its business affairs. The Adviser was
organized in 1974 and is also the investment adviser to six other
series of the Trust, five series of Midwest Trust and four series
of Midwest Strategic Trust. The Adviser is a subsidiary of
Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. The Fund pays the Adviser a fee equal
to the annual rate of .5% of the average value of its daily net
assets up to $500 million; .45% of such assets from $500 million
to $1 billion; and .4% of such assets in excess of $1 billion.
As of the date of this Prospectus, the Adviser is the sole
shareholder of the Fund.
John J. Goetz, the Chief Investment Officer of the Adviser,
is primarily responsible for managing the Fund's portfolio. Mr.
Goetz has been employed by the Adviser in various capacities
since 1981.
The Adviser retains Cash Reserve Consulting, Inc. ("CRC") to
provide consulting services regarding regulatory requirements and
the use of the Fund for mortgage service companies, state and
local housing authorities, management agents, developers and such
other entities which may invest in the Fund.
The Fund is responsible for the payment of all operating
expenses, including fees and expenses in connection with
membership in investment company organizations, brokerage fees
and commissions, legal, auditing and accounting expenses,
expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares
(see "Distribution Plan"), insurance expenses, taxes or
governmental fees, fees and expenses of the custodian, transfer
agent and accounting and pricing agent of the Fund, fees and
expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and
distributing prospectuses, statements, reports and other
documents to shareholders, expenses of shareholders' meetings and
proxy solicitations, and such extraordinary or nonrecurring
expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and
Trustees with respect thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354,
Cincinnati, Ohio, a subsidiary of Leshner Financial, Inc., to
serve as the Fund's transfer agent, dividend paying agent and
shareholder service agent.
MGF Service Corp. also provides accounting and pricing
services to the Fund. MGF Service Corp. receives a monthly fee
from the Fund for calculating daily net asset value per share and
maintaining such books and records as are necessary to enable it
to perform its duties.
In addition, MGF Service Corp. has been retained by the
Adviser to assist the Adviser in providing administrative
services to the Fund. In this capacity, MGF Service Corp.
supplies executive, administrative and regulatory services,
supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings
with the Securities and Exchange Commission and state securities
authorities. The Adviser (not the Fund) pays MGF Service Corp. a
fee for these administrative services equal to one-fourth of its
advisory fee from the Fund.
The Adviser serves as principal underwriter for the Fund
and, as such, is the exclusive agent for the distribution of
shares of the Fund. Robert H. Leshner, Chairman and a director
of the Adviser, is President and a Trustee of the Trust. John F.
Splain, Secretary and General Counsel of the Adviser, is
Secretary of the Trust.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to its
objective of seeking best execution of portfolio transactions,
the Adviser may give consideration to sales of shares of the Fund
as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund. Subject to the requirements
of the Investment Company Act of 1940 and procedures adopted by
the Board of Trustees, the Fund may execute portfolio
transactions through any broker or dealer and pay brokerage
commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or
(iii) an affiliated person of which is an affiliated person of
the Trust or the Adviser.
Shares of the Fund have equal voting rights and liquidation
rights. The Fund shall vote separately on matters submitted to a
vote of the shareholders except in matters where a vote of all
series of the Trust in the aggregate is required by the
Investment Company Act of 1940 or otherwise. When matters are
submitted to shareholders for a vote, each shareholder is
entitled to one vote for each full share owned and fractional
votes for fractional shares owned. The Trust does not normally
hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for
the purpose of voting upon the removal of any Trustee when
requested to do so in writing by shareholders holding 10% or more
of the Trust's outstanding shares. The Trust will comply with
the provisions of Section 16(c) of the Investment Company Act of
1940 in order to facilitate communications among shareholders.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of
1940, the Fund has adopted a plan of distribution (the "Plan")
under which the Fund may directly incur or reimburse the Adviser
for certain distribution-related expenses, including payments to
securities dealers and others who are engaged in the sale of
shares of the Fund and who may be advising investors regarding
the purchase, sale or retention of Fund shares; expenses of
maintaining personnel who engage in or support distribution of
shares or who render shareholder support services not otherwise
provided by MGF Service Corp.; expenses of formulating and
implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of
preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports
for recipients other than existing shareholders of the Fund;
expenses of obtaining such information, analyses and reports with
respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related
to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to
the Plan is .25% of the Fund's average daily net assets.
Unreimbursed expenditures will not be carried over from year to
year. In the event the Plan is terminated by the Fund in
accordance with its terms, the Fund will not be required to make
any payments for expenses incurred by the Adviser after the date
the Plan terminates.
Pursuant to the Plan, the Fund may also make payments to
banks or other financial institutions that provide shareholder
services and administer shareholder accounts. The Glass-Steagall
Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not
been clearly defined by the courts or appropriate regulatory
agencies, management of the Trust believes that the Glass-
Steagall Act should not preclude a bank from providing such
services. However, state securities laws on this issue may
differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register
as dealers pursuant to state law. If a bank were prohibited from
continuing to perform all or a part of such services, management
of the Trust believes that there would be no material impact on
the Fund or its shareholders. Banks may charge their customers
fees for offering these services to the extent permitted by
applicable regulatory authorities, and the overall return to
those shareholders availing themselves of the bank services will
be lower than to those shareholders who do not. The Fund may
from time to time purchase securities issued by banks which
provide such services; however, in selecting investments for the
Fund, no preference will be shown for such securities.
The Securities and Exchange Commission recently adopted
amendments proposed by the National Association of Securities
Dealers to its Rules of Fair Practice relating to asset-based
sales charges of mutual funds. The amendments require fund-level
accounting in which all sales charges - front-end load, 12b-1
fees or contingent deferred load - terminate when a percentage of
gross sales is reached.
CALCULATION OF SHARE PRICE
- --------------------------
On each day that the Trust is open for business, the share
price (net asset value) of the Fund's shares is determined as of
the close of the regular session of trading on the New York Stock
Exchange, currently 4:00 p.m., Eastern time. The Trust is open
for business on each day the New York Stock Exchange is open for
business and on any other day when there is sufficient trading in
the Fund's investments that its net asset value might be
materially affected. The net asset value per share of the Fund
is calculated by dividing the sum of the value of the securities
held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of
shares outstanding of the Fund, rounded to the nearest cent.
U.S. Treasury bills are valued at their most recent bid
prices as obtained from one or more of the major market makers
for such securities. Tax-exempt portfolio securities are valued
for the Fund by an outside independent pricing service approved
by the Board of Trustees. The service generally utilizes a
computerized grid matrix of tax-exempt securities and evaluations
by its staff to determine what it believes is the fair value of
the portfolio securities. The Board of Trustees believes that
timely and reliable market quotations are generally not readily
available to the Fund for purposes of valuing tax-exempt
securities and that valuations supplied by the pricing service
are more likely to approximate the fair value of the tax-exempt
securities. If, in the Adviser's opinion, the valuation provided
by the service does not accurately reflect the fair value of a
tax-exempt security, it will value the security at the average of
the prices quoted by at least two independent market makers. The
quoted price will represent the market maker's opinion as to the
price that a willing buyer would pay for the security. All other
securities (and other assets) of the Fund for which market
quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently
applied procedures established by and under the general
supervision of the Board of Trustees. The net asset value per
share of the Fund will fluctuate with the value of the securities
it holds.
PERFORMANCE INFORMATION
- -----------------------
From time to time, the Fund may advertise its "average
annual total return." The Fund may also advertise "yield." Both
yield and average annual total return figures are based on
historical earnings and are not intended to indicate future
performance.
The "average annual total return" of the Fund refers to the
average annual compounded rates of return over the most recent 1,
5 and 10 year periods or, where the Fund has not been in
operation for such period, over the life of the Fund (which
periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment. The calculation
of "average annual total return" assumes the reinvestment of all
dividends and distributions. The Fund may also advertise total
return (a "nonstandardized quotation") which is calculated
differently from "average annual total return". A non-
standardized quotation of total return may be a cumulative return
which measures the percentage change in the value of an account
between the beginning and end of a period, assuming no activity
in the account other than reinvestment of dividends and capital
gains distributions. A nonstandardized quotation of total return
may also indicate average annual compounded rates of return over
periods other than those specified for "average annual total
return." A non-standardized quotation of total return will
always be accompanied by the Fund's "average annual total return"
as described above.
The "yield" of the Fund is computed by dividing the net
investment income per share earned during a thirty-day (or one
month) period stated in the advertisement by the maximum public
offering price per share on the last day of the period (using the
average number of shares entitled to receive dividends). The
yield formula assumes that net investment income is earned and
reinvested at a constant rate and annualized at the end of a six-
month period. In addition, the Fund may advertise together with
its "yield" a tax-equivalent yield which reflects the yield which
would be required of a taxable investment at a stated income tax
rate in order to equal the Fund's "yield."
From time to time, the Fund may advertise its performance
rankings as published by recognized independent mutual fund
statistical services such as Lipper Analytical Services, Inc.
("Lipper"), or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's,
Fortune or Morningstar Mutual Fund Values. The Fund may also
compare its performance to that of other selected mutual funds,
averages of the other mutual funds within its category as
determined by Lipper, or recognized indicators. In connection
with a ranking, the Fund may provide additional information, such
as the particular category of funds to which the ranking relates,
the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense
reimbursements, if any. The Fund may also present its
performance and other investment characteristics, such as
volatility or a temporary defensive posture, in light of the
Adviser's view of current or past market conditions or historical
trends.
GOVERNMENT HOUSING Account No._______________________________
(For Fund Use Only)
TAX-EXEMPT FUND For Broker-Dealer Use Only
Firm Name:_________________________________
Account Application Home Office Address:________________________
Branch Address:_____________________________
Rep Name & No.:_____________________________
Rep Phone No.:______________________________
Rep Signature_______________________________
____________________________________________________________________________
Initial Investment of $________________________ ($10,000 minimum)
- --Check or draft enclosed payable to the Fund.
- --Bank Wire From:___________________________________________________________
- --Exchange From: ___________________________________________________________
(Fund Name) (Fund Account Number)
_____________________________________________________________________________
Account Name S.S.#/Tax I.D.#
____________________________________________ _____________________________
Name of Individual, Corporation, Organization (In case of custodial account
or Minor, Etc. please list minor's S.S.#)
____________________________________________ ______________________________
Name of Joint Tenant, Partner, Custodian Citizen U.S./Other
Address Phone
_____________________________________________ (____)_________________________
Street or P.O. Box Business Phone
_____________________________________________ (____)__________________________
City State Zip Home Phone
Check Appropriate Box:__ Individual __Joint Tenant (Right of survivorship
presumed) __ Corporation __Custodial __Other
Occupation and Employer Name/Address___________________________________________
Are you an associated person of an NASD member? __Yes __No
_______________________________________________________________________________
Taxpayer Identification Number-Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number.
Check box if appropriate:
__I am exempt from back-up withholding under the provisions of section 3406(a)
(1)(c) of the Internal Revenue Code; or I am not subject to back-up
withholding because I have not been notified that I am subject to back-up
withholding as a result of a failure to report all interest or dividends;
or the Internal Revenue Service has notified me that I am no longer subject
to back-up withholding.
__I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I
do not provide a Taxpayer Identification Number within 60 days that 31% of
all reportable payments will be wihheld until I provide a number.
______________________________________________________________________________
Distributions (Distributions are reinvested if no choice is indicated)
__Reinvest all distributions __Pay all distributions in cash
______________________________________________________________________________
Signatures
By signature below each investor certifies that he has received a copy of the
Fund's current prospectus and acknowledges the risks of investing in the Fund,
that he is of legal age, and that he has full authority and legal capacity for
himself or the organization named below, to make this investment and to use the
options selected above. The investor appoints MGF Service Corp. as his agent
to enter orders for shares whether by direct purchase or exchange, to receive
dividends and distributions for automatic reinvestment in additional shares of
the Fund for credit to the investor's account and to surrender for redemption
shares held in the investor's account in accordance with any of the procedures
elected above or for payment of service charges incurred by the investor. The
investor further agrees that MGF Service Corp. can cease to act as such agent
upon ten day's notice in writing to the investor at the address contained in
this Application. The investor hereby ratifies any instructions given
pursuant to this Application and for himself and his successors and assigns
does hereby release MGF Service Corp., Midwest Group Tax Free Trust, Midwest
Group Financial Services, Inc., and their respective officers, employees, agents
and affiliates from any and all liability in the performance of the acts
instructed herein. Neither the Trust, MGF Service Corp., nor their respective
affiliates will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost or expense in
acting on such telephone instructions. The investor(s) will bear the risk
of any such loss. The Trust or MGF Service Corp., or both, will employ
reasonable procedures to determine that telephone instructions are genuine.
If the Trust and/or MGF Service Corp. do not employ such procedures, they
may be liable for losses due to unauthorized or fraudulent instructions.
These procedures may include, among others, requiring forms of personal
identification prior to acting upon telephone instructions, providing written
confirmation of the transactions and/or recording telephone instructions.
_________________________________ ____________________________________
Signature of Individual Owner, Signature of Joint Owner if Any
Corporate Officer, Trustee etc.
_________________________________ _____________________________________
Title of Corporate Officer, Trustee Date
etc.
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE
RESOLUTION FORM ON THE FOLLOWING PAGE. UNLESS OTHERWISE SPECIFIED,
EACH JOINT OWNER SHALL HAVE FULL AUTHORITY TO ACT ON BEHALF OF THE ACCOUNT.
Redemption Options
I (we) authorize the Trust or MGF Service Corp. to act upon instructions
received by telephone, or upon receipt of and in the amounts of checks as
described below (if checkwriting is selected), to have amounts withdrawn from my
(our) account in any fund in the Midwest Group (see prospectus for limitations
on this option) and:
__WIRED ($1,000 minimum) or mailed to my (our) bank account designated below.
I (we) further authorize the use of automated cash transfers to and from the
account designated below.
NOTE: For wire redemptions, the indicated bank should be a commercial bank.
Please attach a voided check for the account.
Bank Account Number:________________ Bank Routing Transit Number:_____________
Name of Account Holder:_______________________________________________________
Bank Name:____________________________________________________________________
Bank Address:_________________________________________________________________
Street City State
__CHECKWRITING (A signature card must be completed)
..to deposit the proceeds of such redemptions in the applicable Midwest
Group Tax Free Trust Pay Through Draft Account (PTDA) or otherwise arrange for
application of such proceeds to payment of said checks. I (we) authorize the
persons whose signatures appear on the PTDA signature card to draw checks on
the PTDA and to cause the redemption of my (our) shares of the Fund. I (we)
agree to be bound by the Rules and Regulations for the Midwest Group Tax
Free Trust Common Clearing Accounts as such Rules and Regulations may be
amended from time to time.
__BROKER-DEALER REDEMPTION OPTION (indicate approval by initialing on the
line below the box)
..to wire the proceeds of such redemptions to the bank account of the
brokerage firm designated above, or to mail or deliver the proceeds to said
brokerage firm, for the benefit of my (our) brokerage account with said firm.
I (we) further authorize the use of automated cash transfers to and from
the bank account of said brokerage firm.
__________
(initials)
_______________________________________________________________________________
Resolutions (This Section to be completed by Corporations, Trusts and Other
Organizations)
RESOLVED: That this corporation or organization become a shareholder of the
Government Housing Tax-Exempt Fund (the Fund) and that
______________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf
of the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Fund,
and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to
sign any documents necessary or appropiate to appoint MGF Service Corp. as
redemption agent of the corporation or organization for shares of the Fund, to
establish or acknowledge terms and conditions governing the redemption of said
shares or to otherwise implement the privileges elected on the Application, and
it is
(If checkwriting privilege is not desired please cross out the following
resolution.)
FURTHER RESOLVED: That the corporation or organization participate in the
Midwest Group Tax Free Trust Pay Through Draft Account (PTDA) and that until
otherwise ordered in writing, MGF Service Corp. is authorized to make
redemptions of shares held by the corporation or organization, and to make
payment from the PTDA upon and according to the check, draft, note or order of
this corporation or organization when signed by
______________________________________________________________________________
and to receive the same when so signed to the credit of, or payment to, the
payee or any other holder without inquiry as to the circumstances of issue or
the disposition of proceeds, whether drawn to the individual order or tendered
in payment of individual obligations of the persons above named or other
officers of this corporation or organization or otherwise.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
_______________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of _____________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _______________________
(Date)
at which a quorum was present and acting throughout, and that the same are now
in full force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title
_________________________________ ______________________________________
_________________________________ ______________________________________
_________________________________ _______________________________________
Witness my hand and seal of the corporation or organization this________ day of
__________________19__________
*_________________________________ _____________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the
above resolutions, this certificate must also be signed by another officer.
(Back Page)
MIDWEST GROUP TAX FREE TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
BOARD OF TRUSTEES
Dale P. Brown
Gary W. Heldman
H. Jerome Lerner
Robert H. Leshner
Richard A. Lipsey
Donald J. Rahilly
Fred A. Rappoport
Oscar P. Robertson
Robert B. Sumerel
OFFICERS
Robert H. Leshner, President
John F. Splain, Secretary
Mark J. Seger, Treasurer
INVESTMENT ADVISER
MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
- -------------------
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Rate Line
- ---------
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
TABLE OF CONTENTS
Expense Information. . . . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies. . . . . . . . . . . . . . . .
How to Purchase Shares . . . . . . . . . . . . . . . . . . . . .
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . .
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation of the Fund. . . . . . . . . . . . . . . . . . . . . .
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Share Price. . . . . . . . . . . . . .. . . . . .
Performance Information. . . . . . . . . . . . . . . . . . . . .
Application. . . . . . . . . . . . . . . . . . . . . . . . . . .
No person has been authorized to give any information or to
make any representations, other than those contained in this
Prospectus, in connection with the offering contained in this
Prospectus, and if given or made, such information or
representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the
Trust to sell shares in any State to any person to whom it is
unlawful for the Trust to make such offer in such State.
MIDWEST GROUP TAX FREE TRUST
-----------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
February 1, 1996
Government Housing Tax-Exempt Fund
This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the
Prospectus of the Government Housing Tax-Exempt Fund dated
February 1, 1996. A copy of the Fund's Prospectus can be
obtained by writing the Trust at 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202-4094, or by calling the Trust nationwide
toll-free 800-543-0407, in Cincinnati 629-2050.
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Midwest Group Tax Free Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
- -----------------
THE TRUST
MUNICIPAL OBLIGATIONS
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
INVESTMENT LIMITATIONS
TRUSTEES AND OFFICERS
THE INVESTMENT ADVISER AND UNDERWRITER
DISTRIBUTION PLAN
SECURITIES TRANSACTIONS
PORTFOLIO TURNOVER
CALCULATION OF SHARE PRICE
TAXES
REDEMPTION IN KIND
HISTORICAL PERFORMANCE INFORMATION
CUSTODIAN
AUDITORS
MGF SERVICE CORP
TAX EQUIVALENT YIELD TABLE
THE TRUST
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Midwest Group Tax Free Trust (the "Trust") was organized as
a Massachusetts business trust on April 13, 1981. The Trust
currently offers seven series of shares to investors: the
Government Housing Tax-Exempt Fund, the Tax-Free Money Fund, the
Tax-Free Intermediate Term Fund, the Ohio Insured Tax-Free Fund,
the Ohio Tax-Free Money Fund, the California Tax-Free Money Fund
and the Royal Palm Florida Tax-Free Money Fund. This Statement
of Additional Information provides information relating to the
Government Housing Tax-Exempt Fund (the "Fund"). Information
relating to the Tax-Free Money Fund, the Tax-Free Intermediate
Term Fund, the Ohio Insured Tax-Free Fund, the Ohio Tax-Free
Money Fund, the California Tax-Free Money Fund and the Royal Palm
Florida Tax-Free Money Fund is provided in a separate Statement
of Additional Information. Each fund has its own investment
objective(s) and policies.
Each share of the Fund represents an equal proportionate
interest in the assets and liabilities belonging to the Fund with
each other share of the Fund and is entitled to such dividends
and distributions out of the income belonging to the Fund as are
declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or
combine the shares of the Fund into a greater or lesser number of
shares of the Fund so long as the proportionate beneficial
interest in the assets belonging to the Fund and the rights of
shares of any other fund are in no way affected. In case of any
liquidation of the Fund, the holders of shares of the Fund will
be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to the Fund. Expenses
attributable to the Fund are borne by the Fund. Any general
expenses of the Trust not readily identifiable as belonging to a
particular fund are allocated by or under the direction of the
Trustees in such manner as the Trustees determine to be fair and
equitable. Generally, the Trustees allocate such expenses on the
basis of relative net assets or number of shareholders. No
shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Under Massachusetts law, under certain circumstances,
shareholders of a Massachusetts business trust could be deemed to
have the same type of personal liability for the obligations of
the Trust as does a partner of a partnership. However, numerous
investment companies registered under the Investment Company Act
of 1940 have been formed as Massachusetts business trusts and the
Trust is not aware of an instance where such result has occurred.
In addition, the Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of
the Trust property for all losses and expenses of any shareholder
held personally liable for the obligations of the Trust.
Moreover, it provides that the Trust will, upon request, assume
the defense of any claim made against any shareholder for any act
or obligation of the Trust and satisfy any judgment thereon. As
a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities,
management believes that the risk of shareholder liability is
slight and limited to circumstances in which the Trust itself
would be unable to meet its obligations. Management believes
that, in view of the above, the risk of personal liability is
remote.
MUNICIPAL OBLIGATIONS
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The Fund invests primarily in Municipal Obligations.
Municipal Obligations are debt obligations issued by a state and
its political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest
that is, in the opinion of bond counsel to the issuer, exempt
from federal income tax. Municipal Obligations include tax-
exempt bonds, notes and commercial paper. The Fund invests
primarily in pre-refunded, escrowed and GNMA collateralized
Municipal Obligations. Pre-refunded and escrowed Municipal
Obligations are issued originally as general obligation or
revenue bonds of governmental entities, but are now secured until
the call date or maturity of an escrow fund. GNMA collateralized
Municipal Obligations generally are bonds issued to provide funds
to the issuer of the bonds to purchase GNMA Certificates.
Tax-Exempt Bonds. Tax-exempt bonds are issued to obtain
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funds to construct, repair or improve various facilities such as
airports, bridges, highways, hospitals, housing, schools, streets
and water and sewer works, to pay general operating expenses or
to refinance outstanding debts. They also may be issued to
finance various private activities, including the lending of
funds to public or private institutions for construction of
housing, educational or medical facilities or the financing of
privately owned or operated facilities.
The two principal classifications of tax-exempt bonds are
"general obligation" and "revenue" bonds. General obligation
bonds are backed by the issuer's full credit and taxing power.
Revenue bonds are backed by the revenues of a specific project,
facility or tax. Industrial development revenue bonds are a
specific type of revenue bond backed by the credit of the private
user of the facility.
Tax-Exempt Notes. Tax-exempt notes generally are used to
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provide for short-term capital needs and generally have
maturities of one year or less. Tax-exempt notes include:
1. Tax Anticipation Notes. Tax anticipation notes
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are issued to finance working capital needs of municipalities.
Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and
are payable from these specific future taxes.
2. Revenue Anticipation Notes. Revenue anticipation
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notes are issued in expectation of receipt of other kinds of
revenue, such as federal revenues available under the federal
revenue sharing programs.
3. Bond Anticipation Notes. Bond anticipation notes
-----------------------
are issued to provide interim financing until long-term financing
can be arranged. In most cases, the long-term bonds then provide
the money for the repayment of the notes.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper
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typically represents short-term, unsecured, negotiable promissory
notes issued by a state and its political subdivisions. These
notes are issued to finance seasonal working capital needs of
municipalities or to provide interim construction financing and
are paid from general revenues of municipalities or are
refinanced with long-term debt. In most cases, tax-exempt
commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions and is actively
traded.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
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A more detailed discussion of some of the terms used and
investment policies described in the Prospectus (see "Investment
Objective and Policies") appears below:
GNMA Certificates. The term "GNMA Certificates" refers to
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mortgage-backed securities representing part ownership of a pool
of mortgage loans, which are guaranteed by the Government
National Mortgage Association and backed by the full faith and
credit of the United States.
1. The Life of GNMA Certificates. The average life of
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GNMA Certificates is likely to be substantially less than the
original maturity of the mortgage pools underlying the GNMA
Certificates due to prepayments, refinancing and payments from
foreclosures. Thus, the greatest part of principal will usually
be paid well before the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life
of a particular issue of GNMA Certificates. However, statistics
published by the FHA are normally used as an indicator of the
expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling
mortgages with 25-30 year maturities, the type of mortgages
backing the vast majority of GNMA Certificates, is approximately
12 years. However, mortgages with high interest rates have
experienced accelerated prepayment rates which would indicate a
shorter average life.
2. Yield Characteristics of GNMA Certificates. The coupon
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rate of interest of GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the GNMA Certificates, but only by the amount of the
fees paid to the GNMA and the issuer. For the most common type
of mortgage pool, containing single-family dwelling mortgages,
the GNMA receives an annual fee of 0.06 of 1% of the outstanding
principal for providing its guarantee, and the issuer is paid an
annual fee of 0.44 of 1% for assembling the mortgage pool and for
passing through monthly payments of interest and principal to
Certificate holders.
The coupon rate by itself, however, does not indicate the
yield which will be earned on the GNMA Certificates for the
following reasons:
(a) GNMA Certificates may be issued at a premium or
discount, rather than at par.
(b) After issuance, GNMA Certificates may trade in the
secondary market at a premium or discount.
(c) Interest is earned monthly, rather than semi-
annually as for traditional bonds. Monthly compounding has
the effect of raising the effective yield earned on GNMA
Certificates.
(d) The actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool
underlying the Certificate. If mortgagors pay off their
mortgages early, the principal returned to Certificate
holders may be reinvested at more or less favorable rates.
3. Market for GNMA Certificates. Since the inception of
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the GNMA mortgage-backed securities program in 1970, the amount
of GNMA Certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary market
by securities dealers and many types of investors make GNMA
Certificates highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and
depend on, among other things, the level of market rates, the
Certificate's coupon rate and the prepayment experience of the
pool of mortgages backing each Certificate.
Loans of Portfolio Securities. The Fund may lend its
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portfolio securities subject to the restrictions stated in its
Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business
day, at least equal the value of the loaned securities. To be
acceptable as collateral, letters of credit must obligate a bank
to pay amounts demanded by the Fund if the demand meets the terms
of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. The Fund receives amounts equal to the
interest on loaned securities and also receive one or more of (a)
negotiated loan fees, (b) interest on securities used as
collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be
shared with the borrower. The Fund may also pay fees to placing
brokers as well as custodian and administrative fees in
connection with loans. Fees may only be paid to a placing broker
provided that the Trustees determine that the fee paid to the
placing broker is reasonable and based solely upon services
rendered, that the Trustees separately consider the propriety of
any fee shared by the placing broker with the borrower, and that
the fees are not used to compensate the Adviser or any affiliated
person of the Trust or an affiliated person of the Adviser or
other affiliated person. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and permit the
Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter.
Majority. As used in the Prospectus and this Statement of
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Additional Information, the term "majority" of the outstanding
shares of the Trust (or of the Fund) means the lesser of (1) 67%
or more of the outstanding shares of the Trust (or the Fund)
present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or the Fund) are present or
represented at such meeting or (2) more than 50% of the
outstanding shares of the Trust (or the Fund).
INVESTMENT LIMITATIONS
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The Trust has adopted certain fundamental investment
limitations designed to reduce the risk of an investment in the
Fund. These limitations may not be changed with respect to the
Fund without the affirmative vote of a majority of the
outstanding shares of the Fund. For the purpose of these
investment limitations, the identification of the "issuer" of
Municipal Obligations which are not general obligation bonds is
made by the Adviser on the basis of the characteristics of the
obligation, the most significant of which is the source of funds
for the payment of principal of and interest on such obligations.
The limitations applicable to the Fund are:
1. Borrowing Money. The Fund will not borrow money or
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pledge, mortgage or hypothecate its assets, except as a temporary
measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets.
The Fund will not make any additional purchases of portfolio
securities while borrowings are outstanding.
2. Underwriting. The Fund will not act as underwriter of
------------
securities issued by other persons, either directly or through a
majority owned subsidiary. This limitation is not applicable to
the extent that, in connection with the disposition of its
portfolio securities (including restricted securities), the Fund
may be deemed an underwriter under certain federal securities
laws.
3. Illiquid Investments. The Fund will not purchase
--------------------
illiquid securities and securities for which there are legal or
contractual restrictions on resale if, as a result thereof, more
than 10% of the value of the net assets of the Fund would be
invested in such securities.
4. Real Estate. The Fund will not purchase, hold or deal
-----------
in real estate, but this shall not prevent investments in
Municipal Obligations which are secured by or represent interests
in real estate.
5. Commodities. The Fund will not purchase, hold or deal
-----------
in commodities or commodities futures contracts, or invest in
oil, gas or other mineral explorative or development programs.
6. Loans. The Fund will not make loans to other persons,
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except (a) by the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies
and limitations or (b) by loaning portfolio securities.
7. Certain Companies. The Fund will not purchase
-----------------
securities of a company, if such purchase at the time thereof,
would cause more than 5% of the Fund's total assets to be
invested in securities of companies, which, including
predecessors, have a record of less than three years' continuous
operation.
8. Obligations of One Issuer. Each Fund will not purchase
-------------------------
more than 10% of the outstanding publicly issued debt obligations
of any issuer. This limitation is not applicable to privately
issued Municipal Obligations.
9. Investing for Control. The Fund will not invest in
---------------------
companies for the purpose of exercising control.
10. Other Investment Companies. The Fund will not invest
--------------------------
more than 10% of its total assets in the securities of other
investment companies and then only for temporary purposes in
companies whose dividends are tax-exempt, or invest more than 5%
of its total assets in the securities of any single investment
company. The Fund will not purchase more than 3% of the
outstanding voting shares of any investment company.
11. Margin Purchases. The Fund will not purchase
----------------
securities or evidences of interest thereon on "margin." This
limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemption of
securities.
12. Common Stocks. The Fund will not invest in common
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stocks.
13. Securities Owned by Affiliates. The Fund will not
------------------------------
purchase or retain the securities of any issuer if those Trustees
and officers of the Trust or of the Adviser, who individually own
beneficially more than 0.5% of the outstanding securities of such
issuer, together own beneficially more than 5% of such
securities.
14. Short Sales and Options. The Fund will not sell any
-----------------------
securities short or write call options. This limitation is not
applicable to the extent that sales by the Fund of Municipal
Obligations with puts attached or sales by the Fund of other
securities in which it may otherwise invest would be considered
to be sales of options.
15. Concentration. The Fund will not invest more than 25%
-------------
of its total assets in the securities of issuers in any
particular industry; provided, however, that there is no
limitation with respect to investments in obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities.
16. Senior Securities. The Fund will not issue or sell any
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senior security as defined by the Investment Company Act of 1940
except insofar as any borrowing that the Fund may engage in may
be deemed to be an issuance of a senior security.
With respect to the percentages adopted by the Trust as
maximum limitations on the Fund's investment policies and
restrictions, an excess above the fixed percentage (except for
the percentage limitations relative to the borrowing of money)
will not be a violation of the policy or restriction unless the
excess results immediately and directly from the acquisition of
any security or the action taken.
The Trust does not presently intend to pledge, mortgage or
hypothecate the assets of the Fund. The Trust does not presently
intend to acquire, securities issued by any other investment
company or investment trust. As long as the rules promulgated
under the California Corporate Securities Law prohibit the Fund
from acquiring or retaining securities of any open-end investment
company, the Fund will not acquire or retain such securities,
unless the acquisition is part of a merger or acquisition of
assets or other reorganization. The Trust does not presently
intend to make loans of the Fund's portfolio securities. The
statements of intention in this paragraph reflect nonfundamental
policies which may be changed by the Board of Trustees without
shareholder approval.
TRUSTEES AND OFFICERS
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The following is a list of the Trustees and executive
officers of the Trust and their aggregate compensation from the
Trust and the Midwest complex (consisting of the Trust, Midwest
Trust and Midwest Strategic Trust) for the fiscal year ended June
30, 1995. Each Trustee who is an "interested person" of the
Trust, as defined by the Investment Company Act of 1940, is
indicated by an asterisk. Each of the Trustees is also a Trustee
of Midwest Trust and Midwest Strategic Trust.
<TABLE>
<C> <C> <C> <C> <C>
COMPENSATION
COMPENSATION FROM
NAME AGE POSITION HELD FROM TRUST MIDWEST COMPLEX
- ---- ---- ------------- ------------- ---------------
*Robert H. Leshner 56 President/Trustee $ 0 $ 0
+Dale P. Brown 48 Trustee 0 1,200
Gary W. Heldman 48 Trustee 2,200 4,400
+H. Jerome Lerner 57 Trustee 2,200 6,800
+Richard A. Lipsey 56 Trustee 0 2,400
Donald J. Rahilly 49 Trustee 0 1,800
Fred A. Rappoport 48 Trustee 0 2,400
Oscar P. Robertson 56 Trustee 1,950 3,900
Robert B. Sumerel 54 Trustee 0 600
John F. Splain 39 Secretary 0 0
Mark J. Seger 33 Treasurer 0 0
* Mr. Leshner, as an affiliated person of Midwest Group
Financial Services, Inc., the Trust's principal underwriter
and investment adviser, is an "interested person" of the Trust
within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940.
+ Member of Audit Committee
</TABLE>
The principal occupations of the Trustees and executive
officers of the Trust during the past five years are set forth
below:
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is
Chairman of the Board of Midwest Group Financial Services, Inc.
(the investment adviser and principal underwriter of the Trust),
MGF Service Corp. (a registered transfer agent) and Leshner
Financial, Inc. (a financial services company and parent of
Midwest Group Financial Services, Inc. and MGF Service Corp.).
He is also President of Midwest Trust and Midwest Strategic
Trust.
DALE P. BROWN, 36 East Seventh Street, Cincinnati, Ohio is
President and Chief Executive Officer of Sive/Young & Rubicam, an
advertising agency. She is also a director of The Ohio National
Life Insurance Company.
GARY W. HELDMAN, 4545 Malsbary Road, Cincinnati, Ohio is the
former President of The Fechheimer Brothers Company, a
manufacturer of uniforms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a
principal of HJL Enterprises and is Chairman of Crane
Electronics, a manufacturer of electrical connectors.
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is
President of Orchem, Inc., a chemical specialties distributor,
and Orpack Stone Corporation, a corrugated box manufacturer.
RICHARD A. LIPSEY, 11478 Rue Concord, Baton Rouge, Louisiana
is President and Chief Executive Officer of Lipsey's, Inc., a
national sporting goods distributor. He is also a Regional
Director of Premier Bank, N.A.
DONALD J. RAHILLY, 9933 Alliance Road, Cincinnati, Ohio is
Chairman of S. Rosenthal & Co., Inc., a printing company.
FRED A. RAPPOPORT, 830 Birchwood Drive, Los Angeles,
California is President and Chairman of The Fred Rappoport
Company, a broadcasting and entertainment production company.
Until 1991, he was Vice President-Entertainment and Informational
Special Programs of CBS, Inc., a broadcasting company.
ROBERT B. SUMEREL, 8675 Bridgewater Lane, Cincinnati, Ohio
is Chief Executive Officer of Bob Sumerel Tire Inc., a tire sales
and service company.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is
Secretary and General Counsel of Leshner Financial, Inc., Midwest
Group Financial Services, Inc. and MGF Service Corp. He is also
Secretary of Midwest Trust, Midwest Strategic Trust, Brundage,
Story and Rose Investment Trust, Leeb Personal FinanceTM
Investment Trust, Williamsburg Investment Trust, Markman
MultiFund Trust and The Tuscarora Investment Trust and Assistant
Secretary of Schwartz Investment Trust and Fremont Mutual Funds,
Inc., all of which are registered investment companies.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio
is Vice President of Leshner Financial, Inc. and MGF Service
Corp. He is also Treasurer of Midwest Trust, Midwest Strategic
Trust, Brundage, Story and Rose Investment Trust, Leeb Personal
FinanceTM Investment Trust, Williamsburg Investment Trust and
Markman MultiFund Trust, Assistant Treasurer of Schwartz
Investment Trust and The Tuscarora Investment Trust and Assistant
Secretary of Fremont Mutual Funds, Inc.
THE INVESTMENT ADVISER AND UNDERWRITER
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Midwest Group Financial Services, Inc. (the "Adviser") is
the Fund's investment manager. The Adviser is a subsidiary of
Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Mr. Leshner may be deemed to be a
controlling person and an affiliate of the Adviser by reason of
his indirect ownership of its shares and his position as the
principal executive officer of the Adviser. Mr. Leshner, by
reason of such affiliation, may directly or indirectly receive
benefits from the advisory fees paid to the Adviser.
Under the terms of the investment advisory agreement between
the Trust and the Adviser, the Adviser manages the Fund's
investments. The Fund pays the Adviser a fee computed and
accrued daily and paid monthly at an annual rate of .5% of its
average daily net assets up to $500,000,000, .45% of such assets
from $500,000,000 to $1,000,000,000 and .4% of such assets in
excess of $1,000,000,000. The total fees paid by the Fund during
the first and second halves of each fiscal year of the Trust may
not exceed the semiannual total of the daily fee accruals
requested by the Adviser during the applicable six month period.
The Fund is responsible for the payment of all expenses
incurred in connection with the organization, registration of
shares and operations of the Fund, including such extraordinary
or non-recurring expenses as may arise, such as litigation to
which the Trust may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to
such litigation, except in instances of willful misfeasance, bad
faith, gross negligence or reckless disregard by such officers
and Trustees in the performance of their duties. The Adviser
bears promotional expenses in connection with the distribution of
the Fund's shares to the extent that such expenses are not
assumed by the Fund under its plan of distribution (see below).
The compensation and expenses of any officer, Trustee or employee
of the Trust who is an officer, director, employee or stockholder
of the Adviser are paid by the Adviser, except that the
compensation and expenses of the Chief Financial Officer of the
Trust are paid by the Trust regardless of the Chief Financial
Officer's relationship with the Adviser.
By its terms, the Fund's investment advisory agreement will
remain in force until January 30, 1998 and from year to year
thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of the Fund's outstanding
voting securities; provided that in either event continuance is
also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a
meeting called for the purpose of voting such approval. The
Fund's investment advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of
the Fund's outstanding voting securities, or by the Adviser. The
investment advisory agreement automatically terminates in the
event of its assignment, as defined by the Investment Company Act
of 1940 and the rules thereunder.
The Adviser will reimburse the Fund to the extent that the
expenses of the Fund for any fiscal year exceed the applicable
expense limitations imposed by state securities administrators,
as such limitations may be lowered or raised from time to time.
The most restrictive limitation is presently 2.5% of the first
$30 million of average daily net assets, 2% of the next $70
million of average daily net assets and 1.5% of average daily net
assets in excess of $100 million. If any such reimbursement is
required, the payment of the advisory fee at the end of any month
will be reduced or postponed or, if necessary, a refund will be
made to the Fund at the end of such month. Certain expenses such
as brokerage commissions, if any, taxes, interest, extraordinary
items and other expenses subject to approval of state securities
administrators are excluded from such limitations. If the
expenses of the Fund approach the applicable limitation in any
state, the Trust will consider the various actions that are
available to it, including suspension of sales to residents of
that state.
The Adviser may use the name "Midwest," "Midwest Group" or
any derivation thereof in connection with any registered
investment company or other business enterprise with which it is
or may become associated.
Cash Reserve Consulting, Inc. ("CRC") provides consulting
services to the Adviser regarding regulatory requirements and the
use of the Fund by mortgage service companies, state and local
housing authorities, management agents, developers and such other
entities which may invest in the Fund. CRC receives a fee equal
to the annual rate of .25% of the Fund's average daily net assets
up to $500,000,000, .225% of such assets from $500,000,000 to
$1,000,000,000 and .2% of such assets in excess of
$1,000,000,000. The services provided by CRC are paid for wholly
by the Adviser. The fee paid to CRC is subject to reduction in
the event the Adviser waives or reimburses any portion of its
advisory fee from the Fund in order to reduce the operating
expenses of the Fund.
The Adviser also compensates CRC for providing
administration services to the Fund accounts for which CRC is
designated as the responsible party. CRC receives a fee equal to
the annual rate of .25% of the average balance of all such
accounts. The Fund may reimburse the Adviser for these amounts
pursuant to the Fund's plan of distribution (see "Distribution
Plan" below).
The Adviser is also the principal underwriter of the Fund
and, as such, the exclusive agent for distribution of shares of
the Fund. The Adviser is obligated to sell the shares on a best
efforts basis only against purchase orders for the shares.
Shares of the Fund are offered to the public on a continuous
basis.
The Fund may compensate dealers, including the Adviser and
its affiliates, based on the average balance of all accounts in
the Fund for which the dealer is designated as the party
responsible for the account. See "Distribution Plan" below.
DISTRIBUTION PLAN
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As stated in the Prospectus, the Fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits the Fund to pay
for expenses incurred in the distribution and promotion of the
Fund's shares, including but not limited to, the printing of
prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation
and printing of sales literature, promotion, marketing and sales
expenses, and other distribution-related expenses, including any
distribution fees paid to securities dealers or other firms who
have executed a distribution or service agreement with the
Adviser. The Plan expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .25% of
the average daily net assets of the Fund. Unreimbursed expenses
will not be carried over from year to year.
Agreements implementing the Plan (the "Implementation
Agreement"), including agreements with dealers wherein such
dealers agree for a fee to act as agents for the sale of the
Fund's shares, are in writing and have been approved by the Board
of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.
The continuance of the Plan and the Implementation
Agreements must be specifically approved at least annually by a
vote of the Trust's Board of Trustees and by a vote of the
Trustees who are not interested persons of the Trust and have no
direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a
meeting called for the purpose of voting on such continuance.
The Plan may be terminated at any time by a vote of a majority of
the Independent Trustees or by a vote of the holders of a
majority of the outstanding shares of the Fund. In the event the
Plan is terminated in accordance with its terms, the Fund will
not be required to make any payments for expenses incurred by the
Adviser after the termination date. Each Implementation
Agreement terminates automatically in the event of its assignment
and may be terminated at any time by a vote of a majority of the
Independent Trustees or by a vote of the holders of a majority of
the outstanding shares of the Fund on not more than 60 days'
written notice to any other party to the Implementation
Agreement. The Plan may not be amended to increase materially
the amount to be spent for distribution without shareholder
approval. All material amendments to the Plan must be approved
by a vote of the Trust's Board of Trustees and by a vote of the
Independent Trustees.
In approving the Plan, the Trustees determined, in the
exercise of their business judgment and in light of their
fiduciary duties as Trustees, that there is a reasonable
likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of
the Fund's assets for distribution expenses under the Plan should
assist in the growth of the Fund which will benefit the Fund and
its shareholders through increased economies of scale, greater
investment flexibility, greater portfolio diversification and
less chance of disruption of planned investment strategies. The
Plan will be renewed only if the Trustees make a similar
determination for each subsequent year of the Plan. There can be
no assurance that the benefits anticipated from the expenditure
of the Fund's assets for distribution will be realized. While
the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made
must be reported quarterly to the Board of Trustees for its
review. In addition, the selection and nomination of those
Trustees who are not interested persons of the Trust are
committed to the discretion of the Independent Trustees during
such period.
By reason of his indirect ownership of shares of the
Adviser, Robert H. Leshner may be deemed to have a financial
interest in the operation of the Plan and the Implementation
Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the
placing of the Fund's securities transactions and negotiation of
commission rates where applicable are made by the Adviser and are
subject to review by the Board of Trustees of the Trust. In the
purchase and sale of portfolio securities, the Adviser seeks best
execution for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread),
the execution capability, financial responsibility and
responsiveness of the broker or dealer and the brokerage and
research services provided by the broker or dealer. The Adviser
generally seeks favorable prices and commission rates that are
reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the
dealers who make a market in the securities involved unless
better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account. On
occasion, portfolio securities for the Fund may be purchased
directly from the issuer. Because the portfolio securities of
the Fund are generally traded on a net basis and transactions in
such securities do not normally involve brokerage commissions,
the cost of portfolio securities transactions of the Fund will
consist primarily of dealer or underwriter spreads.
The Adviser is specifically authorized to select brokers who
also provide brokerage and research services to the Fund and/or
other accounts over which the Adviser exercises investment
discretion and to pay such brokers a commission in excess of the
commission another broker would charge if the Adviser determines
in good faith that the commission is reasonable in relation to
the value of the brokerage and research services provided. The
determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the
Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses,
reports on issuers' financial conditions and future business
prospects, newsletters and opinions relating to interest trends,
general advice on the relative merits of possible investment
securities for the Fund and statistical services and information
with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to
the Fund and the Adviser, it is not possible to place a dollar
value on it. Research services furnished by brokers through whom
the Fund effects securities transactions may be used by the
Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer
in the execution of securities transactions. However, the
Adviser and other affiliates of the Trust or the Adviser may
effect securities transactions which are executed on a national
securities exchange or transactions in the over-the-counter
market conducted on an agency basis. The Fund will not effect
any brokerage transactions in its portfolio securities with the
Adviser if such transactions would be unfair or unreasonable to
its shareholders. Over-the-counter transactions will be placed
either directly with principal market makers or with broker-
dealers. Although the Fund does not anticipate any ongoing
arrangements with other brokerage firms, brokerage business may
be transacted from time to time with other firms. Neither the
Adviser nor affiliates of the Trust or the Adviser will receive
reciprocal brokerage business as a result of the brokerage
business transacted by the Fund with other brokers.
CODE OF ETHICS. The Trust and the Adviser have each adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act of
1940. The Code significantly restricts the personal investing
activities of all employees of the Adviser and, as described
below, imposes additional, more onerous, restrictions on
investment personnel of the Adviser. The Code requires that all
employees of the Adviser preclear any personal securities
investment (with limited exceptions, such as U.S. Government
obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. In
addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to
the knowledge of the employee is being considered for purchase or
sale, by the Fund. The substantive restrictions applicable to
investment personnel of the Adviser include a ban on acquiring
any securities in an initial public offering and a prohibition
from profiting on short-term trading in securities. Furthermore,
the Code provides for trading "blackout periods" which prohibit
trading by investment personnel of the Adviser within periods of
trading by the Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Adviser intends to hold the portfolio securities of the
Fund to maturity and to limit portfolio turnover to the extent
possible. Nevertheless, changes in the Fund's portfolio will be
made promptly when determined to be advisable by reason of
developments not foreseen at the time of the original investment
decision, and usually without reference to the length of time a
security has been held.
The Fund's portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the
fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. High
portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne
directly by the Fund. The Adviser anticipates that the Fund's
portfolio turnover rate normally will not exceed 100%. A 100%
turnover rate would occur if all of the Fund's portfolio
securities were replaced once within a one year period.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the shares of the Fund
are determined as of the close of the regular session of trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern
time), on each day the Trust is open for business. The Trust is
open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas. The Trust may also be open for business on other
days in which there is sufficient trading in the Fund's portfolio
securities that its net asset value might be materially affected.
For a description of the methods used to determine the share
price, see "Calculation of Share Price" in the Prospectus.
Tax-exempt portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Board of
Trustees. The service generally utilizes a computerized grid
matrix of tax-exempt securities and evaluations by its staff to
determine what it believes is the fair value of the portfolio
securities. The Board of Trustees believes that timely and
reliable market quotations are generally not readily available to
the Fund for purposes of valuing tax-exempt securities and that
valuations supplied by the pricing service are more likely to
approximate the fair value of the tax-exempt securities.
If, in the Adviser's opinion, the valuation provided by the
pricing service ignores certain market conditions affecting the
value of a security, the Adviser will use (consistent with
procedures established by the Board of Trustees) such other
valuation as it considers to represent fair value. Valuations,
market quotations and market equivalents provided to the Fund by
pricing services will only be used when such use and the methods
employed have been approved by the Board of Trustees. Valuations
provided by pricing services or the Adviser may be determined
without exclusive reliance on matrixes and may take into
consideration appropriate factors such as bid prices, quoted
prices, institution-size trading in similar groups of securities,
yield, quality, coupon rates, maturity, type of issue, trading
characteristics and other market data.
Since it is difficult to evaluate the likelihood of exercise
or the potential benefit of a put attached to an obligation, it
is expected that such puts will be determined to have a value of
zero, regardless of whether any direct or indirect consideration
was paid.
The Board of Trustees has adopted the policy for the Fund,
which may be changed without shareholder approval, that the
maturity of fixed rate or floating and variable rate instruments
with demand features will be determined as follows. The maturity
of each such fixed rate or floating rate instrument will be
deemed to be the period of time remaining until the principal
amount owed can be recovered through demand. The maturity of
each such variable rate instrument will be deemed to be the
longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount
owed can be recovered through demand.
Taxable securities, if any, held by the Fund for which
market quotations are readily available are valued at their most
recent bid prices as obtained from one or more of the major
market makers for such securities. Securities (and other assets)
for which market quotations are not readily available are valued
at their fair value as determined in good faith in accordance
with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
TAXES
- -----
The Prospectus describes generally the tax treatment of
distributions by the Fund. This section of the Statement of
Additional Information includes additional information concerning
federal and state taxes.
The Fund intends to qualify annually for the special tax
treatment afforded a "regulated investment company" under
Subchapter M of the Internal Revenue Code so that it does not pay
federal taxes on income and capital gains distributed to
shareholders. To so qualify the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock,
securities or foreign currency, or certain other income
(including but not limited to gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currencies; (ii) derive less
than 30% of its gross income in each taxable year from the sale
or other disposition of the following assets held for less than
three months: (a) stock or securities, (b) options, futures or
forward contracts not directly related to its principal business
of investing in stock or securities; and (iii) diversify its
holdings so that at the end of each quarter of its taxable year
the following two conditions are met: (a) at least 50% of the
value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment
companies and other securities (for this purpose such other
securities will qualify only if the Fund's investment is limited
in respect to any issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of
such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than
U.S. Government securities or securities of other regulated
investment companies).
The Fund intends to invest in sufficient obligations so that
it will qualify to pay, for federal income tax purposes, "exempt-
interest dividends" (as defined in the Internal Revenue Code) to
shareholders. The Fund's dividends payable from net tax-exempt
interest earned from tax-exempt obligations will qualify
as exempt-interest dividends for federal income tax purposes if,
at the close of each quarter of the taxable year of the Fund, at
least 50% of the value of its total assets consists of tax-exempt
obligations. The percentage of income that is exempt from
federal income taxes is applied uniformly to all distributions
made during each calendar year. This percentage may differ from
the actual tax-exempt percentage during any particular month.
The Fund intends to invest primarily in obligations with
interest income exempt from federal income taxes. Distributions
from net investment income and net realized capital gains,
including exempt-interest dividends, may be subject to state
taxes in other states.
Under the Internal Revenue Code, interest on indebtedness
incurred or continued to purchase or carry shares of investment
companies paying exempt-interest dividends, such as the Fund,
will not be deductible by the investor for federal income tax
purposes. Shareholders should consult their tax advisors as to
the application of these provisions.
Shareholders receiving Social Security benefits may be
subject to federal income tax (and perhaps state personal income
tax) on a portion of those benefits as a result of receiving tax-
exempt income (including exempt-interest dividends distributed by
the Fund). In general, the tax will apply to such benefits only
in cases where the recipient's provisional income, consisting of
adjusted gross income, tax-exempt interest income and 50% of any
Social Security benefits, exceeds a base amount ($25,000 for
single individuals and $32,000 for individuals filing a joint
return). In such cases, the tax will be imposed on the lesser of
50% of the recipient's Social Security benefits or the excess of
provisional income over the base amount. A second tier of
inclusion rules for high-income social security recipients has
been added for tax years after 1993. These new rules apply to
taxpayers who have provisional income over $44,000 (married
filing jointly) or $34,000 (single). For these taxpayers, the
amount of benefit subject to tax is the lesser of (1) 85% of the
social security benefit received or (2) 85% of the excess of the
taxpayer's provisional income over $44,000 (married filing
jointly) or $34,000 (single) plus the smaller of (a) $6,000
(married filing jointly) or $4,500 (single) or (b) the amount
taxable under the 50% inclusion rules described above.
Shareholders receiving Social Security benefits may wish to
consult their tax advisors.
The Fund's net realized capital gains from securities
transactions will be distributed only after reducing such gains
by the amount of any available capital loss carryforwards.
Capital losses may be carried forward to offset any capital gains
for eight years, after which any undeducted capital loss
remaining is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on
the excess, if any, of the Fund's "required distribution" over
actual distributions in any calendar year. Generally, the
"required distribution" is 98% of the Fund's ordinary income for
the calendar year plus 98% of its net capital gains recognized
during the one year period ending on October 31 of the calendar
year plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of
the excise tax.
The Trust is required to withhold and remit to the U.S.
Treasury a portion (31%) of dividend income on any account unless
the shareholder provides a taxpayer identification number and
certifies that such number is correct and that the shareholder is
not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees
deems it in the best interests of the Fund's shareholders, the
Fund may make payment for shares repurchased or redeemed in whole
or in part in securities of the Fund taken at current value. If
any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment
Company Act of 1940. This election will require the Fund to
redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90 day period for
any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in
converting such securities to cash. Portfolio securities which
are issued in an "in-kind" redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual
total return. Average annual total return quotations will be
computed by finding the average annual compounded rates of return
over 1, 5 and 10 year periods that would equate the initial
amount invested to the ending redeemable value, according to the
following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof)
The calculation of average annual total return assumes the
reinvestment of all dividends and distributions. If the Fund has
been in existence less than one, five or ten years, the time
period since the date of the initial public offering of shares
will be substituted for the periods stated.
The Fund may also advertise total return (a "non-
standardized quotation") which is calculated differently from
average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the
percentage change in the value of an account between the
beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation may also indicate
average annual compounded rates of return over periods other than
those specified for average annual total return. A non-
standardized quotation of total return will always be accompanied
by the Fund's average annual total return as described above.
From time to time, the Fund may advertise its yield and tax-
equivalent yield. A yield quotation is based on a 30-day (or one
month) period and is computed by dividing the net investment
income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Generally, interest earned (for the purpose of "a" above) on debt
obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation
(including actual accrued interest) at the close of business on
the last business day prior to the start of the 30-day (or one
month) period for which yield is being calculated, or, with
respect to obligations purchased during the month, the purchase
price (plus actual accrued interest). Tax-equivalent yield is
computed by dividing that portion of the Fund's yield which is
tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the Fund's yield that is not
tax-exempt.
The performance quotations described above are based on
historical earnings and are not intended to indicate future
performance.
To help investors better evaluate how an investment in the
Fund might satisfy their investment objective, advertisements
regarding the Fund may discuss various measures of Fund
performance, including current performance ratings and/or
rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements
may also compare performance (using the calculation methods set
forth in the Prospectus) to performance as reported by other
investments, indices and averages. When advertising current
ratings or rankings, the Fund may use the following publications
or indices to discuss or compare Fund performance:
Lipper Fixed Income Fund Performance Analysis measures total
return and average current yield for the mutual fund industry and
ranks individual mutual fund performance over specified time
periods assuming reinvestment of all distributions, exclusive of
sales loads. The Fund may provide comparative performance
information appearing in the Short Municipal Debt Funds category.
Donoghue's Bond Fund Report provides a comparative analysis
of performance for various categories of bond funds. The Fund
may compare performance rankings with bond funds appearing in the
Municipal Short-Term Funds category.
In assessing such comparisons of performance an investor
should keep in mind that the composition of the investments in
the reported indices and averages is not identical to the Fund's
portfolio, that the averages are generally unmanaged and that the
items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the
Fund will continue this performance as compared to such other
averages.
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati,
Ohio, has been retained to act as Custodian for the Fund's
investments. The Fifth Third Bank acts as the Fund's depository,
safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and
maintains records in connection with its duties. As
compensation, The Fifth Third Bank receives from the Fund a base
fee at the annual rate of .005% of average net assets (subject to
a minimum annual fee of $1,500 and a maximum fee of $5,000) plus
transaction charges for each security transaction of the Fund.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as
independent auditors for the Trust for the fiscal year ending
June 30, 1996. Arthur Andersen LLP, 425 Walnut Street,
Cincinnati, Ohio, performs an annual audit of the Trust's
financial statements and advises the Fund as to certain
accounting matters.
MGF SERVICE CORP.
- -----------------
The Trust's transfer agent, MGF Service Corp. ("MGF"),
maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend
and distribution disbursing agent and performs other shareholder
service functions. MGF is an affiliate of the Adviser by reason
of common ownership. MGF receives for its services as the Fund's
transfer agent a fee payable monthly at an annual rate of $21 per
account, provided, however, that the minimum fee is $1,000 per
month. In addition, the Fund pays out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts,
forms, reports, record storage and communication lines.
MGF also provides accounting and pricing services to the
Trust. For calculating daily net asset value per share and
maintaining such books and records as are necessary to enable MGF
to perform its duties, the Fund pays MGF a fee in accordance with
the following schedule:
Asset Size of Fund Monthly Fee
------------------ -----------
$ 0 - $ 50,000,000 $3,250
$ 50,000,000 - $100,000,000 $3,750
$100,000,000 - $250,000,000 $4,250
Over $250,000,000 $4,750
In addition, the Fund pays all costs of external pricing
services.
MGF is retained by the Adviser to assist the Adviser in
providing administrative services to the Fund. In this capacity,
MGF supplies non-investment related statistical and research
data, internal regulatory compliance services and executive and
administrative services. MGF supervises the preparation of tax
returns, reports to shareholders of the Fund, reports to and
filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the Board
of Trustees. For the performance of these administrative
services, MGF receives a fee from the Adviser equal to one-fourth
of the fee payable from the Trust to the Adviser pursuant to the
Fund's investment advisory agreement with the Adviser. The
Adviser is solely responsible for the payment of these
administrative fees to MGF, and MGF has agreed to seek payment of
such fees solely from the Adviser.
TAX EQUIVALENT YIELD TABLE
- --------------------------
The tax equivalent yield table illustrates approximately the
yield an individual investor would have to earn on taxable
investments to equal a tax-exempt yield in various income tax
brackets. The table below shows the approximate taxable yields
for individuals that are equivalent to tax-exempt yields under
marginal federal 1995 income tax rates. No adjustments have been
made for state or local taxes.
For federal income tax purposes, the total amount otherwise
allowable as a deduction for personal exemptions in computing
taxable income is reduced by 2% for each $2,500 (or fraction of
that amount) by which the taxpayer's adjusted gross income
exceeds $114,700 (single return) or $172,050 (joint return). In
addition, the total amount otherwise allowable as itemized
deductions in computing taxable income is reduced by 3% of the
amount by which the taxpayer's adjusted gross income exceeds
$114,700. The tax equivalent yield table has not been adjusted
to reflect the impact of this adjustment to taxable income.
<TABLE>
Taxable Income Tax-Exempt Yield
- -------------- -----------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
Single Joint Federal
Return Return Tax Bracket Tax Equivalent Yield
- ------ ------ ----------- --------------------
Not Over $23,350 Not Over $39,000 15% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88%
$23,350-$56,550 $39,000-$94,250 28% 3.47 4.17 4.86 5.56 6.25 6.94
$56,550-$117,950 $94,250-$143,600 31% 3.62 4.35 5.07 5.80 6.52 7.25
$117,950-$256,500 $143,600-$256,50036% 3.91 4.69 5.47 6.25 7.03 7.81
Over $256,500 Over $256,500 39.6% 4.14 4.97 5.79 6.62 7.45 8.28
</TABLE>
MIDWEST GROUP TAX FREE TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a)(i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:
None
(b) Exhibits:
(1)(i) Copy of Registrant's Restated Agreement
and Declaration of Trust, which was filed
as an Exhibit to Registrant's Post-
Effective Amendment No. 26, is hereby
incorporated by reference.
(ii) Copy of Amendment No. 1, dated August 26,
1994, to Registrant's Restated Agreement
and Declaration of Trust, which was filed
as an Exhibit to Registrant's Post-
Effective Amendment No. 31, is hereby
incorporated by reference.
(2)(i) Copy of Registrant's Bylaws, which was
filed as an Exhibit to Registrant's
Registration Statement on Form N-1, and
copy of amendments thereto adopted August
19, 1981, which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No.
1, are hereby incorporated by reference.
(ii) Copy of amendments to Registrant's Bylaws
adopted October 5, 1983, which was filed
as an Exhibit to Registrant's Post-
Effective Amendment No. 5, is hereby
incorporated by reference.
(3) Voting Trust Agreements - None.
(4)(i) Specimen of Share Certificate for Tax-Free
Intermediate Term Fund (formerly Limited
Term Portfolio), which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 8, is hereby incorporated by
reference.
(ii) Specimen of Share Certificate for Ohio Insured
Tax-Free Fund (formerly Ohio Long Term
Portfolio), which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 8,
is hereby incorporated by reference.
(5)(i) Copy of Registrant's Management Agreement with
Midwest Group Financial Services, Inc. for the
Tax-Free Money Fund, the Tax-Free Intermediate
Term Fund, the Ohio Insured Tax-Free Fund, the
Ohio Tax-Free Money Fund and the California
Tax-Free Money Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 32, is hereby incorporated by
reference.
(ii) Copy of Registrant's Management Agreement
with Midwest Group Financial Services, Inc.
for the Royal Palm Florida Tax-Free Money
Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 32,
is hereby incorporated by reference.
(iii) Copy of Registrant's Management Agreement with
Midwest Group Financial Services, Inc. for the
Government Housing Tax-Exempt Fund is filed
herewith.
(6)(i) Copy of Registrant's Underwriting Agreement
with Midwest Group Financial Services, Inc.,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 27, is hereby
incorporated by reference.
(ii) Form of Underwriter's Dealer Agreement, which
was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 32, is hereby
incorporated by reference.
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8)(i) Copy of Custody Agreement with The Fifth
Third Bank, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 23,
is hereby incorporated by reference.
(9)(i) Copy of Transfer Agency, Dividend Disbursing,
Shareholder Service and Plan Agency Agreement
with MGF Service Corp., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 30, is hereby incorporated by
reference.
(ii) Copy of Accounting and Pricing Services
Agreement with MGF Service Corp., which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 32, is hereby
incorporated by reference.
(iii) Copy of Administration Agreement between
Midwest Group Financial Services, Inc.
(formerly Midwest Advisory Services, Inc.) and
MGF Service Corp., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 20, is hereby incorporated by
reference.
(iv) Copy of Consulting Agreement between Midwest
Group Financial Services, Inc. and Cash
Reserve Consulting, Inc., with respect to the
Government Housing Tax-Exempt Fund, is filed
herewith.
(10) Opinion and Consent of Goodwin, Procter &
Hoar, which was filed with Registrant's Rule
24f-2 Notice for the fiscal year ended June
30, 1995, is hereby incorporated by reference.
(11) Consent of Independent Public Accountants
is filed herewith.
(12) Financial Statements Omitted from Item 23
- None.
(13) Copy of Letter of Initial Stockholder, which
was filed as an Exhibit to Registrant's
Pre-Effective Amendment No. 1, is hereby
incorporated by reference.
(14) Copies of model plan used in the establishment
of any retirement plan - None.
(15)(i) Registrant's Plans of Distribution Pursuant to
Rule 12b-1, which were filed as an Exhibit to
Registrant's Post- Effective Amendment No. 27,
are hereby incorporated by reference.
(ii) Form of Sales Agreement for Shares of No-load
Mutual Funds, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 30,
is hereby incorporated by reference.
(iii) Form of Administration Agreement with respect
to the administration of shareholder accounts,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 32, is hereby
incorporated by reference.
(16) Computations of each performance quotation
provided in response to Item 22 - None.
(17) Financial Data Schedule - Inapplicable.
Item 25. Persons Controlled by or Under Common Control with
the Registrant.
- ------- --------------------------------------------------
None.
Item 26. Number of Holders of Securities (as of September
5, 1995)
- ------- --------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Tax-Free Money Fund 879
Tax-Free Intermediate Term Fund
Class A Shares 3,181
Class C Shares 335
Ohio Insured Tax-Free Fund
Class A Shares 1,772
Class C Shares 213
Ohio Tax-Free Money Fund 2,587
California Tax-Free Money Fund 385
Royal Palm Florida Tax-Free Money Fund 188
Government Housing Tax-Exempt Fund 0
Item 27. Indemnification
- ------- ---------------
Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of
officers and Trustees as follows:
Section 6.4 Indemnification of Trustees,
----------- ----------------------------
Officers, etc. The Trust shall indemnify each
------------- of its Trustees and officers
(including persons who serve at the Trust's
request as directors, officers or trustees of
another organization in which the Trust has
any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a
"Covered Person") against all liabilities,
including but not limited to amounts paid in
satisfaction of judgments, in compromise or
as fines and penalties, and expenses,
including reasonable accountants' and counsel
fees, incurred by any Covered Person in
connection with the defense or disposition of
any action, suit or other proceeding, whether
civil or criminal, before any court or
administrative or legislative body, in which
such Covered Person may be or may have been
involved as a party or otherwise or with
which such person may be or may have been
threatened, while in office or thereafter, by
reason of being or having been such a Trustee
or officer, director or trustee, and except
that no Covered Person shall be indemnified
against any liability to the Trust or its
Shareholders to which such Covered Person
would otherwise be subject by reason of
willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of such
Covered Person's office ("disabling
conduct"). Anything herein contained to the
contrary notwithstanding, no Covered Person
shall be indemnified for any liability to the
Trust or its Shareholders to which such
Covered Person would otherwise be subject
unless (1) a final decision on the merits is
made by a court or other body before whom the
proceeding was brought that the Covered
Person to be indemnified was not liable by
reason of disabling conduct or, (2) in the
absence of such a decision, a reasonable
determination is made, based upon a review of
the facts, that the Covered Person was not
liable by reason of disabling conduct, by (a)
the vote of a majority of a quorum of
Trustees who are neither "interested persons"
of the Company as defined in the Investment
Company Act of 1940 nor parties to the
proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal
counsel in a written opinion.
Section 6.5 Advances of Expenses. The
----------- --------------------- Trust
shall advance attorneys' fees or other
expenses incurred by a Covered Person in
defending a proceeding, upon the undertaking
by or on behalf of the Covered Person to
repay the advance unless it is ultimately
determined that such Covered Person is
entitled to indemnification, so long as one
of the following conditions is met: (i) the
Covered Person shall provide security for his
undertaking, (ii) the Trust shall be insured
against losses arising by reason of any
lawful advances, or (iii) a majority of a
quorum of the disinterested non-party
Trustees of the Trust, or an independent
legal counsel in a written opinion, shall
determine, based on a review of readily
available facts (as opposed to a full trial-
type inquiry), that there is reason to
believe that the Covered Person ultimately
will be found entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
----------- ----------------------------------
The right of indemnification provided by this
Article VI shall not be exclusive of or
affect any other rights to which any such
Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators. Nothing contained in this
article shall affect any rights to
indemnification to which personnel of the
Trust, other than Trustees and officers, and
other persons may be entitled by contract or
otherwise under law, nor the power of the
Trust to purchase and maintain liability
insurance on behalf of any such person.
The Registrant maintains a standard mutual fund
and investment advisory professional and directors
and officers liability policy. The policy
provides coverage to the Registrant, its Trustees
and officers, and its Adviser, among others.
Coverage under the policy includes losses by
reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
The Registrant may not pay for insurance which
protects the Trustees and officers against
liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of their offices.
The Advisory Agreements with Midwest Group
Financial Services, Inc. (the "Adviser") provide
that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss
suffered by the Registrant in connection with the
matters to which the Agreement relates, except a
loss resulting from willful misfeasance, bad faith
or gross negligence of the Adviser in the
performance of its duties or from the reckless
disregard by the Adviser of its obligations under
the Agreement. Registrant will advance attorneys'
fees or other expenses incurred by the Adviser in
defending a proceeding, upon the undertaking by or
on behalf of the Adviser to repay the advance
unless it is ultimately determined that the
Adviser is entitled to indemnification.
The Underwriting Agreement provides that the
Adviser (in its capacity as underwriter), its
directors, officers, employees, shareholders and
control persons shall not be liable for any error
of judgment or mistake of law or for any loss
suffered by Registrant in connection with the
matters to which the Agreement relates, except a
loss resulting from willful misfeasance, bad faith
or gross negligence on the part of any of such
persons in the performance of Adviser's duties or
from the reckless disregard by any of such persons
of Adviser's obligations and duties under the
Agreement. Registrant will advance attorneys'
fees or other expenses incurred by any such person
in defending a proceeding, upon the undertaking by
or on behalf of such person to repay the advance
if it is ultimately determined that such person is
not entitled to indemnification.
Item. 28. Business and Other Connections of Investment
Adviser
- -------- ---------------------------------------------
A. The Adviser is a registered investment adviser
providing investment advisory services to the
Registrant. The Adviser also acts as the
investment adviser to five series of Midwest Trust
and four series of Midwest Strategic Trust, both
of which are registered investment companies. The
Adviser provides investment advisory services to
individual and institutional accounts and is a
registered broker-dealer.
B. The following list sets forth the business and
other connections of the directors and officers of
the Adviser. Unless otherwise noted, the address
of the corporations listed below is 312 Walnut
Street, Cincinnati, Ohio 45202.
(1) Robert H. Leshner - Chairman of the Board and
a Director of the Adviser.
(a) President and a Trustee of Midwest
Strategic Trust, Midwest Trust and
Midwest Group Tax Free Trust, registered
investment companies.
(b) Chairman of the Board and a Director of
Leshner Financial, Inc., a financial
services company.
(c) Chairman of the Board and a Director of
MGF Service Corp., a registered transfer
agent.
(d) President and a Director of Leshner
Financial Services, Inc., a registered
investment adviser and registered
broker-dealer until December 1994.
(2) Michael F. Andrews - President of the
Adviser.
(a) President of ABT Financial Services,
Inc., 340 Royal Palm Way, Palm Beach,
Florida 33480, until June 1995.
(3) James A. Markley, Jr. - A Director of the
Adviser.
(a) President and a Director of Leshner
Financial, Inc.
(b) A Director of MGF Service Corp.
(c) A Director of Sycamore National Bank,
3209 West Galbraith Road, Cincinnati,
Ohio 45239
(d) President of the Adviser until July
1995.
(e) President of MGF Service Corp. until
December 1994.
(f) A Director of Leshner Financial
Services, Inc., until December 1994.
(4) John J. Goetz - Chief Investment Officer -
Fixed Income of the Adviser.
(a) Vice President of Leshner Financial,
Inc.
(b) Vice President-Investments of Leshner
Financial Services, Inc. until December
1994.
(5) Maryellen Peretzky - Vice President,
Assistant Secretary and a Director of the
Adviser.
(a) Vice President and a Director of Leshner
Financial, Inc.
(b) Vice President of MGF Service Corp.
(c) Assistant Secretary of The Tuscarora
Investment Trust.
(d) Vice President and a Director of Leshner
Financial Services, Inc. until December
1994.
(6) Sharon L. Karp - Vice President of the
Adviser.
(a) Vice President of Leshner Financial,
Inc.
(7) John F. Splain - Secretary and General
Counsel of the Adviser.
(a) Secretary, General Counsel and a
Director of Leshner Financial, Inc.
(b) Secretary and General Counsel of MGF
Service Corp.
(c) Secretary of Midwest Group Tax Free
Trust, Midwest Trust, Midwest Strategic
Trust, Brundage, Story and Rose
Investment Trust, Leeb Personal Finance
Investment Trust, Williamsburg
Investment Trust, Markman MultiFund
Trust and The Tuscarora Investment
Trust, registered investment companies.
(d) Assistant Secretary of Fremont Mutual
Funds, Inc. and Schwartz Investment
Trust, registered investment companies.
(e) Secretary and General Counsel of Leshner
Financial Services, Inc. until December
1994.
(8) Robert G. Dorsey - Treasurer of the Adviser.
(a) President of MGF Service Corp.
(b) Treasurer and a Director of Leshner
Financial, Inc.
(c) Vice President of Brundage, Story and
Rose Investment Trust, Leeb Personal
Finance Investment Trust and Markman
MultiFund Trust.
(d) Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment
Trust, Fremont Mutual Funds, Inc. and
The Tuscarora Investment Trust.
(e) Treasurer of Leshner Financial Services,
Inc. until December 1994.
(9) Susan F. Flischel - Vice President-
Investments of the Adviser.
(a) Assistant Vice President-Investments of
Leshner Financial Services, Inc. until
December 1994.
(10) Bruce Chaiken - Assistant Vice President-
Investments of the Adviser.
(a) Assistant Vice President-Investments of
Leshner Financial Services, Inc. until
June 1994.
(11) Michele McClellan Hawkins - Assistant Vice
President of the Adviser.
(12) Dara Abel - Assistant Portfolio Manager of
the Adviser.
(13) Scott Weston - Assistant Portfolio Manager of
the Adviser.
(14) Elizabeth A. Santen - Assistant Secretary of
the Adviser.
(a) Assistant Secretary of Leshner Financial
Inc.
(b) Assistant Vice President of MGF Service
Corp.
(c) Assistant Secretary of Midwest Group Tax
Free Trust, Midwest Trust, Midwest
Strategic Trust and The Tuscarora
Investment Trust.
(d) Assistant Secretary of Leshner Financial
Services, Inc. until December 1994.
Item 29. Principal Underwriters
- ------- ----------------------
(a) Midwest Group Financial Services, Inc. also acts
as underwriter for Midwest Strategic Trust,
Midwest Trust and Brundage, Story and Rose
Investment Trust.
Position Position
with with
(b) Name Underwriter Registrant
---- ---------- ----------
Robert H. Leshner Chairman of President
the Board and
and Director Trustee
Michael F. Andrews President None
James A. Markley, Jr. Director None
John J. Goetz Chief None
Investment
Officer
Maryellen Peretzky Vice President, None
Assistant
Secretary and
Director
Sharon L. Karp Vice President None
John F. Splain Secretary and Secretary
General Counsel
Robert G. Dorsey Treasurer None
Susan F. Flischel Vice President- None
Investments
Bruce Chaiken Assistant Vice None
President-
Investments
Michele M. Hawkins Assistant Vice None
President
Dara Abel Assistant None
Portfolio Manager
Scott Weston Assistant None
Portfolio Manager
Elizabeth A. Santen Assistant Assistant
Secretary Secretary
The address of all of the above-named persons is
312 Walnut Street, Cincinnati, Ohio 45202.
(c) None
Item 30. Location of Accounts and Records
- ------- --------------------------------
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated
thereunder will be maintained by the Registrant.
Item 31. Management Services Not Discussed in Parts A or B
- ------- -------------------------------------------------
None.
<PAGE>
Item 32. Undertakings
- ------- ------------
(a) Not Applicable.
(b) The Registrant undertakes to file a Post-Effective
Amendment, using financial statements which need
not be certified, within four to six months from
the effective date of this Registration Statement.
(c) The Registrant undertakes that, if so requested,
it will furnish each person to whom a prospectus
is delivered with a copy of Registrant's latest
annual report to shareholders without charge.
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to trustees, officers and controlling persons of
Midwest Group Tax Free Trust pursuant to the
provisions of Massachusetts law and the Restated
Agreement and Declaration of Trust of Midwest
Group Tax Free Trust or the Bylaws of Midwest
Group Tax Free Trust, or otherwise, the Registrant
has been advised that in the opinion of the
Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other
than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or
controlling person of Midwest Group Tax Free Trust
in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer
or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the
question whether such indemnification by it is
against public policy as expressed in the Act and
will be governed by the final adjudication of such
issue.
(e) The Registrant undertakes that, within five
business days after receipt of a written
application by shareholders holding in the
aggregate at least 1% of the shares then
outstanding or shares then having a net asset
value of $25,000, whichever is less, each of whom
shall have been a shareholder for at least six
months prior to the date of application
(hereinafter the "Petitioning Shareholders"),
requesting to communicate with other shareholders
with a view to obtaining signatures to a request
for a meeting for the purpose of voting upon
removal of any Trustee of the Registrant, which
application shall be accompanied by a form of
communication and request which such Petitioning
Shareholders wish to transmit, Registrant will:
(i) provide such Petitioning Shareholders with
access to a list of the names and addresses of all
shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the
approximate number of shareholders and the
estimated costs of mailing such communication, and
to undertake such mailing promptly after tender by
such Petitioning Shareholders to the Registrant of
the material to be mailed and the reasonable
expenses of such mailing.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of Cincinnati, State of Ohio, on the 17th day of
November, 1995.
MIDWEST GROUP TAX FREE TRUST
/s/ John F. Splain
By:-------------------------
JOHN F. SPLAIN
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated.
/s/ Robert H. Leshner
- --------------------- President November 17, 1995
ROBERT H. LESHNER and Trustee
/s/ Mark J. Seger
- --------------------- Treasurer November 17, 1995
MARK J. SEGER
*G. WILLIAM ROHDE Trustee
*H. JEROME LERNER Trustee
*OSCAR P. ROBERTSON Trustee
/s/ John F. Splain
*JAMES C. KRUMME Trustee By: --------------------
JOHN F. SPLAIN
*BRUCE J. SIMPSON Trustee Attorney-In-Fact*
November 17, 1995
*GARY W. HELDMAN Trustee
EXHIBIT INDEX
- -------------
1. Management Agreement with Midwest Group Financial
Services, Inc. for the Government Housing Tax-Exempt
Fund
2. Consulting Agreement between Midwest Group Financial
Services, Inc. and Cash Reserve Consulting, Inc.
3. Consent of Independent Public Accountants
MANAGEMENT AGREEMENT
TO: MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street
Cincinnati, Ohio 45202
Dear Sirs:
Midwest Group Tax Free Trust (hereinafter referred to as the
"Trust") herewith confirms its agreement with you.
The Trust has been organized to engage in the business of an
investment company. The Government Housing Tax-Exempt Fund (the
"Fund") has been established as a series of the Trust. You have
been selected to act as the investment adviser of the Fund and to
provide certain other services, as more fully set forth below,
and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Trust agrees with you as follows
upon the date of the execution of this Agreement.
1. ADVISORY SERVICES
-----------------
You will regularly provide the Fund with such investment
advice as you in your discretion deem advisable and will furnish
a continuous investment program for the Fund consistent with its
investment objectives and policies. You will determine what
securities shall be purchased for the Fund, what portfolio
securities shall be held or sold by the Fund, and what portion of
the Fund's assets shall be held uninvested, subject always to the
Fund's investment objectives, policies and restrictions, as each
of the same shall be from time to time in effect, and subject
further, to such policies and instructions as the Board of
Trustees (the "Board") of the Trust may from time to time
establish and supply to you copies thereof. You will advise and
assist the officers of the Trust in taking such steps as are
necessary or appropriate to carry out the decisions of the Board
and the appropriate committees of the Board regarding the conduct
of the business of the Trust.
2. ALLOCATION OF CHARGES AND EXPENSES
----------------------------------
You will pay the compensation and expenses of any persons
rendering any services to the Fund who are officers, directors,
stockholders or employees of your corporation and will make
available, without expense to the Fund, the services of such of
your employees as may duly be elected officers or trustees of the
Trust, subject to their individual consent to serve and to any
limitations imposed by law.
Notwithstanding the foregoing, the Fund will pay the compensation
and expenses of the Chief Financial Officer of the Trust. The
compensation and expenses of any officers, trustees and employees
of the Trust who are not officers, directors, employees or
stockholders of your corporation will be paid by the Fund.
You will pay all advertising and promotion expenses incurred
in connection with the sale or distribution of the Fund's shares
to the extent such expenses are not assumed by the Fund under the
Trust's Distribution Expense Plans.
The Fund will also be responsible for the payment of all
other operating expenses of the Fund, including fees and expenses
incurred by the Fund in connection with membership in investment
company organizations, brokerage fees and commissions, legal,
auditing and accounting expenses, expenses of registering shares
under federal and state securities laws, insurance expenses,
taxes or governmental fees, fees and expenses of the custodian,
transfer, shareholder service and dividend disbursing agent and
accounting and pricing agent of the Fund, expenses including
clerical expenses of issue, sale, redemption or repurchase of
shares of the Fund, the fees and expenses of trustees of the
Trust who are not affiliated with you, the cost of preparing and
distributing reports and notices to shareholders, the cost of
printing or preparing prospectuses for delivery to the Fund's
shareholders, the cost of printing or preparing stock
certificates or any other documents, statements or reports to
shareholders, expenses of shareholders' meetings and proxy
solicitations, such extraordinary or non-recurring expenses as
may arise, including litigation to which the Fund may be a party
and indemnification of the Trust's officers and trustees with
respect thereto, or any other expense not specifically described
above incurred in the performance of the Fund's obligations. All
other expenses not assumed by you herein incurred by the Fund in
connection with the organization, registration of shares and
operations of the Fund will be borne by the Fund.
3. COMPENSATION OF THE ADVISER
---------------------------
For all of the services to be rendered and payments made as
provided in this Agreement, the Fund will pay you as of the last
day of each month, a fee equal to the annual rate of:
50/100 of 1% of the average value of the daily net
assets of the Fund up to $500,000,000; 45/100 of 1% of
such assets from $500,000,000 to $1,000,000,000; and
40/100 of 1% of such assets in excess of
$1,000,000,000.
The total fees payable during each of the first and second
halves of each fiscal year of the Trust shall not exceed the
semiannual total of the daily fee accruals requested by you
during the applicable six month period. The average value of net
assets shall be determined pursuant to the applicable provisions
of the Declaration of Trust of the Trust or a resolution of the
Board, if required. If, pursuant to such provisions, the
determination of net asset value of the Fund is suspended for any
particular business day, then for the purposes of this paragraph,
the value of the net assets of the Fund as last determined shall
be deemed to be the value of the net assets as of the close of
the business day, or as of such other time as the value of the
Fund's net assets may lawfully be determined, on that day. If
the determination of the net asset value of the Fund's shares has
been suspended for a period including such month, your
compensation payable at the end of such month shall be computed
on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month).
You agree that your compensation during any fiscal year
shall be reduced by an amount, if any, which the expenses of the
Fund for such fiscal year exceed the lowest applicable expenses
limitation applicable to the Fund imposed by state securities
administrators in states where the Fund's shares are qualified
for sale, as such limitations may be lowered or raised from time
to time. The payment of your compensation at the end of any
month will be reduced or postponed or, if necessary, a refund
will be made to the Fund at the end of such month, so that at no
time will there be any accrued but unpaid liability in excess of
the above expense limitation. You shall refund to the Fund at
the close of each year, the amount of any additional reduction of
your compensation pursuant to this paragraph, provided, however,
that you will not be required to pay the Fund an amount greater
than the fee paid to you by the Fund in respect of such year
pursuant to this Agreement. As used in this paragraph "expenses"
shall mean those expenses included in the applicable expense
limitation and "expense limitation" means a limit on the maximum
annual expenses which may be incurred by an investment company or
a series of an investment company determined by multiplying a
fixed percentage by the average or multiplying more than one such
percentage by different specified amounts of the average of the
values of the daily net assets of the investment company or the
series for a fiscal year. The words "lowest expense limitation"
shall be construed to result in the largest reduction of your
compensation for any fiscal year of the Trust.
Your compensation with respect to each additional series of
the Trust effectively registered for sale in a public offering
after the date of this Agreement shall be determined by the
Board, including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of
1940) of you or of the Trust, and approved pursuant to the
provisions of Section 15 of the Investment Company Act of 1940.
4. EXECUTION OF PURCHASE AND SALE ORDERS
-------------------------------------
In connection with purchases or sales of portfolio
securities for the account of the Fund, it is understood that you
will arrange for the placing of all orders for the purchase and
sale of portfolio securities for the Fund's accounts with brokers
or dealers selected by you, subject to review of this selection
by the Board from time to time. You will be responsible for the
negotiation and the allocation of principal business and
portfolio brokerage. In the selection of such brokers or dealers
and the placing of such orders, you are directed at all times to
seek for the Fund the best qualitative execution, taking into
account such factors as price (including the applicable brokerage
commission or dealer spread), the execution capability, financial
responsibility and responsiveness of the broker or dealer and the
brokerage and research services provided by the broker or dealer.
You should generally seek favorable prices and commission
rates that are reasonable in relation to the benefits received.
In seeking best qualitative execution, you are authorized to
select brokers or dealers who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) to the Fund and/or other
accounts over which you exercise investment discretion. You are
authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if you determine in good faith that the amount of the
commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker
or dealer. The determination may be viewed in terms of either a
particular transaction or your overall responsibilities with
respect to the Fund and to accounts over which you exercise
investment discretion. The Trust and you understand that,
although the information may be useful to the Trust and you, it
is not possible to place a dollar value on such information. The
Board shall periodically review the commissions paid by the Fund
to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits to the Fund.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking
best qualitative execution, you may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and
dealers to execute portfolio transactions of the Fund.
If any occasion should arise in which you give any advice to
clients of yours concerning the shares of the Fund, you will act
solely as investment counsel for such client and not in any way
on behalf of the Trust. Your services to the Fund pursuant to
this Agreement are not to be deemed to be exclusive and it is
understood that you may render investment advice, management and
other services to others.
5. LIMITATION OF LIABILITY OF ADVISER
----------------------------------
You (including your directors, officers, shareholders,
employees, control persons and affiliates of any thereof) shall
not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on your part
in the performance of your duties or from the reckless disregard
by you of your obligations and duties under this Agreement
("disabling conduct"). However, you will not be indemnified for
any liability unless (1) a final decision is made on the merits
by a court or other body before whom the proceeding was brought
that you were not liable by reason of disabling conduct, or (2)
in the absence of such a decision, a reasonable determination is
made, based upon a review of the facts, that you were not liable
by reason of disabling conduct, by (a) the vote of a majority of
a quorum of trustees who are neither "interested persons" of the
Trust as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party trustees"),
or (b) an independent legal counsel in a written opinion. The
Fund will advance attorneys' fees or other expenses incurred by
you in defending a proceeding, upon the undertaking by or on
behalf of you to repay the advance unless it is ultimately
determined that you are entitled to indemnification, so long as
you meet at least one of the following as a condition to the
advance: (1) you shall provide a security for your undertaking,
(2) the Fund shall be insured against losses arising by reason of
any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party trustees of the Trust, or an independent
legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that you
ultimately will be found entitled to indemnification. Any person
employed by you who may also be or become an employee of the
Trust shall be deemed, when acting within the scope of his
employment by the Trust, to be acting in such employment solely
for the Trust and not as your employee or agent.
6. DURATION AND TERMINATION OF THIS AGREEMENT
------------------------------------------
This Agreement shall remain in force until January 30, 1998
and from year to year thereafter, subject to annual approval by
(i) the Board of the Trust or (ii) a vote of a majority (as
defined in the Investment Company Act of 1940) of the outstanding
voting securities of the Fund, provided that in either event
continuance is also approved by a majority of the trustees who
are not interested persons of you or of the Trust, by a vote cast
in person at a meeting called for the purpose of voting such
approval.
If the shareholders of the Fund fail to approve the
Agreement in the manner set forth above, upon approval of the
Board, you may continue to serve or act in such capacity for the
Fund for the period of time (not exceeding one hundred and twenty
days after the termination of the Agreement) pending required
approval of the Agreement, of a new agreement with you or a
different adviser or other definitive action; provided that the
compensation to be paid by the Fund to you will be equal to the
lesser of your actual costs incurred in furnishing investment
advisory services to the Fund or the amount you would have
received under this Agreement.
This Agreement may, on sixty days' written notice, be
terminated at any time without the payment of any penalty, by the
Board, by a vote of a majority of the outstanding voting
securities of the Fund or by you. This Agreement shall
automatically terminate in the event of its assignment.
7. USE OF NAME
-----------
It is expressly understood that you may use the name
"Midwest..." and "Midwest Group" or any derivation thereof in
connection with another business enterprise, including any
registered investment company with which you are, or may become
associated, so long as such use is permitted under the Investment
Company Act of 1940 and other applicable law.
8. AMENDMENT OF THIS AGREEMENT
---------------------------
No provision of this Agreement may be changed, waived,
discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the
holders of a majority of the outstanding voting securities of the
Fund and by the Board, including a majority of the trustees who
are not interested persons of you or of the Trust, cast in person
at a meeting called for the purpose of voting on such approval.
9. LIMITATION OF LIABILITY
-----------------------
The term "Midwest Group Tax Free Trust" means and refers to
the trustees from time to time serving under the Trust's
Declaration of Trust as the same may subsequently thereto have
been, or subsequently hereto be, amended. It is expressly agreed
that the obligations of the Fund hereunder shall not be binding
upon any of the trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the
trust property of the Fund, as provided in the Declaration of
Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the trustees of the Trust and the
shareholders of the Fund and signed by the officers of the Trust,
acting as such, and neither such authorization by such trustees
and shareholders nor such execution and delivery by such officers
shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind
only the trust property of the Fund as provided in the Trust's
Declaration of Trust.
10. MISCELLANEOUS
-------------
The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
Agreement.
If you are in agreement with the foregoing, please sign the
form of acceptance on the accompanying counterpart of this letter
and return such counterpart to the Trust, whereupon this letter
shall become a binding contract upon the date thereof.
Yours very truly,
ATTEST: MIDWEST GROUP TAX FREE TRUST
- -------------------------- By:-------------------------
Dated: February 1, 1996
ACCEPTANCE
-----------
The foregoing Agreement is hereby accepted.
ATTEST: MIDWEST GROUP FINANCIAL
SERVICES, INC.
- ------------------------- By:-------------------------
Dated: February 1, 1996
February 1, 1996
Cash Reserve Consulting, Inc.
23625 Commerce Park Road
Cleveland, Ohio 44122
Re: CONSULTING AGREEMENT
--------------------
Gentlemen:
Midwest Group Financial Services, Inc. (hereinafter referred
to as "Midwest") herewith confirms our agreement with Cash Reserve
Consulting, Inc. (hereinafter referred to as "CRC").
Midwest provides investment advice to a family of mutual
funds, including the Government Housing Tax-Exempt Fund, a series
of Midwest Group Tax Free Trust (hereinafter referred to as the
"Fund"). Midwest wishes to retain CRC to provide consulting
services as described below.
1. Consulting Services CRC will be available, at the
-------------------
reasonable request of Midwest during normal business hours, to
consult with Midwest regarding HUD regulatory requirements and the
use of the Fund by mortgage service companies, state and local
housing authorities, HUD management agents, HUD developers and such
other entities which may use the Fund. In addition, CRC will
provide Midwest with such other advice and services with respect to
the Fund as Midwest may from time to time reasonably request,
including additional development of new products and services for
the Fund and the preparation of information and marketing materials
for use in distributing shares of the Fund. Midwest will not
request CRC to furnish, and CRC will not furnish, advice or
recommendations regarding the purchase or sale of specific
securities. Services of CRC may be supplied by CRC through any
employee of CRC.
2. Compensation For the services to be rendered by you,
------------
Midwest will pay you a monthly fee equal to an annual rate of .25%
of the Fund's average daily net assets up to $500 million; .225% of
such assets from $500 million to $1 billion; and .2% of such assets
in excess of $ 1 billion. The Fund's net assets on any day will be
valued as of the close of business on such day, or if such day is
not a business day of the Trust, at the close of business on the
business day immediately preceding such day. The fee with respect
to any month shall be payable to CRC within ten days following the
end of such month. If Midwest waives or reimburses any portion of
its advisory fee in order to reduce the operating expenses of the
Fund, then the fee payable by Midwest to you for such month will be
reduced by an amount equal to fifty percent (50%) of such wavier or
reimbursement. In the event Midwest's waives or reimburses other
Fund expenses (i.e., any expenses other than advisory fees) with
respect to any month, CRC and Midwest will share in this waiver
and/or reimbursement of expenses equally and CRC will promptly
reimburse Midwest for its proportionate share of such amount.
CRC will pay the compensation of any persons rendering any
services to the Fund who are officers, directors or employees of
CRC.
3. Effective Date and Termination This Agreement shall be
------------------------------
effective as of the date hereof for a period of two (2) years.
This Agreement may be terminated thereafter by either party hereto,
without the payment of any penalty, upon sixty (60) days' written
notice to the other. Notwithstanding the termination of this
Agreement for any reason, CRC will continue to receive, for as long
as the Fund shall remain in existence, a monthly fee at the annual
rate set forth in Section 2 hereof applied only to the average
daily balance of those shareholder accounts which CRC solicited for
investment in the Fund prior to termination or within one year
thereafter, which accounts shall include the clients of mortgage
servicing companies who CRC solicited on behalf of the Fund.
4. Limitation of Liability CRC agrees to indemnify and hold
-----------------------
harmless Midwest (including its directors, officers, employees,
control persons and affiliates) for any and all losses, claims,
damages, liabilities or litigation (including legal and other
expenses) to which Midwest or any such person may become subject
which (1) may be based upon any wrongful act or omission by CRC or
any person acting on behalf of CRC or (2) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in a registration statement covering the shares of the
Fund or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, if such a statement or
omission was made in reliance upon information furnished by CRC.
Midwest will indemnify and hold harmless CRC (including its
directors, officers, employees, control persons and affiliates) for
any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) arising from any act or
omission of Midwest, except a loss resulting from negligence,
willful misfeasance or bad faith of CRC or any person acting on
behalf of CRC in the performance of its duties or from the reckless
disregard by CRC or any such person of its obligations and duties
under this Agreement. For all purposes herein, CRC shall be deemed
to be an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
5. Use of Name It is expressly understood that the names
-----------
"Midwest," "Midwest Group" and "Midwest Group of Funds" are
property rights of Midwest and/or its affiliates. CRC shall not
circulate any printed matter which contains any reference to
Midwest or the Fund without the prior written approval of Midwest.
CRC will submit printed matter requiring approval to Midwest in
draft form, allowing sufficient time for review by Midwest and its
counsel prior to any deadline for printing.
6. Resolution of Disputes It is the intention of the
----------------------
parties to the extent possible to resolve disputes without recourse
to the judicial system. The parties agree that as a condition
precedent to the filing of any claim the parties and their
attorneys must confer in person at least twice, once in Cincinnati
and once in Cleveland, in an effort to resolve or narrow any
dispute. Such conferences must be held within one month receipt of
notice of a dispute. Should such efforts not be successful, any
dispute between the parties must be heard by a Court of competent
jurisdiction in the State of Ohio.
7. Miscellaneous CRC shall not assign its rights or duties
-------------
hereunder without the prior written consent of Midwest. This
Agreement may not be modified orally but only by an agreement in
writing signed by Midwest and CRC. To the extent that state law
has not been preempted by the provisions of any law of the United
States heretofore or hereafter enacted, as the same may be amended
from time to time, this Agreement shall be administered, construed
and enforced according to the laws of the State of Ohio.
If you are in agreement with the foregoing, please sign the
form of acceptance below and return it to me, whereupon, this
letter shall become a binding contract upon the date hereon.
Very truly yours,
MIDWEST GROUP FINANCIAL SERVICES, INC.
By:---------------------------------
Robert H. Leshner, Chairman
ACCEPTANCE
----------
The foregoing Agreement is hereby accepted.
CASH RESERVE CONSULTING, INC.
By:------------------------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to all
references to our Firm included in or made a part of this
Post-Effective Amendment No 33.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 17, 1995
