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PROSPECTUS
July 1, 1996
MICHIGAN TAX-FREE MONEY FUND
RETAIL SHARES
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The Michigan Tax-Free Money Fund (the "Fund"), a separate series of
Midwest Group Tax Free Trust, seeks the highest level of interest
income exempt from federal income tax and Michigan personal income tax,
consistent with liquidity and stability of principal, by investing
primarily in high-quality, short-term Michigan municipal obligations.
THE FUND'S PORTFOLIO SECURITIES ARE VALUED ON AN AMORTIZED COST
BASIS. FUND SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT OR ANY OTHER ENTITY. IT IS ANTICIPATED, BUT THERE IS
NO ASSURANCE, THAT THE FUND WILL MAINTAIN A STABLE NET ASSET VALUE PER
SHARE OF $1.
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.
The Fund offers two classes of shares: Class A shares ("Retail
Shares"), sold subject to a 12b-1 fee of up to .25% of average daily
net assets, and Class B shares ("Institutional Shares"), sold without a
12b-1 fee. Each Retail and Institutional Share of the Fund represents
identical interests in the Fund's investment portfolio and has the same
rights, except that (i) Retail Shares bear the expenses of distribution
fees, which will cause Retail Shares to have a higher expense ratio and
to pay lower dividends than Institutional Shares; (ii) certain class
specific expenses will be borne solely by the class to which such
expenses are attributable; (iii) each class has exclusive voting rights
with respect to matters affecting only that class; and (iv) Retail
Shares are subject to a lower minimum initial investment requirement
and offer certain shareholder services not available to Institutional
Shares such as checkwriting and automatic investment and redemption
plans.
Midwest Group Financial Services, Inc. (the "Adviser") manages the
Fund's investments and its business affairs.
This Prospectus sets forth concisely the information about Retail
Shares that you should know before investing. Please retain this
Prospectus for future reference. Institutional Shares are offered in a
separate prospectus and additional information about Institutional
Shares may be obtained by calling one of the numbers listed below. A
Statement of Additional Information dated July 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.
_______________________________________________________________________
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free).............................................800-543-0407
Cincinnati.........................................................513-629-2050
_______________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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EXPENSE INFORMATION
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RETAIL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None*
Check Redemption Processing Fee (per check):
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 OPERATING EXPENSES (as a percentage of average net assets)
Management Fees After Waivers .15%(A)
12b-1 Fees .25%
Other Expenses .35%
-------
Total Operating Expenses After Waivers .75%(B)
=======
(A) Absent waivers of management fees, such fees would be .50%.
(B) Absent waivers of management fees, total operating expenses would
be 1.10%.
The purpose of this table is to assist the investor in
understanding the various costs and expenses that an investor in Retail
Shares 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
------- 1 Year 3 Years
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: $8 $24
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund is a series of Midwest Group Tax Free Trust (the
"Trust"). The Fund seeks the highest level of interest income
exempt from federal income tax and Michigan personal income tax,
consistent with liquidity and stability of principal. The Fund
seeks to achieve its investment objective by investing primarily
in high-quality, short-term Michigan Obligations determined by
the Adviser, under the direction of the Board of Trustees, to
present minimal credit risks. Michigan Obligations are debt
obligations issued by the State of Michigan 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 both federal
income tax, including the alternative minimum tax, and Michigan
personal income tax. To the extent acceptable Michigan
Obligations are at any time unavailable for investment by the
Fund, the Fund will invest, for temporary defensive purposes,
primarily in other debt securities, the interest from which is,
in the opinion of bond counsel to the issuer, exempt from federal
income tax, but not Michigan personal income tax.
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 its outstanding shares. 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.
Municipal Obligations
---------------------
Debt securities, the interest from which is, in the opinion
of bond counsel to the issuer, exempt from federal income tax
("Municipal Obligations") generally include debt obligations
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.
Municipal Obligations consist of tax-exempt bonds, tax-exempt
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notes and tax-exempt commercial paper. The Statement of
Additional Information contains a description of tax-exempt
bonds, notes and commercial paper.
The two principal classifications of Municipal Obligations
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, and therefore investments in these bonds
have more potential risk. The Fund's ability to achieve its
investment objective depends to a great extent on the ability of
these various issuers to meet their scheduled payments of
principal and interest. Tax-exempt notes generally are used to
provide short-term capital needs and generally have maturities of
one year or less. The tax-exempt notes in which the Fund may
invest are tax anticipation notes (TANs), revenue anticipation
notes (RANs) and bond anticipation notes (BANs). TANs, RANs and
BANs are issued by state and local government and public
authorities as interim financing in anticipation of tax
collections, revenue receipts or bond sales, respectively. Tax-
exempt commercial paper typically represents short-term,
unsecured, negotiable promissory notes.
Basic Investment Policies
-------------------------
It is a fundamental policy that under normal market
conditions the Fund will invest at least 80% of the value of its
net assets in short-term obligations the interest on which is
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. Under
normal market conditions, at least 65% of the value of the Fund's
total assets will be invested in Michigan Obligations and the
remainder may be invested in obligations that are not Michigan
Obligations and therefore are subject to Michigan income tax (see
"Taxes"). When the Fund has adopted a temporary defensive
position (including circumstances when acceptable Michigan
Obligations are unavailable for investment by the Fund), the Fund
may invest more than 35% of its total assets in obligations that
are not exempt from Michigan personal income tax.
The Fund seeks to achieve its investment objective by
investing in high-quality, short-term Municipal Obligations
determined by the Adviser, under the direction of the Board of
Trustees, to present minimal credit risks. The Fund will
purchase only obligations that enable it to employ the amortized
cost method of valuation. Under the amortized cost method of
valuation, the Fund's obligations are valued at original cost
adjusted for amortization of premium or accumulation of discount,
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rather than valued at market. This method should enable the Fund
to maintain a stable net asset value per share. The Fund will
invest in obligations which have received a short-term rating in
one of the two highest categories by any two nationally
recognized statistical rating organizations ("NRSROs") or by any
one NRSRO if the obligation is rated by only that NRSRO. The
Fund may purchase unrated obligations determined by the Adviser,
under the direction of the Board of Trustees, to be of comparable
quality to rated obligations meeting the Fund's quality
standards. These standards must be satisfied at the time an
investment is made. If an obligation ceases to meet these
standards, or if the Board of Trustees believes such obligation
no longer presents minimal credit risks, the Trustees will cause
the Fund to dispose of the obligation as soon as practicable.
The Statement of Additional Information describes ratings of the
NRSROs.
The Fund's dollar-weighted average maturity will be 90 days
or less. The Fund will invest in obligations with remaining
maturities of thirteen months or less at the time of purchase.
The Fund may invest in any combination of general obligation
bonds, revenue bonds and industrial development bonds. The Fund
may invest more than 25% of its assets in tax-exempt obligations
issued by municipal governments or political subdivisions of
governments within a particular segment of the bond market, such
as housing agency bonds, hospital revenue bonds or airport bonds.
It is possible that economic, business or political developments
or other changes affecting one bond may also affect other bonds
in the same segment in the same manner, thereby potentially
increasing the risk of such investments.
From time to time, the Fund may invest more than 25% of the
value of its total assets in industrial development bonds which,
although issued by industrial development authorities, may be
backed only by the assets and revenues of the nongovernmental
users. However, the Fund will not invest more than 25% of its
assets in securities backed by nongovernmental users which are in
the same industry. Interest on Municipal Obligations (including
certain industrial development bonds) which are private activity
obligations, as defined in the Internal Revenue Code, issued
after August 7, 1986, while exempt from federal income tax, is a
preference item for purposes of the alternative minimum tax.
Where a regulated investment company receives such interest, a
proportionate share of any exempt-interest dividend paid by the
investment company will be treated as such a preference item to
shareholders. The Fund will invest no more than 20% of its net
assets in obligations the interest from which gives rise to a
preference item for the purpose of the alternative minimum tax
and in other investments subject to federal income tax.
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The Fund may, from time to time, invest in taxable short-
term, high-quality obligations (subject to the fundamental policy
that under normal market conditions the Fund will invest at least
80% of its net assets in obligations the interest on which is
exempt from federal income tax, including the alternative minimum
tax). These include, but are not limited to, certificates of
deposit and other bank debt instruments, commercial paper,
obligations issued by the U.S. Government or any of its agencies
or instrumentalities and repurchase agreements. Interest earned
from such investments will be taxable to investors. Except for
temporary defensive purposes, at no time will more than 20% of
the value of the Fund's net assets be invested in taxable
obligations. Under normal market conditions, the Fund
anticipates that not more than 5% of the value of its net assets
will be invested in any one type of taxable obligation. Taxable
obligations are more fully described in the Statement of
Additional Information.
Risk Factors
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The Fund's yield will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors
beyond the control of the Adviser. 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. There is no limit on the
percentage of a single issue of Municipal Obligations that the
Fund may own. If the Fund holds a significant portion of the
obligations of an issuer, there may not be a readily available
market for the obligations. Reduced diversification could
involve an increased risk to the Fund should an issuer be unable
to make interest or principal payments or should the market value
of Municipal Obligations decline.
There are also risks of reduced diversification because the
Fund invests primarily in obligations of issuers within a single
state. The Fund is more likely to invest its assets in the
securities of fewer issuers because of the relatively smaller
number of issuers of Michigan Obligations. The Fund's
performance is closely tied to conditions within the State of
Michigan and to the financial condition of the State and its
authorities and municipalities. The economy in the State of
Michigan is concentrated in the transportation goods
manufacturing sector. This concentration has generally caused
the State's economy to be more volatile than that of more diverse
states. However, Michigan experienced a more modest slowdown
during the recent recession than during prior economic downturns
and its economy and financial operations have exhibited a steady
recovery. Improvements in the transportation industry's
competitive position have resulted in increased demand for
automotive products. The State is also experiencing growth in
its service sector employment, which currently accounts for
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approximately 25% of total employment. While cost-containment
pressures in manufacturing are expected to limit future
employment growth in this area, the service sector is expected to
exhibit further growth. Economic growth coupled with the State's
commitment to address budgetary imbalances have improved
Michigan's financial position. Weak economic performance that
curtailed revenue growth in fiscal 1991 and 1992 necessitated
actions by the State's administration, including reductions in
public assistance programs, wage freezes and the use of reserve
balances. Reserves, particularly the budget stabilization fund,
which had been severely depleted through fiscal 1991, have now
been replenished. Although Michigan's economy tends to fluctuate
with the cyclical trends of the manufacturing sector,
diversification in its economy has allowed the State's long-term
economic growth to keep pace with the nation. Although revenue
obligations of the State of Michigan or its political
subdivisions may be payable from a specific project or source,
there can be no assurance that future economic and political
developments and the resulting impact on state and local
governmental finances will not adversely affect the market value
of the Michigan Obligations held by the Fund or the ability of a
specific issuer to make interest and principal payments.
The Fund is a non-diversified fund under the Investment
Company Act of 1940. Thus, its investments may be more
concentrated in fewer issuers than those of a diversified fund.
This concentration may increase the possibility of fluctuation in
the Fund's net asset value. As the Fund intends to comply with
Subchapter M of the Internal Revenue Code, it may invest up to
50% of its assets at the end of each quarter of its fiscal year
in as few as two issuers, provided that no more than 25% of the
assets are invested in one issuer. With respect to the remaining
50% of its assets at the end of each quarter, it may invest no
more than 5% in one issuer.
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. If legislation were
enacted that would treat a type of Municipal Obligation as
taxable, the Fund would treat such security as a permissible
taxable investment within the applicable limits set forth herein.
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Other Investment Techniques
---------------------------
The Fund may also engage in the following investment
techniques, each of which may involve certain risks:
PARTICIPATION INTERESTS. The Fund may purchase
participation interests in Municipal Obligations owned by banks
or other financial institutions. A participation interest gives
the Fund an undivided interest in the obligation in the
proportion that the Fund's participation interest bears to the
principal amount of the obligation and provides that the holder
may demand repurchase within a specified period. Participation
interests frequently are backed by irrevocable letters of credit
or a guarantee of a bank. Participation interests will be
purchased only if, in the opinion of counsel to the issuer,
interest income on the participation interests will be tax-exempt
when distributed as dividends to shareholders. For certain
participation interests, the Fund will have the right to demand
payment, on not more than seven days' notice, for all or any part
of its participation interest in the Municipal Obligation, plus
accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under
the terms of the Municipal Obligation, as needed to provide
liquidity to meet redemptions, or to maintain a high-quality
investment portfolio. The Fund will not invest more than 10% of
its net assets in participation interests that do not have this
demand feature and all other illiquid securities.
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 the Fund 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
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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
creditworthiness 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.
WHEN-ISSUED OBLIGATIONS. The Fund may invest in when-issued
Municipal Obligations. Obligations offered on a when-issued
basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. The Fund will
maintain a segregated account with its Custodian of cash or high-
quality liquid debt securities, marked to market daily, in an
amount equal to its when-issued commitments. Because these
transactions are subject to market fluctuations, a significant
commitment to when-issued purchases could result in fluctuation
of the Fund's net asset value. The Fund will only make
commitments to purchase when-issued obligations with the
intention of actually acquiring the obligations and not for the
purpose of investment leverage. No additional when-issued
commitments will be made if more than 20% of the Fund's net
assets would be so committed.
LENDING PORTFOLIO SECURITIES. The Fund may make short-term
loans of its portfolio securities to banks, brokers and dealers.
Lending portfolio securities exposes the Fund to the risk that
the borrower may fail to return the loaned securities or may not
be able to provide additional collateral or that the Fund may
experience delays in recovery of the loaned securities or loss of
rights in the collateral if the borrower fails financially. To
minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or
liquid high-grade debt obligations, with the Fund's Custodian in
an amount at least equal to the market value of the loaned
securities. The Fund will limit the amount of its loans of
portfolio securities to no more than 25% of its net assets. This
lending policy may not be changed by the Fund without the
affirmative vote of a majority of its outstanding shares.
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OBLIGATIONS WITH PUTS ATTACHED. The Fund may purchase
Municipal Obligations with the right to resell the obligation to
the seller at a specified price or yield within a specified
period. The right to resell is commonly known as a "put" or a
"standby commitment." The Fund may purchase Municipal
Obligations with puts attached from banks and broker-dealers.
The Fund intends to use obligations with puts attached for
liquidity purposes to ensure a ready market for the underlying
obligations at an acceptable price. Although no value is
assigned to any puts on Municipal Obligations, the price which
the Fund pays for the obligations may be higher than the price of
similar obligations without puts attached. The purchase of
obligations with puts attached involves the risk that the seller
may not be able to repurchase the underlying obligation. The
Fund intends to purchase such obligations only from sellers
deemed by the Adviser, under the direction of the Board of
Trustees, to present minimal credit risks.
SECURITIES WITH LIMITED MARKETABILITY. The Fund may invest
in the aggregate up to 10% of its net assets in securities that
are not readily marketable, including: participation interests
that are not subject to the demand feature described above;
floating and variable rate obligations as to which the Fund
cannot exercise the related demand feature described above and as
to which there is no secondary market; and repurchase agreements
not terminable within seven days.
BORROWING AND PLEDGING. As a temporary measure for
extraordinary or emergency purposes, the Fund may borrow money
from banks 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 if
outstanding borrowings exceed 5% of the value of its total
assets. 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
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Your initial investment in Retail Shares of the Fund
ordinarily must be at least $1,000. Shares are sold on a
continuous basis at the net asset value next determined after
receipt of a purchase order by the Trust.
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INITIAL INVESTMENTS BY MAIL. You may open an account and
make an initial investment in Retail Shares by sending a check
and a completed account application form to MGF Service Corp.,
P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be
made payable to the "Michigan Tax-Free Money 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.
You may receive a dividend on the day of your wire
investment provided you have given notice of your intention to
make such investment to MGF Service Corp. by 4:00 p.m., Eastern
time, on the preceding business day (or 12:00 noon, Eastern time,
on the same day of a wire investment in the case of investors
utilizing institutions that have made appropriate arrangements
with MGF Service Corp.). 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.
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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 "Michigan Tax-
Free Money 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.
CASH SWEEP PROGRAM. Cash accumulations in accounts with
financial institutions may be automatically invested in shares of
the Fund at the next determined net asset value on a day selected
by the institution or its customer, or when the account balance
reaches a predetermined dollar amount (e.g., $5,000).
Participating institutions are responsible for prompt
transmission of orders relating to the program. Institutions
participating in this program may charge their customers fees for
services relating to the program which would reduce the
customers' yield from an investment in the Fund. This Prospectus
should, therefore, be read together with any agreement between
the customer and the participating institution with regard to the
services provided, the fees charged for these services and any
restrictions and limitations imposed.
SHAREHOLDER SERVICES
- --------------------
Contact MGF Service Corp. (Nationwide call toll-free 800-
543-0407; in Cincinnati call 629-2050) for additional information
about the shareholder services described below.
Automatic Withdrawal Plan
-------------------------
If the Retail Shares in your account have a value of at
least $5,000, you may elect to receive, or may designate another
person to receive, monthly or quarterly payments in a specified
amount of not less than $50 each. There is no charge for this
service.
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Direct Deposit Plans
--------------------
Retail Shares of the Fund may be purchased through direct
deposit plans offered by certain employers and government
agencies. These plans enable a shareholder to have all or a
portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in Retail Shares
of the Fund from your bank, savings and loan or other depository
institution account. The minimum initial and subsequent
investments must be $50 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the
right, upon thirty days' written notice, to make reasonable
charges for this service. Your depository institution may impose
its own charge for debiting your account which would reduce your
return from an investment in Retail Shares of the Fund.
HOW TO REDEEM SHARES
- --------------------
You may redeem Retail 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 one business day (but not later than
three business days) after receipt of your telephone
instructions. Any redemption requests by telephone must be
received in proper form prior to 12:00 noon, Eastern time, on any
business day in order for payment by wire to be made that day.
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
- 13 -
<PAGE>
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 to be redeemed and your
account number. The request must be signed exactly as your name
appears on the Trust's account records. If the shares to be
redeemed have a value of $25,000 or more, your signature must be
guaranteed by any of the eligible guarantor institutions outlined
above.
Written redemption requests may also direct that the
proceeds be deposited directly in the bank account or brokerage
account designated on your account application for telephone
redemptions. Proceeds of redemptions requested by mail are
normally mailed within two business days following receipt of
instructions in proper form, but in no event later than three
business days following receipt of instructions.
BY CHECK. You may establish a special checking account with
the Fund for the purpose of redeeming Retail 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 Retail Shares in your
account to cover the amount of the check.
- 14 -
<PAGE>
If the amount of a check is greater than the value of the
Retail Shares held in your account, the check will be returned.
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 who invest in Retail Shares of the Fund through
a cash sweep or similar program with a financial institution are
not eligible for the checkwriting privilege.
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 Retail Shares is less than $1,000 (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.
- 15 -
<PAGE>
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
Michigan Tax-Free Money Fund Midwest Trust
Government Tax-Exempt Reserve -------------
Fund Short Term Government Income Fund
*Tax-Free Intermediate Term Fund Institutional Government Income Fund
*Ohio Insured Tax-Free 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.
- 16 -
<PAGE>
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. Management will determine the timing and
frequency of the distributions of any net realized short-term
capital gains. Although the Fund does not expect to realize any
long-term capital gains, if the Fund does realize such gains it
will distribute them at least once each year. 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. 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 it 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. Except for dividends from taxable investments, the
- 17 -
<PAGE>
Fund anticipates that substantially all dividends paid by the
Fund will not be subject to Michigan personal income tax, the
Michigan intangibles tax, the Michigan Single Business Tax or
income taxes of Michigan municipalities. 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.
Issuers of tax-exempt securities issued after August 31, 1986
are required to comply with various 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.
Interest on "specified private activity bonds," as defined by
the Tax Reform Act of 1986, is an item of tax preference possibly
subject to the alternative minimum tax (at the rate of 26% to 28%
for individuals and 20% for corporations). The Fund may invest
in such "specified private activity bonds" subject to the
requirement that it invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income
tax, including the alternative minimum tax, and Michigan personal
income tax. The Tax Reform Act of 1986 also created a tax
preference for corporations equal to one-half of the excess of
adjusted net book income over alternative minimum taxable income.
As a result, one-half of tax-exempt interest income received from
the Fund may be a tax preference for corporate investors.
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 and Michigan personal income
tax may not result in similar exemptions under the laws of a
particular state or local taxing authority.
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
- 18 -
<PAGE>
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 non-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 seven
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 $100 million; .45% of such assets from $100 million
to $200 million; .4% of such assets from $200 million to $300
million; and .375% of such assets in excess of $300 million.
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, 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 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. The
Fund's Retail Shares are also responsible for the payment of
expenses related to the distribution of Retail Shares (see
"Distribution Plan").
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
- 19 -
<PAGE>
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. Retail Shares of
the Fund shall vote separately on matters relating to the plan of
distribution pursuant to Rule 12b-1 (see "Distribution Plan").
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
- 20 -
<PAGE>
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, Retail Shares of the Fund have adopted a plan of
distribution (the "Class A Plan") under which Retail Shares 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 such shares and who may be
advising investors regarding the purchase, sale or retention of
Retail 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
Retail Shares.
The annual limitation for payment of expenses pursuant to the
Class A Plan is .25% of the average daily net assets allocable to
Retail Shares. Unreimbursed expenditures will not be carried
over from year to year. In the event the Class A 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 Class A Plan terminates.
Pursuant to the Class A 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 under-
writing, 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
- 21 -
<PAGE>
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.
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
12:00 noon and 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.
The Fund's portfolio securities are valued on an amortized
cost basis. In connection with the use of the amortized cost
method of valuation, the Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less, purchases only United
States dollar-denominated securities having remaining maturities
of thirteen months or less and invests only in securities
determined by the Board of Trustees to meet the Fund's quality
standards and to present minimal credit risks. Other assets of
the Fund 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. It is anticipated, but there is no assurance, that the
use of the amortized cost method of valuation will enable the
Fund to maintain a stable net asset value per share of $1.
PERFORMANCE INFORMATION
- -----------------------
From time to time the Fund may advertise its "current yield"
and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future
performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day
period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is
- 22 -
<PAGE>
calculated similarly but, when annualized, the income earned by
an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current
yield" because of the compounding effect of this assumed
reinvestment. In addition, the Fund may advertise together with
its "current yield" or "effective yield" a tax equivalent
"current yield" or "effective 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 "current yield" or
"effective yield." Yields are computed separately for Retail and
Institutional Shares. The yield of Institutional Shares is
expected to be higher than the yield of Retail Shares due to the
distribution fees imposed on Retail Shares.
- 23 -
<PAGE>
Account Application
ACCOUNT NO. __________________
(For Fund Use Only)
Please mail account application to:
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
MICHIGAN TAX-FREE MONEY FUND
(RETAIL SHARES)
FOR BROKER/DEALER USE ONLY
Firm Name:________________________________________
Home Office Address:______________________________
Branch Address:___________________________________
Rep Name & No.____________________________________
______________________________________________________________________________
Initial Investment of $___________________________ ($1,000 minimum)
[ ] Check or draft enclosed payable to the Fund.
[ ] Bank Wire From: _________________________________________________________
[ ] Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)
Account Name
_____________________________________________________________
Name of Individual, Corporation, Organization, or Minor, etc.
_________________________________________________________________
Name of Joint Tenant, Partner, Custodian
Address
___________________________________________________________________
Street or P.O. Box
___________________________________________________________________
City State Zip
S.S.#/Tax I.D.#
________________________________________________________
(In case of custodial account please list minor's S.S.#)
Citizenship: ___ U.S.
___ Other____________________
Phone
( )_________________________________
Business Phone
( )___________________________________
Home Phone
<TABLE>
<C> <C> <C>
Check Appropriate Box: [ ] Individual [ ] Joint Tenant (Right of survivorship presumed) [ ] Partnership
[ ] Corporation [ ] Trust [ ] Custodial [ ] Non-Profit [ ] Other
- -------------------------------------------------------------------------------------------------------------
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 backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I
am not subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a
failure to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
[ ] I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have
mailed or delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social
Security Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of
all reportable payments will be withheld until I provide a number.
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (Distributions are reinvested if no choice is indicated)
[ ] Reinvest all distributions
[ ] Pay all distributions in cash
- -------------------------------------------------------------------------------------------------------------------
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________________________________________________
City State
[ ] CHECKWRITING (A signature card must be completed)
... to deposit the proceeds of such redemptions in the applicable Midwest Group Pay Through Draft Account (PTDA) or
otherwise arrange for application of such proceeds to payment of said checks. I (we) authorize the persons whose signatures
appear on the PTDA signature card to draw checks on the PTDA and to cause the redemption of my (our) shares of the Trust. I
(we) agree to be bound by the Rules and Regulations for the Midwest Group Pay Through Draft Account as such Rules and
Regulations may be amended from time to time.
- ------------------------------------------------------------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a copy of the Fund's current Prospectus, that he is of
legal age, and that he has full authority and legal capacity for himself or the organization named below, to make this
investment and to use the options selected above. The investor appoints 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 days' notice in writing to the investor at the address
contained in this Application. The investor hereby ratifies any instructions given pursuant to this Application and for himself and
his successors and assigns does hereby release 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 tape recording telephone instructions. The Internal Revenue Service does not
require your consent to any provision of this document other than the certifications required to avoid backup withholding.
______________________________________________________________ __________________________________________
Signature of Individual Owner, Corporate Officer, Trustee, etc. Signature of Joint Owner, if Any
______________________________________________________________ ___________________________________________
Title of Corporate Officer, Trustee, etc. Date
NOTE: Corporations, trusts and other organizations must complete the
resolution form on the reverse side. Unless otherwise specified, each
joint owner shall have full authority to act on behalf of the account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan is available for all established accounts of Midwest Group Tax Free Trust. There is no
charge for this service, and it offers the convenience of automatic investing on a regular basis. The minimum investment is $50.00
per month. For an account that is opened by using this Plan, the minimum initial and subsequent investments must be $50.00.
Though a continuous program of 12 monthly investments is recommended, the Plan may be discontinued by the shareholder at any
time.
Please invest $ __________per month in the Fund.
ABA Routing Number_______________________
FI Account Number________________________
[ ] Checking Account [ ] Savings Account
________________________________________________
Name of Financial Institution (FI)
_________________________________________________
City State
Please make my automatic investment on:
[ ] the last business day of each month
[ ] the 15th day of each month
[ ] both the 15th and last business day
X________________________________________________________________________
Signature of Depositor EXACTLY as it appears on FI Records)
X_________________________________________________________________________
(Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign
exactly as signature appears on your FI's records.)
Please attach a voided check for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which MGF Service Corp. ("MGF") has put into effect, by which
amounts, determined by your depositor, payable to the Fund, for purchase of shares of the Fund, are collected by MGF, MGF hereby
agrees:
MGF will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the
payment by you of any amount drawn by the Fund to its own order on the account of your depositor or from any liability to any
person whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any
such amount. MGF will defend, at its own cost and expense, any action which might be brought against you by any person or
persons whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. MGF will refund to you any amount erroneously paid by you to the Fund if the claim
for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous payment;
your participation in this arrangement and that of the Fund may be terminated by thirty (30) days written notice from
either party to the other.
- ------------------------------------------------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN
This is an authorization for you to withdraw $_________________ from my account beginning the last business day of
the month of _____________________.
Please Indicate Withdrawal Schedule (Check One):
[ ] Monthly _ Withdrawals will be made on the last business day of each month.
[ ] Quarterly _ Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[ ] Annually _ Please make withdrawals on the last business day of the month of:____________________.
Please Select Payment Method (Check One):
[ ] Exchange: Please exchange the withdrawal proceeds into another Midwest account number: ____ ____ _ ____ ____ ____
[ ] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[ ] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as
indicated below. I understand that the transfer will be completed in two to three business days and that there is no charge.
[ ] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the
wire will be completed in one business day and that there is an $8.00 fee.
Please attach a voided _______________________________________________________________________________________
check for ACH or bank wire Bank Name Bank Address
________________________________________________________________________________________
Bank ABA# Account # Account Name
[ ] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing address
below:
Name of payee_____________________________________________________________________________________________________________
Please send to:__________________________________________________________________________________________________________
Street address City State Zip
- ------------------------------------------------------------------------------------------------------------------------
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the Midwest Group Tax Free Trust (the Trust) and
that
_________________________________________________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to
take any ction 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 appropriate
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 and to otherwise implement the privileges
elected on the Application, and it is (If checkwriting privilege is not desired, please cross out the following resolution.)
FURTHER RESOLVED: That the corporation or organization participate in the Midwest Group 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 PTDA upon and according to the check, draft, note or order of this
corporation or organization when signed by
____________________________________________________________________________________________________________________________and to
receive the same when so signed to the credit of, or payment to, the payee or any other holder without inquiry as
to the circumstances of issue or the disposition or proceeds, whether drawn to the individual order or tendered in payment of
individual obligations of the persons above named or other officers of this corporation or organization or otherwise.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
___________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of_______________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _________________
at which a quorum was present and acting throughout, and that the same are
now in full force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
_______________________________________ _____________________
_______________________________________ ______________________
_______________________________________ _______________________
Witness my hand and seal of the corporation or organization this_______
day of________________________, 19____
___________________________________ _____________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
</TABLE>
<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
<PAGE>
TABLE OF CONTENTS
Expense Information............................................................
Investment Objective and Policies..............................................
How to Purchase Shares.........................................................
Shareholder Services...........................................................
How to Redeem Shares...........................................................
Exchange Privilege.............................................................
Dividends and Distributions....................................................
Taxes..........................................................................
Operation of the Fund..........................................................
Distribution Plan. . . . ......................................................
Calculation of Share Price.....................................................
Performance Information........................................................
________________________________________________________________
No person has been authorized to give any information or to
make any representations, other than those contained in this
Prospectus, in connection with the offering contained in this
Prospectus, and if given or made, such information or
representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the
Trust to sell shares in any State to any person to whom it is
unlawful for the Trust to make such offer in such State.
<PAGE>
PROSPECTUS
July 1, 1996
MICHIGAN TAX-FREE MONEY FUND
INSTITUTIONAL SHARES
----------------------------
The Michigan Tax-Free Money Fund (the "Fund"), a separate series of
Midwest Group Tax Free Trust, seeks the highest level of interest
income exempt from federal income tax and Michigan personal income tax,
consistent with liquidity and stability of principal, by investing
primarily in high-quality, short-term Michigan municipal obligations.
THE FUND'S PORTFOLIO SECURITIES ARE VALUED ON AN AMORTIZED COST
BASIS. FUND SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT OR ANY OTHER ENTITY. IT IS ANTICIPATED, BUT THERE IS
NO ASSURANCE, THAT THE FUND WILL MAINTAIN A STABLE NET ASSET VALUE PER
SHARE OF $1.
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.
The Fund offers two classes of shares: Class A shares ("Retail
Shares"), sold subject to a 12b-1 fee of up to .25% of average daily
net assets, and Class B shares ("Institutional Shares"), sold without a
12b-1 fee. Each Retail and Institutional Share of the Fund represents
identical interests in the Fund's investment portfolio and has the same
rights, except that (i) Retail Shares bear the expenses of distribution
fees, which will cause Retail Shares to have a higher expense ratio and
to pay lower dividends than Institutional Shares; (ii) certain class
specific expenses will be borne solely by the class to which such
expenses are attributable; (iii) each class has exclusive voting rights
with respect to matters affecting only that class; and (iv) Retail
Shares are subject to a lower minimum initial investment requirement
and offer certain shareholder services not available to Institutional
Shares such as checkwriting and automatic investment and redemption
plans.
Midwest Group Financial Services, Inc. (the "Adviser") manages the
Fund's investments and its business affairs.
This Prospectus sets forth concisely the information about
Institutional Shares that you should know before investing. Please
retain this Prospectus for future reference. Retail Shares are offered
in a separate prospectus and additional information about Retail Shares
may be obtained by calling one of the numbers listed below. A
Statement of Additional Information dated July 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.
_______________________________________________________________________
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)..........................................800-543-0407
Cincinnati......................................................513-629-2050
_______________________________________________________________________
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.
<PAGE>
EXPENSE INFORMATION
- -------------------
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
Management Fees After Waivers .15%(A)
12b-1 Fees None
Other Expenses .35%
-------
Total Operating Expenses After Waivers .50%(B)
========
(A) Absent waivers of management fees, such fees would be .50%.
(B) Absent waivers of management fees, total operating expenses would
be .85%.
The purpose of this table is to assist the investor in
understanding the various costs and expenses that an investor in
Institutional Shares will bear directly or indirectly. The percentages
expressing annual 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
------- 1 Year 3 Years
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: $5 $16
- 2 -
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- ---------------------------------
The Fund is a series of Midwest Group Tax Free Trust (the
"Trust"). The Fund seeks the highest level of interest income
exempt from federal income tax and Michigan personal income tax,
consistent with liquidity and stability of principal. The Fund
seeks to achieve its investment objective by investing primarily
in high-quality, short-term Michigan Obligations determined by
the Adviser, under the direction of the Board of Trustees, to
present minimal credit risks. Michigan Obligations are debt
obligations issued by the State of Michigan 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 both federal
income tax, including the alternative minimum tax, and Michigan
personal income tax. To the extent acceptable Michigan
Obligations are at any time unavailable for investment by the
Fund, the Fund will invest, for temporary defensive purposes,
primarily in other debt securities, the interest from which is,
in the opinion of bond counsel to the issuer, exempt from federal
income tax, but not Michigan personal income tax.
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 its outstanding shares. 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.
Municipal Obligations
---------------------
Debt securities, the interest from which is, in the opinion
of bond counsel to the issuer, exempt from federal income tax
("Municipal Obligations") generally include debt obligations
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.
Municipal Obligations consist of tax-exempt bonds, tax-exempt
- 3 -
<PAGE>
notes and tax-exempt commercial paper. The Statement of
Additional Information contains a description of tax-exempt
bonds, notes and commercial paper.
The two principal classifications of Municipal Obligations
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, and therefore investments in these bonds
have more potential risk. The Fund's ability to achieve its
investment objective depends to a great extent on the ability of
these various issuers to meet their scheduled payments of
principal and interest. Tax-exempt notes generally are used to
provide short-term capital needs and generally have maturities of
one year or less. The tax-exempt notes in which the Fund may
invest are tax anticipation notes (TANs), revenue anticipation
notes (RANs) and bond anticipation notes (BANs). TANs, RANs and
BANs are issued by state and local government and public
authorities as interim financing in anticipation of tax
collections, revenue receipts or bond sales, respectively. Tax-
exempt commercial paper typically represents short-term,
unsecured, negotiable promissory notes.
Basic Investment Policies
-------------------------
It is a fundamental policy that under normal market
conditions the Fund will invest at least 80% of the value of its
net assets in short-term obligations the interest on which is
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. Under
normal market conditions, at least 65% of the value of the Fund's
total assets will be invested in Michigan Obligations and the
remainder may be invested in obligations that are not Michigan
Obligations and therefore are subject to Michigan income tax (see
"Taxes"). When the Fund has adopted a temporary defensive
position (including circumstances when acceptable Michigan
Obligations are unavailable for investment by the Fund), the Fund
may invest more than 35% of its total assets in obligations that
are not exempt from Michigan personal income tax.
The Fund seeks to achieve its investment objective by
investing in high-quality, short-term Municipal Obligations
determined by the Adviser, under the direction of the Board of
Trustees, to present minimal credit risks. The Fund will
purchase only obligations that enable it to employ the amortized
cost method of valuation. Under the amortized cost method of
valuation, the Fund's obligations are valued at original cost
adjusted for amortization of premium or accumulation of discount,
- 4 -
<PAGE>
rather than valued at market. This method should enable the Fund
to maintain a stable net asset value per share. The Fund will
invest in obligations which have received a short-term rating in
one of the two highest categories by any two nationally
recognized statistical rating organizations ("NRSROs") or by any
one NRSRO if the obligation is rated by only that NRSRO. The
Fund may purchase unrated obligations determined by the Adviser,
under the direction of the Board of Trustees, to be of comparable
quality to rated obligations meeting the Fund's quality
standards. These standards must be satisfied at the time an
investment is made. If an obligation ceases to meet these
standards, or if the Board of Trustees believes such obligation
no longer presents minimal credit risks, the Trustees will cause
the Fund to dispose of the obligation as soon as practicable.
The Statement of Additional Information describes ratings of the
NRSROs.
The Fund's dollar-weighted average maturity will be 90 days
or less. The Fund will invest in obligations with remaining
maturities of thirteen months or less at the time of purchase.
The Fund may invest in any combination of general obligation
bonds, revenue bonds and industrial development bonds. The Fund
may invest more than 25% of its assets in tax-exempt obligations
issued by municipal governments or political subdivisions of
governments within a particular segment of the bond market, such
as housing agency bonds, hospital revenue bonds or airport bonds.
It is possible that economic, business or political developments
or other changes affecting one bond may also affect other bonds
in the same segment in the same manner, thereby potentially
increasing the risk of such investments.
From time to time, the Fund may invest more than 25% of the
value of its total assets in industrial development bonds which,
although issued by industrial development authorities, may be
backed only by the assets and revenues of the nongovernmental
users. However, the Fund will not invest more than 25% of its
assets in securities backed by nongovernmental users which are in
the same industry. Interest on Municipal Obligations (including
certain industrial development bonds) which are private activity
obligations, as defined in the Internal Revenue Code, issued
after August 7, 1986, while exempt from federal income tax, is a
preference item for purposes of the alternative minimum tax.
Where a regulated investment company receives such interest, a
proportionate share of any exempt-interest dividend paid by the
investment company will be treated as such a preference item to
shareholders. The Fund will invest no more than 20% of its net
assets in obligations the interest from which gives rise to a
preference item for the purpose of the alternative minimum tax
and in other investments subject to federal income tax.
- 5 -
<PAGE>
The Fund may, from time to time, invest in taxable short-
term, high-quality obligations (subject to the fundamental policy
that under normal market conditions the Fund will invest at least
80% of its net assets in obligations the interest on which is
exempt from federal income tax, including the alternative minimum
tax). These include, but are not limited to, certificates of
deposit and other bank debt instruments, commercial paper,
obligations issued by the U.S. Government or any of its agencies
or instrumentalities and repurchase agreements. Interest earned
from such investments will be taxable to investors. Except for
temporary defensive purposes, at no time will more than 20% of
the value of the Fund's net assets be invested in taxable
obligations. Under normal market conditions, the Fund
anticipates that not more than 5% of the value of its net assets
will be invested in any one type of taxable obligation. Taxable
obligations are more fully described in the Statement of
Additional Information.
Risk Factors
------------
The Fund's yield will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors
beyond the control of the Adviser. 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. There is no limit on the
percentage of a single issue of Municipal Obligations that the
Fund may own. If the Fund holds a significant portion of the
obligations of an issuer, there may not be a readily available
market for the obligations. Reduced diversification could
involve an increased risk to the Fund should an issuer be unable
to make interest or principal payments or should the market value
of Municipal Obligations decline.
There are also risks of reduced diversification because the
Fund invests primarily in obligations of issuers within a single
state. The Fund is more likely to invest its assets in the
securities of fewer issuers because of the relatively smaller
number of issuers of Michigan Obligations. The Fund's
performance is closely tied to conditions within the State of
Michigan and to the financial condition of the State and its
authorities and municipalities. The economy in the State of
Michigan is concentrated in the transportation goods
manufacturing sector. This concentration has generally caused
the State's economy to be more volatile than that of more diverse
states. However, Michigan experienced a more modest slowdown
during the recent recession than during prior economic downturns
and its economy and financial operations have exhibited a steady
recovery. Improvements in the transportation industry's
competitive position have resulted in increased demand for
automotive products. The State is also experiencing growth in
its service sector employment, which currently accounts for
- 6 -
<PAGE>
approximately 25% of total employment. While cost-containment
pressures in manufacturing are expected to limit future
employment growth in this area, the service sector is expected to
exhibit further growth. Economic growth coupled with the State's
commitment to address budgetary imbalances have improved
Michigan's financial position. Weak economic performance that
curtailed revenue growth in fiscal 1991 and 1992 necessitated
actions by the State's administration, including reductions in
public assistance programs, wage freezes and the use of reserve
balances. Reserves, particularly the budget stabilization fund,
which had been severely depleted through fiscal 1991, have now
been replenished. Although Michigan's economy tends to fluctuate
with the cyclical trends of the manufacturing sector,
diversification in its economy has allowed the State's long-term
economic growth to keep pace with the nation. Although revenue
obligations of the State of Michigan or its political
subdivisions may be payable from a specific project or source,
there can be no assurance that future economic and political
developments and the resulting impact on state and local
governmental finances will not adversely affect the market value
of the Michigan Obligations held by the Fund or the ability of a
specific issuer to make interest and principal payments.
The Fund is a non-diversified fund under the Investment
Company Act of 1940. Thus, its investments may be more
concentrated in fewer issuers than those of a diversified fund.
This concentration may increase the possibility of fluctuation in
the Fund's net asset value. As the Fund intends to comply with
Subchapter M of the Internal Revenue Code, it may invest up to
50% of its assets at the end of each quarter of its fiscal year
in as few as two issuers, provided that no more than 25% of the
assets are invested in one issuer. With respect to the remaining
50% of its assets at the end of each quarter, it may invest no
more than 5% in one issuer.
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. If legislation were
enacted that would treat a type of Municipal Obligation as
taxable, the Fund would treat such security as a permissible
taxable investment within the applicable limits set forth herein.
- 7 -
<PAGE>
Other Investment Techniques
---------------------------
The Fund may also engage in the following investment
techniques, each of which may involve certain risks:
PARTICIPATION INTERESTS. The Fund may purchase
participation interests in Municipal Obligations owned by banks
or other financial institutions. A participation interest gives
the Fund an undivided interest in the obligation in the
proportion that the Fund's participation interest bears to the
principal amount of the obligation and provides that the holder
may demand repurchase within a specified period. Participation
interests frequently are backed by irrevocable letters of credit
or a guarantee of a bank. Participation interests will be
purchased only if, in the opinion of counsel to the issuer,
interest income on the participation interests will be tax-exempt
when distributed as dividends to shareholders. For certain
participation interests, the Fund will have the right to demand
payment, on not more than seven days' notice, for all or any part
of its participation interest in the Municipal Obligation, plus
accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under
the terms of the Municipal Obligation, as needed to provide
liquidity to meet redemptions, or to maintain a high-quality
investment portfolio. The Fund will not invest more than 10% of
its net assets in participation interests that do not have this
demand feature and all other illiquid securities.
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 the Fund 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
- 8 -
<PAGE>
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
creditworthiness 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.
WHEN-ISSUED OBLIGATIONS. The Fund may invest in when-issued
Municipal Obligations. Obligations offered on a when-issued
basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. The Fund will
maintain a segregated account with its Custodian of cash or high-
quality liquid debt securities, marked to market daily, in an
amount equal to its when-issued commitments. Because these
transactions are subject to market fluctuations, a significant
commitment to when-issued purchases could result in fluctuation
of the Fund's net asset value. The Fund will only make
commitments to purchase when-issued obligations with the
intention of actually acquiring the obligations and not for the
purpose of investment leverage. No additional when-issued
commitments will be made if more than 20% of the Fund's net
assets would be so committed.
LENDING PORTFOLIO SECURITIES. The Fund may make short-term
loans of its portfolio securities to banks, brokers and dealers.
Lending portfolio securities exposes the Fund to the risk that
the borrower may fail to return the loaned securities or may not
be able to provide additional collateral or that the Fund may
experience delays in recovery of the loaned securities or loss of
rights in the collateral if the borrower fails financially. To
minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or
liquid high-grade debt obligations, with the Fund's Custodian in
an amount at least equal to the market value of the loaned
securities. The Fund will limit the amount of its loans of
portfolio securities to no more than 25% of its net assets. This
lending policy may not be changed by the Fund without the
affirmative vote of a majority of its outstanding shares.
- 9 -
<PAGE>
OBLIGATIONS WITH PUTS ATTACHED. The Fund may purchase
Municipal Obligations with the right to resell the obligation to
the seller at a specified price or yield within a specified
period. The right to resell is commonly known as a "put" or a
"standby commitment." The Fund may purchase Municipal
Obligations with puts attached from banks and broker-dealers.
The Fund intends to use obligations with puts attached for
liquidity purposes to ensure a ready market for the underlying
obligations at an acceptable price. Although no value is
assigned to any puts on Municipal Obligations, the price which
the Fund pays for the obligations may be higher than the price of
similar obligations without puts attached. The purchase of
obligations with puts attached involves the risk that the seller
may not be able to repurchase the underlying obligation. The
Fund intends to purchase such obligations only from sellers
deemed by the Adviser, under the direction of the Board of
Trustees, to present minimal credit risks.
SECURITIES WITH LIMITED MARKETABILITY. The Fund may invest
in the aggregate up to 10% of its net assets in securities that
are not readily marketable, including: participation interests
that are not subject to the demand feature described above;
floating and variable rate obligations as to which the Fund
cannot exercise the related demand feature described above and as
to which there is no secondary market; and repurchase agreements
not terminable within seven days.
BORROWING AND PLEDGING. As a temporary measure for
extraordinary or emergency purposes, the Fund may borrow money
from banks 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 if
outstanding borrowings exceed 5% of the value of its total
assets. 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 Institutional Shares of the Fund
ordinarily must be at least $100,000. Shares are sold on a
continuous basis at the net asset value next determined after
receipt of a purchase order by the Trust.
- 10 -
<PAGE>
INITIAL INVESTMENTS BY MAIL. You may open an account and
make an initial investment in Institutional Shares by sending a
check and a completed account application form to MGF Service
Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should
be made payable to the "Michigan Tax-Free Money 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) 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.
You may receive a dividend on the day of your wire
investment provided you have given notice of your intention to
make such investment to MGF Service Corp. by 12:00 noon, Eastern
time, on that day. 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.
- 11 -
<PAGE>
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 "Michigan Tax-
Free Money 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.
CASH SWEEP PROGRAM. Cash accumulations in accounts with
financial institutions may be automatically invested in shares of
the Fund at the next determined net asset value on a day selected
by the institution or its customer, or when the account balance
reaches a predetermined dollar amount (e.g., $5,000).
Participating institutions are responsible for prompt
transmission of orders relating to the program. Institutions
participating in this program may charge their customers fees for
services relating to the program which would reduce the
customers' yield from an investment in the Fund. This Prospectus
should, therefore, be read together with any agreement between
the customer and the participating institution with regard to the
services provided, the fees charged for these services and any
restrictions and limitations imposed.
HOW TO REDEEM SHARES
- --------------------
You may redeem Institutional 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 one business day (but not later than
- 12 -
<PAGE>
three business days) after receipt of your telephone
instructions. Any redemption requests by telephone must be
received in proper form prior to 12:00 noon, Eastern time, on any
business day in order for payment by wire to be made that day.
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 to be redeemed and your
account number. The request must be signed exactly as your name
appears on the Trust's account records. If the shares to be
redeemed have a value of $25,000 or more, your signature must be
guaranteed by any of the eligible guarantor institutions outlined
above.
Written redemption requests may also direct that the
proceeds be deposited directly in the bank account or brokerage
account designated on your account application for telephone
redemptions. Proceeds of redemptions requested by mail are
normally mailed within two business days following receipt of
instructions in proper form, but in no event later than three
business days following receipt of instructions.
- 13 -
<PAGE>
ADDITIONAL REDEMPTION INFORMATION. There is currently no
charge for processing wire redemptions. However, the Trust
reserves the right, upon thirty days' written notice, to make
reasonable charges for wire redemptions. 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 Institutional Shares is less than $100,000 (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
- 14 -
<PAGE>
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
Michigan Tax-Free Money Fund Midwest Trust
Government Tax-Exempt Reserve -------------
Fund Short Term Government Income Fund
*Tax-Free Intermediate Term Institutional Government Income
Fund Fund
*Ohio Insured Tax-Free 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.
SUBACCOUNTING SERVICES
- ----------------------
Institutions are encouraged to open single master accounts.
However, certain institutions may wish to use the transfer
agent's subaccounting system to minimize their internal
recordkeeping requirements. MGF Service Corp. may charge a
subaccounting fee based on the level of services rendered.
Institutions holding Fund shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through
- 15 -
<PAGE>
subaccounting fees as part of or in addition to normal trust or
agency account fees. This prospectus should, therefore, be read
together with any agreement between the customer and the
institution with regard to the services provided, the fee charged
for those services and any restrictions and limitations imposed.
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. Management will determine the timing and
frequency of the distributions of any net realized short-term
capital gains. Although the Fund does not expect to realize any
long-term capital gains, if the Fund does realize such gains it
will distribute them at least once each year. 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. 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 it 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. Except for dividends from taxable investments, the
Fund anticipates that substantially all dividends paid by the
Fund will not be subject to Michigan personal income tax, the
Michigan intangibles tax, the Michigan Single Business Tax or
income taxes of Michigan municipalities. 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
- 16 -
<PAGE>
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.
Issuers of tax-exempt securities issued after August 31, 1986
are required to comply with various 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.
Interest on "specified private activity bonds," as defined by
the Tax Reform Act of 1986, is an item of tax preference possibly
subject to the alternative minimum tax (at the rate of 26% to 28%
for individuals and 20% for corporations). The Fund may invest
in such "specified private activity bonds" subject to the
requirement that it invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income
tax, including the alternative minimum tax, and Michigan personal
income tax. The Tax Reform Act of 1986 also created a tax
preference for corporations equal to one-half of the excess of
adjusted net book income over alternative minimum taxable income.
As a result, one-half of tax-exempt interest income received from
the Fund may be a tax preference for corporate investors.
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 and Michigan personal income
tax may not result in similar exemptions under the laws of a
particular state or local taxing authority.
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.
- 17 -
<PAGE>
OPERATION OF THE FUND
- ---------------------
The Fund is a non-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 seven
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 $100 million; .45% of such assets from $100 million
to $200 million; .4% of such assets from $200 million to $300
million; and .375% of such assets in excess of $300 million.
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, 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 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.
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.
- 18 -
<PAGE>
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. Each class of
shares of the Fund shall vote separately on matters relating to
its own distribution arrangements. 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.
- 19 -
<PAGE>
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
12:00 noon and 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.
The Fund's portfolio securities are valued on an amortized
cost basis. In connection with the use of the amortized cost
method of valuation, the Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less, purchases only United
States dollar-denominated securities having remaining maturities
of thirteen months or less and invests only in securities
determined by the Board of Trustees to meet the Fund's quality
standards and to present minimal credit risks. Other assets of
the Fund 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. It is anticipated, but there is no assurance, that the
use of the amortized cost method of valuation will enable the
Fund to maintain a stable net asset value per share of $1.
PERFORMANCE INFORMATION
- -----------------------
From time to time the Fund may advertise its "current yield"
and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future
performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day
period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by
an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current
yield" because of the compounding effect of this assumed
reinvestment. In addition, the Fund may advertise together with
its "current yield" or "effective yield" a tax equivalent
"current yield" or "effective 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 "current yield" or
"effective yield." Yields are computed separately for
Institutional and Retail Shares. The yield of Institutional
Shares is expected to be higher than the yield of Retail Shares
due to the distribution fees imposed on Retail Shares.
- 20 -
<PAGE>
Account Application
ACCOUNT NO. - ________________
(For Fund Use Only)
Please mail account application to:
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
FOR BROKER/DEALER USE ONLY
Firm Name:_____________________________________
Home Office Address:___________________________
Branch Address:________________________________
Rep Name & No._________________________________
MICHIGAN TAX-FREE MONEY FUND
(Institutional Shares)
- ------------------------------------------------------------------------------
Initial Investment of $___________________________ ($100,000 Minimum)
[ ] Check or draft enclosed payable to the Fund.
[ ] Bank Wire From: _________________________________________________
[ ] Exchange From: __________________________________________________
(Fund Name) (Fund Account Number)
Account Name
_________________________________________________________________
Name of Individual, Corporation, Organization, or Minor, etc.
_________________________________________________________________
Name of Joint Tenant, Partner, Custodian
Address
___________________________________________________________________
Street or P.O. Box
____________________________________________________________________
City State Zip
S.S.#/Tax I.D.#
________________________________________________________
(In case of custodial account please list minor's S.S.#)
Citizenship: ___ U.S. Phone
___ Other ( )______________________
Business Phone
( )______________________
Home Phone
<TABLE>
<C> <C> <C> <C>
Check Appropriate Box: [ ] Individual [ ] Joint Tenant (Right of survivorship presumed) [ ] Partnership
[ ] Corporation [ ] Trust [ ] Custodial [ ] Non-Profit [ ] Other
- --------------------------------------------------------------------------------------------------------------
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 backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I
am not subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a
failure to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
[ ] I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have
mailed or delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social
Security Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of
all reportable payments will be withheld until I provide a number.
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[ ] Share Option - Income distributions and capital gains distributions automatically reinvested in additional shares.
[ ] Cash Option - Income distributions and capital gains distributions paid in cash.
- -------------------------------------------------------------------------------------------------------------------
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 used of
automated cash transfers to and from the account designated below. NOTE: For wire redemptions, the indicated bank should be a
commercial bank. Please attach a voided check for the account.
Bank Account Number ____________________________________________Bank Routing Transit Number________________________________
Name of Account Holder _____________________________________________________________________________________________________
Bank Name ______________________________________________________Bank Address________________________________________________
City State
- ------------------------------------------------------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a copy of the Fund's current Prospectus, that he is of
legal age, and that he has full authority and legal capacity for himself or the organization named below, to make this
investment and to use the options selected above. The investor appoints 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 days' notice in writing to the investor at the address
contained in this Application. The investor hereby ratifies any instructions given pursuant to this Application and for himself and
his successors and assigns does hereby release 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 tape recording telephone instructions. The Internal Revenue Service does not
require your consent to any provision of this document other than the certifications required to avoid backup withholding.
______________________________________________________________
Signature of Individual Owner, Corporate Officer, Trustee, etc.
________________________________________________________________
Signature of Joint Owner, if Any
__________________________________________________________________
Title of Corporate Officer, Trustee, etc.
___________________________________________________________________
Date
NOTE: Corporations, trusts and other organizations must complete the
resolution form on the reverse side. Unless otherwise specified,
each joint owner shall have full authority to act on behalf of the
account.
- -----------------------------------------------------------------------------
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of the Midwest Group Tax Free Trust (the Trust) and
that
- ------------------------------------------------------------------------------------------------------------------------
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to
take any action for it as may be necessary or appropriate with respect to its shareholder account with the Fund, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate
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 and to otherwise implement the privileges
elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering
documents of the
- ------------------------------------------------------------------------------------------------------------------------
(Name of Organization)
incorporated or formed under the laws of
- ---------------------------------------------------------------------------------------------------------------------------
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the organization or corporation duly called and
held on _________________ at which a quorum was present and acting throughout, and that the same are now in full force and
effect.
I further certify that the following is (are) duly elected officer(s) of the corporation or organization, authorized to
act in accordance with the foregoing resolutions.
Name Title
- ------------------------------ ------------------------------------
- ------------------------------ ------------------------------------
- ------------------------------ -------------------------------------
Witness my hand and seal of the corporation or organization this________________day of_____________________________,
19_______
- ------------------------------------------------
*Secretary-Clerk
- -------------------------------------------------
Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
</TABLE>
<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
<PAGE>
TABLE OF CONTENTS
Expense Information............................................................
Investment Objective and Policies..............................................
How to Purchase Shares.........................................................
How to Redeem Shares...........................................................
Exchange Privilege.............................................................
Subaccounting Services ........................................................
Dividends and Distributions....................................................
Taxes..........................................................................
Operation of the Fund..........................................................
Calculation of Share Price.....................................................
Performance Information........................................................
________________________________________________________________
No person has been authorized to give any information or to
make any representations, other than those contained in this
Prospectus, in connection with the offering contained in this
Prospectus, and if given or made, such information or
representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the
Trust to sell shares in any State to any person to whom it is
unlawful for the Trust to make such offer in such State.
<PAGE>
MIDWEST GROUP TAX FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
July 1, 1996
Michigan Tax-Free Money Fund
This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the Prospectus
of the Michigan Tax-Free Money Fund of Midwest Group Tax Free
Trust dated July 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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Midwest Group Tax Free Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS PAGE
THE TRUST................................................................ 3
MUNICIPAL OBLIGATIONS.................................................... 4
QUALITY RATINGS OF MUNICIPAL OBLIGATIONS................................. 7
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS............................ 10
INVESTMENT LIMITATIONS................................................... 13
TRUSTEES AND OFFICERS.................................................... 16
THE INVESTMENT ADVISER AND UNDERWRITER................................... 17
DISTRIBUTION PLAN........................................................ 19
SECURITIES TRANSACTIONS.................................................. 21
PORTFOLIO TURNOVER....................................................... 23
CALCULATION OF SHARE PRICE .............................................. 23
TAXES.................................................................... 25
REDEMPTION IN KIND....................................................... 27
HISTORICAL PERFORMANCE INFORMATION....................................... 28
CUSTODIAN................................................................ 29
AUDITORS................................................................. 29
MGF SERVICE CORP......................................................... 29
TAX EQUIVALENT YIELD TABLE............................................... 31
- 2 -
<PAGE>
THE TRUST
- ---------
Midwest Group Tax Free Trust (the "Trust") was organized
as a Massachusetts business trust on April 13, 1981. The Trust
currently offers eight series of shares to investors: 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, the Royal Palm Florida Tax-Free
Money Fund, the Government Housing Tax-Exempt Fund and the
Michigan Tax-Free Money Fund. This Statement of Additional
Information provides information relating to the Michigan Tax-
Free Money 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, the Royal Palm Florida Tax-Free
Money Fund and the Government Housing Tax-Exempt Fund is provided
in separate Statements of Additional Information. The Fund has
its own investment objective 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 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 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.
Both Class A shares ("Retail Shares") and Class B shares
("Institutional Shares") of the Fund represent an interest in the
same assets of the Fund, have the same rights and are identical
in all material respects except that (i) Retail Shares bear the
expenses of distribution fees; (ii) certain class specific
expenses will be borne solely by the class to which such expenses
are attributable, including transfer agent fees attributable to a
specific class of shares, printing and postage expenses related
to preparing and distributing materials to current shareholders
of a specific class, registration fees incurred by a specific
- 3 -
<PAGE>
class of shares, the expenses of administrative personnel and
services required to support the shareholders of a specific
class, litigation or other legal expenses relating to a class of
shares, Trustees' fees or expenses incurred as a result of issues
relating to a specific class of shares and accounting fees and
expenses relating to a specific class of shares; (iii) each class
has exclusive voting rights with respect to matters affecting
only that class; and (iv) Retail Shares are subject to a lower
minimum initial investment requirement and offer certain
shareholder services not available to Institutional Shares such
as checkwriting privileges and automatic investment and
redemption plans. The Board of Trustees may classify and
reclassify shares of the Fund into additional classes of shares
at a future date.
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
- ---------------------
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 Michigan Obligations, which are Municipal
Obligations issued by the State of Michigan and its political
subdivisions, agencies, authorities and instrumentalities and
- 4 -
<PAGE>
other qualifying issuers which pay interest that is, in the
opinion of bond counsel to the issuer, exempt from both federal
income tax and Michigan personal income tax.
TAX-EXEMPT BONDS. Tax-exempt bonds are issued to obtain
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
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
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
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
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.
- 5 -
<PAGE>
WHEN-ISSUED OBLIGATIONS. The Fund may invest in when-issued
Municipal Obligations. In connection with these investments, the
Fund will direct its Custodian to place cash, U.S. Government
obligations or other liquid high-grade debt instruments in a
segregated account in an amount sufficient to make payment for
the securities to be purchased. When a segregated account is
maintained because the Fund purchases securities on a when-issued
basis, the assets deposited in the segregated account will be
valued daily at market for the purpose of determining the
adequacy of the securities in the account. If the market value
of such securities declines, additional cash or securities will
be placed in the account on a daily basis so that the market
value of the account will equal the amount of the Fund's
commitments to purchase securities on a when-issued basis. To
the extent funds are in a segregated account, they will not be
available for new investment or to meet redemptions. Securities
purchased on a when-issued basis and the securities held in the
Fund's portfolio are subject to changes in market value based
upon changes in the level of interest rates (which will generally
result in all of those securities changing in value in the same
way, i.e, all those securities experiencing appreciation when
interest rates decline and depreciation when interest rates
rise). Therefore, if in order to achieve higher returns, the
Fund remains substantially fully invested at the same time that
it has purchased securities on a when-issued basis, there will be
a possibility that the market value of the Fund's assets will
have greater fluctuation. The purchase of securities on a when-
issued basis may involve a risk of loss if the broker-dealer
selling the securities fails to deliver after the value of the
securities has risen.
When the time comes for the Fund to make payment for
securities purchased on a when-issued basis, the Fund will do so
by using then-available cash flow, by sale of the securities held
in the segregated account, by sale of other securities or,
although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued basis (which
may have a market value greater or less than the Fund's payment
obligation). Although the Fund will only make commitments to
purchase securities on a when-issued basis with the intention of
actually acquiring the securities, the Fund may sell these
obligations before the settlement date if it is deemed advisable
by the Adviser as a matter of investment strategy. Sales of
securities for these purposes carry a greater potential for the
realization of capital gains and losses, which are not exempt
from federal income taxes.
PARTICIPATION INTERESTS. The Fund may invest in
participation interests in Municipal Obligations. The Fund will
have the right to sell the interest back to the bank or other
financial institution and draw on the letter of credit on demand,
generally on seven days' notice, for all or any part of the
Fund's participation interest in the par value of the Municipal
Obligation plus accrued interest. The Fund intends to exercise
- 6 -
<PAGE>
the demand on the letter of credit only under the following
circumstances: (1) default of any of the terms of the documents
of the Municipal Obligation, (2) as needed to provide liquidity
in order to meet redemptions, or (3) to maintain a high quality
investment portfolio. The bank or financial institution will
retain a service and letter of credit fee and a fee for issuing
the repurchase commitment in an amount equal to the excess of the
interest paid by the issuer on the Municipal Obligations over the
negotiated yield at which the instruments were purchased by the
Fund. Participation interests will be purchased only if, in the
opinion of counsel of the issuer, interest income on the
interests will be tax-exempt when distributed as dividends to
shareholders.
Banks and financial institutions are subject to extensive
governmental regulations which may limit the amounts and types of
loans and other financial commitments that may be made and
interest rates and fees which may be charged. The profitability
of banks and financial institutions is largely dependent upon the
availability and cost of capital funds to finance lending
operations under prevailing money market conditions. General
economic conditions also play an important part in the operations
of these entities and exposure to credit losses arising from
possible financial difficulties of borrowers may affect the
ability of a bank or financial institution to meet its
obligations with respect to a participation interest.
QUALITY RATINGS OF MUNICIPAL OBLIGATIONS
- ----------------------------------------
The Fund may invest in Municipal Obligations only if rated
at the time of purchase within the two highest grades assigned by
any two nationally recognized statistical rating organizations
("NRSROs") (or by any one NRSRO if the obligation is rated by
only that NRSRO). The NRSROs which may rate the obligations of
the Fund include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Services, Inc. ("Fitch").
Moody's Ratings
---------------
1. Tax-Exempt Bonds. The two highest ratings of Moody's
for tax-exempt bonds are Aaa and Aa. Bonds rated Aaa are judged
by Moody's to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issuers. Bonds rated Aa are judged to be
of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds.
- 7 -
<PAGE>
2. Tax-Exempt Notes. Moody's highest rating for tax-
exempt notes is MIG-1. Moody's says that notes rated MIG-1 are
of the best quality, enjoying strong protection from established
cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Notes
bearing the MIG-2 designation are of high quality, with margins
of protection ample although not so large as in the MIG-1 group.
3. Tax-Exempt Commercial Paper. The rating Prime-1 is the
highest tax-exempt commercial paper rating assigned by Moody's.
Issuers rated Prime-1 are judged to be of the best quality.
Their short-term debt obligations carry the smallest degree of
investment risk. Margins of support for current indebtedness are
large or stable with cash flow and asset protection well assured.
Current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are
generally available. While protective elements may change over
the intermediate or long term, such changes are most unlikely to
impair the fundamentally strong position of short-term
obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term obligations.
S&P Ratings
-----------
1. Tax-Exempt Bonds. The two highest ratings of S&P for
tax-exempt bonds are AAA and AA. Bonds rated AAA have the
highest rating assigned by S&P to a debt obligation. Capacity to
pay interest and repay principal is extremely strong. Bonds
rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a
small degree. The ratings for tax-exempt bonds may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
2. Tax-Exempt Notes. Tax-exempt note ratings are
generally given by S&P to notes that mature in three years or
less. Notes rated SP-1 have very strong or strong capacity to
pay principal and interest. Issues determined to possess
overwhelming safety characteristics will be given a plus
designation. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.
3. Tax-Exempt Commercial Paper. The ratings A-1+ and A-1
are the highest tax-exempt commercial paper ratings assigned by
S&P. These designations indicate the degree of safety regarding
timely payment is either overwhelming (A-1+) or very strong (A-
1).
- 8 -
<PAGE>
Fitch Ratings
-------------
1. Tax-Exempt Bonds. The two highest ratings of Fitch for
tax-exempt bonds are AAA and AA. Bonds rated AAA are regarded by
Fitch as being of the highest quality, with the obligor having an
extraordinary ability to pay interest and repay principal which
is unlikely to be affected by reasonably foreseeable events.
Bonds rated AA are regarded by Fitch as high quality obligations.
The obligor's ability to pay interest and repay principal, while
very strong, is somewhat less than for AAA rated bonds, and more
subject to possible change over the term of the issue. Fitch
ratings may be modified by the addition of a plus (+) or minus
(-) sign.
2. Tax-Exempt Notes. The ratings F-1+ and F-1 are the
highest ratings assigned by Fitch for tax-exempt notes. Notes
assigned the F-1+ rating are regarded by Fitch as having the
strongest degree of assurance for timely payment. Notes assigned
the F-1 rating reflect an assurance for timely payment only
slightly less than the strongest issues.
3. Tax-Exempt Commercial Paper. Commercial paper rated
Fitch-1 is regarded as having the strongest degree of assurance
for timely payment. Issues assigned the Fitch-2 rating reflect
an assurance of timely payment only slightly less in degree than
the strongest issues.
GENERAL. The ratings of Moody's, S&P and Fitch represent
their opinions of the quality of the obligations rated by them.
It should be emphasized that such ratings are general and are not
absolute standards of quality. Consequently, obligations with
the same maturity, coupon and rating may have different yields,
while obligations of the same maturity and coupon, but with
different ratings, may have the same yield. It is the
responsibility of the Adviser to appraise independently the
fundamental quality of the obligations held by the Fund. Certain
Municipal Obligations may be backed by letters of credit or
similar commitments issued by banks and, in such instances, the
obligation of the bank and other credit factors will be
considered in assessing the quality of the Municipal Obligations.
Any Municipal Obligation which depends on the credit of the
U.S. Government (e.g. project notes) will be considered by the
Adviser as having the equivalent of the highest rating of
Moody's, S&P or Fitch. In addition, unrated Municipal
Obligations will be considered as being within the foregoing
quality ratings if other equal or junior Municipal Obligations of
the same issuer are rated and their ratings are within the
foregoing ratings of Moody's, S&P or Fitch. The Fund may also
invest in Municipal Obligations which are not rated if, in the
opinion of the Adviser, subject to the review of the Board of
Trustees, such obligations are of comparable quality to those
rated obligations in which the Fund may invest.
- 9 -
<PAGE>
Subsequent to its purchase by the Fund, an obligation may
cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. If the rating of an
obligation held by the Fund is reduced below its minimum
requirements, the Fund will be required to exercise the demand
provision or sell the obligation as soon as practicable.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and
investment policies described in the Prospectus (see "Investment
Objective and Policies") appears below:
BANK DEBT INSTRUMENTS. Bank debt instruments in which the
Fund may invest consist of certificates of deposit, bankers'
acceptances and time deposits issued by national banks and state
banks, trust companies and mutual savings banks, or of banks or
institutions the accounts of which are insured by the Federal
Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable
certificates evidencing the indebtedness of a commercial bank to
repay funds deposited with it for a definite period of time
(usually from fourteen days to one year) at a stated or variable
interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer, which instruments reflect the
obligation both of the bank and of the drawer to pay the face
amount of the instrument upon maturity. The Fund will only
invest in bankers' acceptances of banks having a short-term
rating of A-1 by Standard & Poor's Ratings Group or Prime-1 by
Moody's Investors Service, Inc. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The Fund will not
invest in time deposits maturing in more than seven days if, as a
result thereof, more than 10% of the value of its net assets
would be invested in such securities and other illiquid
securities.
COMMERCIAL PAPER. Commercial paper consists of short-term
(usually from one to two hundred seventy days) unsecured
promissory notes issued by corporations in order to finance their
current operations. The Fund will only invest in taxable
commercial paper provided the paper is rated in one of the two
highest categories by any two NRSROs (or by any one NRSRO if the
security is rated by only that NRSRO). The Fund may also invest
in unrated commercial paper of issuers who have outstanding
unsecured debt rated Aa or better by Moody's or AA or better by
Standard & Poor's. Certain notes may have floating or variable
rates. Variable and floating rate notes with a demand notice
period exceeding seven days will be subject to the Fund's
restrictions on illiquid investments (see "Investment
Limitations") unless, in the judgment of the Adviser, subject to
- 10 -
<PAGE>
the direction of the Board of Trustees, such note is liquid. The
Fund does not presently intend to invest in taxable commercial
paper.
The rating of Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. Among the factors
considered by Moody's in assigning ratings are the following:
valuation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition
and customer acceptance; liquidity; amount and quality of long-
term debt; trend of earnings over a period of 10 years; financial
strength of the parent company and the relationships which exist
with the issuer; and recognition by the management of obligations
which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial
paper is rated Prime-1 or Prime-2. Commercial paper rated A
(highest quality) by Standard & Poor's Ratings Group has the
following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated "A" or better,
although in some cases "BBB" credits may be allowed; the issuer
has access to at least two additional channels of borrowing;
basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances; typically, the issuer's industry
is well established and the issuer has a strong position within
the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated
A-1 or A-2.
REPURCHASE AGREEMENTS. Repurchase agreements are
transactions by which the Fund purchases a security and
simultaneously commits to resell that security to the seller at
an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy
or other default of the seller of a repurchase agreement, the
Fund could experience both delays in liquidating the underlying
security and losses. To minimize these possibilities, the Fund
intends to enter into repurchase agreements only with its
Custodian, with banks having assets in excess of $10 billion and
with broker-dealers who are recognized as primary dealers in U.S.
Government obligations by the Federal Reserve Bank of New York.
Collateral for repurchase agreements is held in safekeeping in
the customer-only account of the Fund's Custodian at the Federal
Reserve Bank. The Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result
thereof, more than 10% of the value of its net assets would be
invested in such securities and other illiquid securities.
- 11 -
<PAGE>
Although the securities subject to a repurchase agreement
might bear maturities exceeding one year, settlement for the
repurchase would never be more than one year after the Fund's
acquisition of the securities and normally would be within a
shorter period of time. The resale price will be in excess of
the purchase price, reflecting an agreed upon market rate
effective for the period of time the Fund's money will be
invested in the securities, and will not be related to the coupon
rate of the purchased security. At the time the Fund enters into
a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the
repurchase agreement, and, in the case of the repurchase
agreement exceeding one day, the seller will agree that the value
of the underlying security, including accrued interest, will at
all times equal or exceed the value of the repurchase agreement.
The collateral securing the seller's obligation must be of a
credit quality at least equal to the Fund's investment criteria
for portfolio securities and will be held by the Custodian or in
the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a
repurchase agreement is deemed to be a loan from the Fund to the
seller subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans.
It is not clear whether a court would consider the securities
purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund
to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the
securities before repurchase of the security under a repurchase
agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of
interest or decline in price of the security. If a court
characterized the transaction as a loan and the Fund has not
perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at the risk of losing some or all of
the principal and income involved in the transaction. As with
any unsecured debt obligation purchased for the Fund, the Adviser
seeks to minimize the risk of loss through repurchase agreements
by analyzing the creditworthiness of the obligor, in this case,
the seller. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to
repurchase the security, in which case the Fund may incur a loss
if the proceeds to the Fund of the sale of the security to a
third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase
agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the security to
deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or
- 12 -
<PAGE>
exceed the repurchase price. It is possible that the Fund will
be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its
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
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
- ----------------------
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 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.
- 13 -
<PAGE>
THE LIMITATIONS APPLICABLE TO THE FUND ARE:
1. Borrowing Money. The Fund will not borrow money,
except from a bank for temporary purposes only, provided that,
when made, such temporary borrowings are in an amount not
exceeding 10% of its total assets. The Fund will not make any
additional purchases of portfolio securities if outstanding
borrowings exceed 5% of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge,
hypothecate or in any manner transfer, as security for
indebtedness, any security owned or held by the Fund except as
may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or
hypothecate more than 10% of the value of its total assets in
connection with borrowings.
3. Underwriting. The Fund will not act as underwriter of
securities issued by other persons. This limitation is not
applicable to the extent that, in connection with the disposition
of its portfolio securities (including restricted securities),
the Fund may be deemed an underwriter under certain federal
securities laws.
4. Illiquid Investments. The Fund will not invest more
than 10% of its net assets in securities for which there are
legal or contractual restrictions on resale, repurchase
agreements maturing in more than seven days and other illiquid
securities.
5. Real Estate. The Fund will not purchase, hold or deal
in real estate. This limitation is not applicable to investments
in securities which are secured by or represent interests in real
estate.
6. 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.
This limitation is not applicable to the extent that the tax-
exempt obligations, U.S. Government obligations and other
securities in which the Fund may otherwise invest would be
considered to be such commodities, contracts or investments.
7. Loans. The Fund will not make loans to other persons,
except (a) by loaning portfolio securities, or (b) by engaging in
repurchase agreements. For purposes of this limitation, the term
"loans" shall not include the purchase of a portion of an issue
of tax-exempt obligations or publicly distributed bonds,
debentures or other securities.
- 14 -
<PAGE>
8. 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
Funds for the clearance of purchases and sales or redemption of
securities.
9. Short Sales and Options. The Fund will not sell any
securities short or sell put and call options. This limitation
is not applicable to the extent that sales by the Fund of tax-
exempt obligations with puts attached or sales by the Fund of
other securities in which the Fund may otherwise invest would be
considered to be sales of options.
10. Other Investment Companies. The Fund will not invest
more than 5% of its total assets in the securities of any
investment company and will not invest more than 10% of its total
assets in securities of other investment companies.
11. Concentration. The Fund will not invest more than 25%
of its total assets in a particular industry; this limitation is
not applicable to investments in tax-exempt obligations issued by
governments or political subdivisions of governments.
12. Senior Securities. The Fund will not issue or sell any
class of senior security as defined by the Investment Company Act
of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued basis
might be deemed as such.
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 and
the holding of illiquid securities) will not be a violation of
the policy or restriction unless the excess results immediately
and directly from the acquisition of any security or the action
taken.
The Trust has never pledged, mortgaged or hypothecated the
assets of the Fund, and the Trust presently intends to continue
this policy. The Trust has never acquired, nor does it 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 statements of intention in
this paragraph reflect nonfundamental policies which may be
changed by the Board of Trustees without shareholder approval.
- 15 -
<PAGE>
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive
officers of the Trust and their aggregate compensation from the
Trust 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 49 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 50 Trustee 0 1,800
Fred A. Rappoport 49 Trustee 0 2,400
Oscar P. Robertson 57 Trustee 1,950 3,900
Robert B. Sumerel 54 Trustee 0 600
John F. Splain 39 Secretary 0 0
Mark J. Seger 34 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 President and a Trustee of Midwest Trust and Midwest
Strategic Trust, registered investment companies.
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.
- 16 -
<PAGE>
GARY W. HELDMAN, 183 Congress Run 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, Inc., a manufacturer of electronic connectors.
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.
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is
a President of Orchem, Corp., a chemical specialties distributor,
and Orpack Stone Corporation, a corrugated box manufacturer.
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, Williamsburg Investment Trust,
Markman MultiFund Trust, The Tuscarora Investment Trust and
PRAGMA 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, Williamsburg
Investment Trust, Markman MultiFund Trust and PRAGMA Investment
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
- --------------------------------------
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
- 17 -
<PAGE>
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 $100,000,000, .45% of such assets
from $100,000,000 to $200,000,000, .4% of such assets from
$200,000,000 to $300,000,000 and .375% of such assets in excess
of $300,000,000. 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 Retail Shares to the extent that such expenses are not
assumed by the Retail Shares under its plan of distribution (see
below). The Adviser pays from its own resources promotional
expenses in connection with the distribution of the Fund's
Institutional Shares. 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 a 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
- 18 -
<PAGE>
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.
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.
Retail Shares of the Fund may compensate dealers, including
the Adviser and its affiliates, based on the average balance of
all accounts in Retail Shares for which the dealer is designated
as the party responsible for the account. See "Distribution
Plan" below.
DISTRIBUTION PLAN
- -----------------
As stated in the Prospectus, Retail Shares of the Fund have
adopted a plan of distribution (the "Class A Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 which permits
Retail Shares to pay for expenses incurred in the distribution
and promotion of the Fund's Retail 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
- 19 -
<PAGE>
distribution or service agreement with the Adviser. The Class A
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 Retail Shares of the Fund. Unreimbursed
expenses will not be carried over from year to year.
Agreements implementing the Class A Plan (the
"Implementation Agreements"), including agreements with dealers
wherein such dealers agree for a fee to act as agents for the
sale of the Fund's Retail Shares, are in writing and have been
approved by the Board of Trustees. All payments made pursuant to
the Class A Plan are made in accordance with written agreements.
The continuance of the Class A 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 Class A Plan or any
Implementation Agreement (the "Independent Trustees") at a
meeting called for the purpose of voting on such continuance.
The Class A 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 Retail Shares of the Fund. In
the event the Class A Plan is terminated in accordance with its
terms, Retail Shares 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 Retail Shares on not
more than 60 days' written notice to any other party to the
Implementation Agreement. The Class A Plan may not be amended to
increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the
Class A 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 Class A 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 Class A Plan will benefit the Fund and the
holders of its Retail Shares. The Board of Trustees believes
that expenditure of assets of Retail Shares for distribution
expenses under the Class A Plan should assist in the growth of
such shares which will benefit the Fund and the holders of its
Retail Shares through increased economies of scale, greater
investment flexibility, greater portfolio diversification and
less chance of disruption of planned investment strategies. The
Class A 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 Retail Shares' assets for distribution will be realized.
While the Class A Plan is in effect, all amounts spent by Retail
Shares pursuant to the Plan and the purposes for which such
- 20 -
<PAGE>
expenditures were made must be reported quarterly to the Board of
Trustees for its review. 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 Class A 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.
- 21 -
<PAGE>
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.
- 22 -
<PAGE>
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 portfolio securities were
replaced once within a one year period.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the Fund's shares is
determined as of 12:00 noon and 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.
Pursuant to Rule 2a-7 promulgated under the Investment
Company Act of 1940, the Fund values its portfolio securities on
an amortized cost basis. The use of the amortized cost method of
valuation involves valuing an instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. Under the
amortized cost method of valuation, neither the amount of daily
income nor the net asset value of the Fund is affected by any
unrealized appreciation or depreciation of the portfolio. The
Board of Trustees has determined in good faith that utilization
of amortized cost is appropriate and represents the fair value of
the portfolio securities of the Fund.
Pursuant to Rule 2a-7, the Fund maintains a dollar-weighted
average portfolio maturity of 90 days or less, purchases only
securities having remaining maturities of thirteen months or less
- 23 -
<PAGE>
and invests only in United States dollar-denominated securities
determined by the Board of Trustees to be of high quality and to
present minimal credit risks. If a security ceases to be an
eligible security, or if the Board of Trustees believes such
security no longer presents minimal credit risks, the Trustees
will cause the Fund to dispose of the security as soon as
possible.
The maturity of a floating or variable rate instrument
subject to a demand feature held by the Fund will be determined
as follows, provided that the conditions set forth below are met.
The maturity of a floating rate instrument with a demand feature
(or a participation interest in such a 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 a variable rate instrument with a demand feature (or
a participation interest in such a 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.
The demand feature of each such instrument must entitle the
Fund to receive the principal amount of the instrument plus
accrued interest, if any, at the time of exercise and must be
exercisable either (1) at any time upon no more than thirty days'
notice or (2) at specified intervals not exceeding thirteen
months and upon no more than thirty days' notice. Furthermore,
the maturity of any such instrument may only be determined as set
forth above as long as the instrument continues to receive a
short-term rating in one of the two highest categories from any
two nationally recognized statistical rating organizations
("NRSROs") (or from any one NRSRO if the security is rated by
only that NRSRO) or, if not rated, is determined to be of
comparable quality by the Adviser, under the direction of the
Board of Trustees. However, an instrument having a demand
feature other than an "unconditional" demand feature must have
both a short-term and a long-term rating in one of the two
highest categories from any two NRSROs (or from any one NRSRO if
the security is rated by only that NRSRO) or, if not rated, to
have been determined to be of comparable quality by the Adviser,
under the direction of the Board of Trustees. An "unconditional"
demand feature is one that by its terms would be readily
exercisable in the event of a default on the underlying
instrument.
The Board of Trustees has established procedures designed to
stabilize, to the extent reasonably possible, the price per share
of the Fund as computed for the purpose of sales and redemptions
at $1 per share. The procedures include review of the Fund's
portfolio holdings by the Board of Trustees to determine whether
the Fund's net asset value calculated by using available market
quotations deviates more than one-half of one percent from $1 per
- 24 -
<PAGE>
share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the
event the Board of Trustees determines that such a deviation
exists, it will take corrective action as it regards necessary
and appropriate, including the sale of portfolio securities prior
to maturity to realize capital gains or losses or to shorten
average portfolio maturities; withholding dividends; redemptions
of shares in kind; or establishing a net asset value per share by
using available market quotations. The Board of Trustees has
also established procedures designed to ensure that the Fund
complies with the quality requirements of Rule 2a-7.
While the amortized cost method provides certainty in
valuation, it may result in periods during which the value of an
instrument, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on
shares of the Fund may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices
for all of its portfolio securities. Thus, if the use of
amortized cost by the Fund resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in
the Fund would be able to obtain a somewhat higher yield than
would result from investment in a fund utilizing solely market
values and existing investors would receive less investment
income. The converse would apply in a period of rising interest
rates.
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
- 25 -
<PAGE>
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. To the extent
possible, the Fund intends to invest primarily in obligations the
income from which is exempt from Michigan personal income tax.
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
- 26 -
<PAGE>
inclusion rules for high-income social security recipients has
been added for tax years beginning 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.
- 27 -
<PAGE>
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
Yield quotations on investments in the Fund are provided on
both a current and an effective (compounded) basis. Current
yields are calculated by determining the net change in the value
of a hypothetical account for a seven calendar day period (base
period) with a beginning balance of one share, dividing by the
value of the account at the beginning of the base period to
obtain the base period return, multiplying the result by (365/7)
and carrying the resulting yield figure to the nearest hundredth
of one percent. Effective yields reflect daily compounding and
are calculated as follows: Effective yield = (base period return
+ 1)365/7 - 1. For purposes of these calculations, no effect is
given to realized or unrealized gains or losses (the Fund does
not normally recognize unrealized gains and losses under the
amortized cost valuation method). The Fund may also quote a tax-
equivalent current or effective yield, computed by dividing that
portion of the Fund's current or effective yield which is tax-
exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the yield that is not tax-
exempt.
The performance quotations described above are based on
historical earnings and are not intended to indicate future
performance. Yield quotations are computed separately for Retail
Shares and Institutional Shares of the Fund. The yield of
Institutional Shares is expected to be higher than the yield of
Retail Shares due to the distribution fees imposed on Retail
Shares.
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:
Donoghue's Money Fund Report provides a comparative analysis
of performance for various categories of money market funds. The
Fund may compare performance rankings with money market funds
appearing in the Tax Free State Specific Stockbroker & General
Purpose Funds category. 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 Michigan
Tax-Exempt Money Market Funds category.
- 28 -
<PAGE>
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 Huntington Trust Company, N.A., 7450 Huntington Park
Drive, Columbus, Ohio, has been retained to act as Custodian for
investments of the Fund. The Huntington Trust Company, N.A. 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.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as
independent auditors for the Trust for the fiscal year ending
June 30, 1997. Arthur Andersen LLP, 425 Walnut Street,
Cincinnati, Ohio, performs an annual audit of the Trust's
financial statements and advises the Trust 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 transfer
agent a fee payable monthly at an annual rate of $25 per account
from the Fund, provided, however, that the minimum fee is $1,000
per month for each class of shares of the Fund. 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:
- 29 -
<PAGE>
Asset Size of Fund Monthly Fee
------------------ -----------
$ 0 - $100,000,000 $3,250
$100,000,000 - $250,000,000 $3,750
$250,000,000 - $400,000,000 $4,250
Over $400,000,000 $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.
- 30 -
<PAGE>
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 combined marginal federal and
Michigan 1996 income tax rates. Where more than one state bracket falls within
a federal bracket, the highest state tax bracket has been combined with the
federal bracket. The combined marginal state and federal tax brackets shown
reflect the fact that state income tax payments are currently deductible for
federal tax purposes.
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 $117,950 (single return) or $176,950 (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 $117,950. The tax equivalent yield table has not
been adjusted to reflect the impact of these adjustments to taxable income.
- 31 -
<PAGE>
MICHIGAN TAX-FREE MONEY FUND
Taxable Income
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Tax-Exempt Yield
--------------------------------------------------
2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
Combined Michigan
and Federal
Tax Bracket* Tax Equivalent Yield
- ------------ ---------------------
19.47% 3.10% 3.73 4.35 4.97 5.59 6.21
32.47% 3.70 4.44 5.18 5.92 6.66 7.40
35.47 3.87 4.65 5.42 6.20 6.97 7.75
40.47% 4.20 5.04 5.88 6.72 7.56 8.40
44.07% 4.47 5.36 6.26 7.15 8.05 8.94
*TAX BRACKETS
Combined Michigan
Single Joint and Federal
Return Return Tax Bracket
- ------- ------ -------
Not Over $24,000 Not Over $40,100 19.47%
$24,000-$58,150 $40,100-$96,900 32.47%
$58,150-$121,300 $96,900-$147,700 35.47%
$121,300-$263,750 $147,700-$263,750 40.47%
Over $263,750 Over $263,750 44.07%
</TABLE>
