PROSPECTUS
February 1, 1996
Revised March 15, 1996
MIDWEST GROUP TAX FREE TRUST
312 WALNUT STREET, 21st FLOOR
CINCINNATI, OHIO 45202-4094
GOVERNMENT TAX-EXEMPT RESERVE FUND
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The Government Tax-Exempt Reserve Fund (the "Fund"), a separate series
of Midwest Group Tax Free Trust, is a professionally-managed, no-load,
diversified, open-end mutual fund which is designed primarily for the investment
of escrow and operating accounts maintained by corporations, partnerships and
individuals who own real property or multifamily housing subject to mortgages
held or insured by various federal housing agencies.
The Fund seeks high current income that is exempt from federal income
tax, consistent with protection of capital. The Fund invests primarily in
pre-refunded municipal obligations, escrowed municipal obligations and
Government National Mortgage Association collateralized mortgage obligations,
which are rated AAA by Standard & Poor's Ratings Group or Aaa by Moody's
Investors Service, Inc.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Midwest Group Financial Services, Inc. (the "Adviser") manages
the Fund's investments and its business affairs.
This Prospectus sets forth concisely the information about the Fund
that you should know before investing. Please retain this Prospectus for
future reference. A Statement of Additional Information dated February
1, 1996, amended March 15, 1996 has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety.
A copy of the Statement of Additional Information can be obtained at
no charge by calling one of the numbers listed below.
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
NATIONWIDE (TOLL-FREE)..............................800-543-0407
CINCINNATI..........................................513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE INFORMATION
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Shareholder Transaction Expenses
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Sales Load Imposed on Purchases................None
Sales Load Imposed on Reinvested Dividends.....None
Exchange Fee...................................None
Redemption Fee.................................None*
Check Redemption Processing Fee (per check):
First six checks per month...................None
Additional checks per month..................$0.25
* A wire transfer fee is charged by the Fund's Custodian in the case
of redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
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Management Fees After Waivers .25%(A)
12b-1 Fees .25%(B)
Other Expenses .49%
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Total Fund Operating Expenses .99%(C)
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(A) Absent waivers of management fees, such fees would be .50%.
(B) Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales loads permitted by
the National Association of Securities Dealers.
(C) Absent waivers of management fees, total Fund operating
expenses would be 1.24%.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on estimated amounts for the current fiscal year. THE EXAMPLE BELOW SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example
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You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
1 Year 3 Years
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$10 $32
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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 high current income exempt from federal income tax, consistent with
protection of capital. The Fund seeks to achieve its investment objective by
investing primarily in pre-refunded municipal obligations, escrowed municipal
obligations and municipal obligations collateralized by Government National
Mortgage Association Certificates ("GNMA collateralized mortgage obligations"),
which are rated AAA by Standard & Poor's Ratings Group or Aaa by Moody's
Investors Service, Inc.
The Fund is not intended to be a complete investment program, and there
is no assurance that its investment objective can be achieved. The Fund's
investment objective is fundamental and as such may not be changed without the
affirmative vote of a majority of the outstanding shares of the Fund. The term
"majority" of the outstanding shares means the lesser of (1) 67% or more of the
outstanding shares of the Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented at such
meeting or (2) more than 50% of the outstanding shares of the Fund. Unless
otherwise indicated, all investment practices and limitations of the Fund are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval.
The Fund is primarily designed for the investment of escrow and
operating accounts maintained by corporations, partnerships and individuals who
own real property or multifamily housing subject to mortgages held or insured by
various federal housing agencies. Mortgagors that obtain mortgage loans made
directly or insured by federal agencies are required to maintain and invest
several types of escrow accounts. Surplus Operating, Replacement Reserve,
Reserve Accounts and Residual Receipts are types of escrow accounts that the
federal agencies require, and the agencies either mandate or suggest that the
accounts be invested to offset inflationary increases in repairs and replacement
costs and to enhance a project's financial condition. The Fund is an appropriate
investment vehicle for these accounts.
The Fund will invest only in municipal obligations with remaining
maturities of two years or less at the time of purchase.
It is a fundamental policy that under normal market conditions the
Fund's assets will be invested so that at least 80% of its annual income will be
exempt from federal income tax, including the alternative minimum tax. This
policy may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund.
The Fund may, from time to time, invest in short-term U.S. Treasury
bills for liquidity purposes or for temporary defensive purposes (subject to the
fundamental policy that under normal
<PAGE>
market conditions the assets of the Fund will be invested so that at least 80%
of annual income will be exempt from federal income tax, including the
alternative minimum tax).
Municipal Obligations
---------------------
Municipal obligations are debt obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest that is, in
the opinion of bond counsel to the issuer, exempt from federal income tax.
Municipal obligations are issued to obtain funds to construct, repair or improve
various public facilities such as airports, bridges, highways, hospitals,
housing, schools, streets and water and sewer works, to pay general operating
expenses or to refinance outstanding debts. They also may be issued to finance
various private activities, including the lending of funds to public or private
institutions for construction of housing, educational or medical facilities or
the financing of privately owned or operated facilities.
PRE-REFUNDED AND ESCROWED MUNICIPAL OBLIGATIONS. It is anticipated that
the Fund will invest primarily in pre-refunded and escrowed municipal
obligations. Pre-refunded and escrowed municipal obligations are issued
originally as general obligation or revenue bonds of governmental entities, but
are now secured until the call date or maturity of an escrow fund consisting
entirely of U.S. Government obligations that are sufficient for paying the
bondholders. Refunding bonds are bonds issued by municipal agencies as a method
to reduce debt service by refunding and escrowing their outstanding bonds that
otherwise may not be "called" prior to maturity. A new issue of refunding bonds
is brought to the market and the proceeds are placed into an escrow account to
defease and, at a future date, to retire the old issue. The escrow account is
typically invested in direct U.S. Treasury obligations or other U.S. Government
securities. The principal and interest flow through the escrow account to pay
the investor the debt service in the refunded or escrowed municipal obligation.
GNMA COLLATERALIZED MUNICIPAL OBLIGATIONS. GNMA collateralized
municipal obligations generally are bonds issued to provide funds to the issuer
of the bonds to purchase fully- modified pass-through certificates ("GNMA
Certificates"), backed by certain qualifying mortgage loans. The GNMA
Certificates are pledged as security for the bonds.
GNMA Certificates are U.S. Government obligations guaranteed by the
Government National Mortgage Association (the "GNMA") and are mortgage-backed
securities representing part ownership of a pool of mortgage loans. The pool of
mortgage loans underlying the GNMA Certificates is assembled by the issuer,
usually a private mortgage lender. The loans in the pool, issued by
<PAGE>
lenders such as mortgage bankers, commercial banks and savings and loan
associations, are either insured by the Federal Housing Administration or the
Farmers' Home Administration or guaranteed by the Veterans Administration. If
the pool is approved by the GNMA, GNMA Certificates are issued and sold to
investors such as the Fund. GNMA Certificates entitle the holder to receive all
interest and principal payments owned on the pool of mortgage loans, net of fees
paid to the issuer and the GNMA. In addition, the timely payment of interest and
principal on this type of GNMA Certificate is guaranteed by the GNMA, even in
the event of the foreclosure of underlying mortgage loans. The GNMA guarantee is
backed by the "full faith and credit" of the United States Government. However,
shares of the Fund are not guaranteed or backed by either the GNMA or the United
States Government. Prepayments of and payments on foreclosures of mortgage loans
underlying a GNMA Certificate are passed through to the registered holder with
the regular monthly payments of principal and interest, and have the effect of
reducing future payments. The mortgage loans underlying GNMA Certificates may be
prepaid at any time without penalty. If a prepayment of a mortgage loan
underlying a GNMA Certificate occurs, the return to the holder may be lower if
the holder acquired the security at a premium over par or higher if the holder
acquired the security at a discount from par. In addition, prepayments of
mortgage loans underlying a GNMA Certificate will reduce the market value of the
security to the extent the market value of the security at the time of
prepayment exceeds it par value. In periods of declining mortgage interest
rates, prepayments may occur with increasing frequency because, among other
reasons, mortgagors may be able to refinance outstanding mortgages at lower
interest rates. In general, a decline in interest rates will cause the value of
GNMA Certificates to increase to the extent that prepayments do not occur, while
a rise in interest rates will cause the value of GNMA Certificates to decrease.
The market value of investments available to the Fund, and therefore
the Fund's yield and net asset value, will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors beyond the control
of the Adviser. The portfolio securities held by the Fund are subject to price
fluctuations based upon changes in the level of interest rates, which will
generally result in all those securities changing in price in the same way,
i.e., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise. In addition, the financial condition
of an issuer or adverse changes in general economic conditions, or both, may
impair the issuer's ability to make payments of interest and principal.
Certain provisions in the Internal Revenue Code relating to the
issuance of municipal obligations may reduce the volume of municipal obligations
qualifying for federal tax exemptions. Shareholders should consult their tax
advisors concerning the effect of these provisions on an investment in the Fund.
<PAGE>
Proposals that may further restrict or eliminate the income tax exemptions for
interest on municipal obligations may be introduced in the future. If any such
proposal were enacted that would reduce the availability of municipal
obligations for investment by the Fund so as to adversely affect its
shareholders, the Fund would reevaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration.
Other Investment Techniques
---------------------------
The Fund may also engage in the following investment techniques, each
of which may involve certain risks:
U.S. TREASURY BILLS. The Fund may invest in U.S. Treasury bills for
liquidity purposes or for temporary defensive purposes. U.S. Treasury bills
have initial maturities of one year or less. U.S. Treasury bills are backed
by the "full faith and credit" of the United States Government. However,
shares of the Fund are not guaranteed or backed by the United States
Government.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may invest in floating
or variable rate municipal obligations. Floating rate obligations have an
interest rate which is fixed to a specified interest rate, such as a bank prime
rate, and is automatically adjusted when the specified interest rate changes.
Variable rate obligations have an interest rate which is adjusted at specified
intervals to a specified interest rate. Periodic interest rate adjustments
help stabilize the obligations' market values. The Fund may purchase these
obligations from the issuers or may purchase participation interests in pools of
these obligations from banks or other financial institutions. Variable and
floating rate obligations usually carry demand features that permit the Fund to
sell the obligations back to the issuers or to financial intermediaries at par
value plus accrued interest upon not more than 30 days' notice at any time or
prior to specific dates. Certain of these variable rate obligations, often
referred to as "adjustable rate put bonds," may have a demand feature
exercisable on specific dates once or twice each year. The Fund will not invest
more than 10% of its net assets in floating or variable rate obligations as to
which it cannot exercise the demand feature on not more than seven days' notice
if the Adviser, under the direction of the Board of Trustees, determines that
there is no secondary market available for these obligations and all other
illiquid securities. If the Fund invests a substantial portion of its assets in
obligations with demand features permitting sale to a limited number of
entities, the inability of the entities to meet demands to purchase the
obligations could affect the Fund's liquidity. However, obligations with demand
features frequently are secured by letters of credit or comparable guarantees
that may reduce the risk that an entity would not be able to meet such demands.
In determining whether an obligation secured by a letter of credit meets the
Fund's quality standards, the Adviser will ascribe to
<PAGE>
such obligation the same rating given to unsecured debt issued by the letter of
credit provider. In looking to the credit-worthiness of a party relying on a
foreign bank for credit support, the Adviser will consider whether adequate
public information about the bank is available and whether the bank may be
subject to unfavorable political or economic developments, currency controls or
other governmental restrictions affecting its ability to honor its credit
commitment.
BORROWING AND PLEDGING. As a temporary measure for extraordinary or
emergency purposes, the Fund may borrow money from banks or other persons in an
amount not exceeding 10% of its total assets. The Fund may pledge assets in
connection with borrowings but will not pledge more than 10% of its total
assets. The Fund will not make any additional purchases of portfolio securities
while borrowings are outstanding. Borrowing magnifies the potential for gain or
loss on the Fund's portfolio securities and, therefore, if employed, increases
the possibility of fluctuation in its net asset value. This is the speculative
factor known as leverage. To reduce the risks of borrowing, the Fund will limit
its borrowings as described above. The Fund's policies on borrowing and pledging
are fundamental policies which may not be changed without the affirmative vote
of a majority of its outstanding shares.
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in the Fund ordinarily must be at least
$10,000. Shares of the Fund are sold on a continuous basis at the net asset
value next determined after receipt of a purchase order by the Trust.
INITIAL INVESTMENTS BY MAIL. You may open an account and make an initial
investment in the Fund by sending a check and a complete account application to
MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should
be made payable to the "Government Tax-Exempt Reserve 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.
<PAGE>
Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting losses or fees incurred by
the Trust or MGF Service Corp. in the transaction.
INITIAL INVESTMENTS BY WIRE. You may also purchase shares of the Fund
by wire. Please telephone MGF Service Corp. (Nationwide call toll-free
800-543-0407; in Cincinnati call 629- 2050) for instructions. You should be
prepared to give the name in which the account is to be established, the
address, telephone number and taxpayer identification number for the account,
and the name of the bank which will wire the money.
Your investment will be made at the net asset value next determined
after your wire is received together with the account information indicated
above. If the Trust does not receive timely and complete account information,
there may be a delay in the investment of your money and any accrual of
dividends. To make your initial wire purchase, you are required to mail a
completed account application to MGF Service Corp. Your bank may impose a charge
for sending your wire. There is presently no fee for receipt of wired funds, but
MGF Service Corp. reserves the right to charge shareholders for this service
upon thirty days' prior notice to shareholders.
ADDITIONAL INVESTMENTS. You may purchase and add shares to your account
by mail or by bank wire. Checks should be sent to MGF Service Corp., P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable or endorsed to
the "Government Tax-Exempt Reserve Fund." Bank wires should be sent as outlined
above. You may also make additional investments at the Trust's offices at 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202. Each additional purchase
request must contain the name of your account and your account number to permit
proper crediting to your account. While there is no minimum amount required for
subsequent investments, the Trust reserves the right to impose such requirement.
HOW TO REDEEM SHARES
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You may redeem shares of the Fund on each day that the Trust is open
for business. You will receive the net asset value per share next determined
after receipt by MGF Service Corp. of your redemption request in the form
described below. Payment is normally made within three business days after
tender in such form, provided that payment in redemption of shares purchased by
check will be effected only after the check has been collected, which may take
up to fifteen days from the purchase date. To eliminate this delay, you may
purchase shares of the Fund by certified check or wire.
BY TELEPHONE. You may redeem shares by telephone. The proceeds will
be sent by mail to the address designated on your account or wired directly to
your existing account in any commercial bank or brokerage firm in the United
States as designated on your application. To redeem by telephone, call MGF
Service Corp. (Nationwide call toll-free 800-543-0407; in Cincinnati call
629-2050). The redemption proceeds will be sent by mail or by wire within three
business days after receipt of your telephone instructions.
The telephone redemption privilege is automatically available to all
shareholders. You may change the bank or brokerage account which you have
designated under this procedure at any time by writing to MGF Service Corp. with
your signature guaranteed by any eligible guarantor institution (including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations)
or by completing a supplemental telephone redemption authorization form. Contact
MGF Service Corp. to obtain this form. Further documentation will be required to
change the designated account if shares are held by a corporation, fiduciary or
other organization.
Neither the Trust, MGF Service Corp., nor their respective affiliates
will be liable for complying with telephone instructions they reasonably believe
to be genuine or for any loss, damage, cost or expense in acting on such
telephone instructions. The affected shareholders will bear the risk of any such
loss. The Trust or MGF Service Corp., or both, will employ reasonable procedures
to determine that telephone instructions are genuine. If the Trust and/or MGF
Service Corp. do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
BY MAIL. You may redeem any number of shares from your account by
sending a written request to MGF Service Corp. The request must state the number
of shares or the dollar amount to be redeemed and your account number. The
request must be signed exactly as your name appears on the Trust's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any of the eligible guarantor institutions
outlined above.
Written redemption requests may also direct that the proceeds be
deposited directly in the bank account or brokerage account designated on your
account application for telephone redemptions. Proceeds of redemptions requested
by mail are mailed within three business days following receipt of instructions
in proper form.
<PAGE>
BY CHECK. You may establish a special checking account with the Fund
for the purpose of redeeming shares by check. Checks may be made payable to
anyone for any amount, but checks may not be certified.
When a check is presented to the Custodian for payment, MGF Service
Corp., as your agent, will cause the Fund to redeem a sufficient number of full
and fractional shares in your account to cover the amount of the check. Checks
will be processed at the net asset value on the day the check is presented to
the Custodian for payment.
If the amount of a check is greater than the value of the shares held
in your account, the check will be returned. Shareholders of the Fund should
consider potential fluctuations in the net asset value of the Fund's shares when
writing checks. A check representing a redemption request will take precedence
over any other redemption instructions issued by a shareholder.
As long as no more than six check redemptions are effected in your
account in any month, there will be no charge for the check redemption
privilege. However, after six check redemptions are effected in your account in
a month, MGF Service Corp. will charge you $.25 for each additional check
redemption effected that month. MGF Service Corp. charges shareholders its costs
for each stop payment and each check returned for insufficient funds. In
addition, MGF Service Corp. reserves the right to make additional charges to
recover the costs of providing the check redemption service. All charges will be
deducted from your account by redemption of shares in your account. The check
redemption procedure may be suspended or terminated at any time upon written
notice by the Trust or MGF Service Corp.
Shareholders should be aware that writing a check (a redemption of
shares) is a taxable event.
ADDITIONAL REDEMPTION INFORMATION. If your instructions request a
redemption by wire, you will be charged an $8 processing fee by the Fund's
Custodian. The Trust reserves the right, upon thirty days' written notice, to
change the processing fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact MGF Service Corp. for more information about ACH
transactions.
<PAGE>
At the discretion of the Trust or MGF Service Corp., corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Trust
reserves the right to require you to close your account if at any time the value
of your shares is less than $10,000 (based on actual amounts invested,
unaffected by market fluctuations) or such other minimum amount as the Trust may
determine from time to time. After notification to you of the Trust's intention
to close your account, you will be given thirty days to increase the value of
your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
- ------------------
Shares of the Fund and of any other fund of the Midwest Group of Funds
may be exchanged for each other. A sales load will be imposed equal to the
excess, if any, of the sales load rate applicable to the shares being acquired
over the sales load rate, if any, previously paid on the shares being exchanged.
A contingent deferred sales load may be imposed on a redemption of shares of the
Fund if such shares had previously been acquired in connection with an exchange
from another fund in the Midwest Group which imposes a contingent deferred sales
load, as described in the Prospectus of such other fund.
The following are the funds of the Midwest Group of Funds currently
offered to the public. Funds which may be subject to a front-end or contingent
deferred sales load are indicated by an asterisk.
Midwest Group Tax Free Trust Midwest Strategic Trust
- ---------------------------- -----------------------
Tax-Free Money Fund *U.S. Government Securities Fund
Ohio Tax-Free Money Fund *Equity Fund
California Tax-Free Money Fund *Utility Fund
Royal Palm Florida Tax-Free *Treasury Total Return Fund
Money Fund
Government Tax-Exempt Reserve Fund
*Tax-Free Intermediate Term Fund
*Ohio Insured Tax-Free Fund
Midwest Trust
-------------
Short Term Government Income Fund
Institutional Government Income Fund
*Intermediate Term Government Income Fund
*Adjustable Rate U.S. Government Securities Fund
*Global Bond Fund
<PAGE>
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An
exchange will be effected at the next determined net asset value (or offering
price, if sales load is applicable) after receipt of a request by MGF Service
Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact MGF Service Corp. to obtain a
current prospectus for any of the other funds in the Midwest Group and more
information about exchanges among the Midwest Group of Funds.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
All of the net investment income of the Fund is declared as a dividend
to shareholders of record on each business day of the Trust and paid monthly.
The Fund expects to distribute any net realized long-term capital gains at least
once each year. Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains. The Fund will, at
the time dividends are paid, designate as tax-exempt the same percentage of the
distribution as the actual tax-exempt income earned during the period covered by
the distribution bore to total income earned during the period; the percentage
of the distribution which is tax-exempt may vary from distribution to
distribution.
Dividends are automatically reinvested in additional shares of the Fund
(the Share Option) unless cash payments are specified on your application or are
otherwise requested by contacting MGF Service Corp. All distributions will be
based on the net asset value in effect on the payable date. If you elect to
receive dividends in cash and the U.S. Postal Service cannot deliver your checks
or if your checks remain uncashed for six months, your dividends may be
reinvested in your account at the then-current net asset value and your account
will be converted to the Share Option.
TAXES
- -----
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. The Fund also intends to meet all IRS requirements necessary to
<PAGE>
ensure that it is qualified to pay "exempt-interest dividends," which means that
the Fund may pass on to shareholders the federal tax-exempt status of its
investment income.
The Fund intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. For federal
income tax purposes, a shareholder's proportionate share of taxable
distributions from the Fund's net investment income as well as from net realized
short-term capital gains, if any, is taxable as ordinary income. Since the
Fund's investment income is derived from interest rather than dividends, no
portion of such distributions is eligible for the dividends received deduction
available to corporations. Distributions of net realized long-term capital gains
are taxable as long-term capital gains regardless of how long you have held your
Fund shares.
Issuers of tax-exempt securities issued after August 31, 1986 are
required to comply with various new restrictions on the use and investment of
proceeds of sales of the securities. Any failure by the issuer to comply with
these restrictions would cause interest on such securities to become taxable to
the security holders as of the date the securities were issued.
Redemptions and exchanges of shares of the Fund are taxable events on
which a shareholder may realize a gain or loss. If a shareholder buys shares of
the Fund and sells them at a loss within six months, any loss will be disallowed
for federal income tax purposes to the extent of the exempt-interest dividends
received on such shares. Any loss realized upon the sale of shares of the Fund
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of amounts treated as distributions of net realized
long-term capital gains during such six month period. In addition, shareholders
should be aware that interest on indebtedness incurred to purchase or carry
shares of the Fund is not deductible for federal income tax purposes.
Shareholders receiving Social Security benefits may be taxed on a portion of
those benefits as a result of receiving tax-exempt income.
The Fund will mail to each of its shareholders a statement indicating
the amount and federal income tax status of all distributions made during the
year. The Fund will report to its shareholders the percentage and source of
income earned on tax-exempt obligations held by it during the preceding year. An
exemption from federal income tax may not result in similar exemptions under the
laws of a particular state or local taxing authority.
Shareholders should consult their tax advisors about the tax effect of
distributions and withdrawals from the Fund and the use of the Exchange
Privilege. The tax consequences described in this section apply whether
distributions are taken in cash or reinvested in additional shares. The Fund may
not be an appropriate investment for persons who are "substantial users" of
facilities financed by industrial development bonds or are
<PAGE>
"related persons" to such users; such persons should consult their tax advisors
before investing in the Fund.
OPERATION OF THE FUND
- ---------------------
The Fund is a diversified series of Midwest Group Tax Free Trust, an
open-end management investment company organized as a Massachusetts business
trust on April 13, 1981. The Board of Trustees supervises the business
activities of the Trust. Like other mutual funds, the Trust retains various
organizations to perform specialized services for the Fund.
The Trust retains Midwest Group Financial Services, Inc., 312 Walnut
Street, Cincinnati, Ohio (the "Adviser"), to manage the Fund's investments and
its business affairs. The Adviser was organized in 1974 and is also the
investment adviser to six other series of the Trust, five series of Midwest
Trust and four series of Midwest Strategic Trust. The Adviser is a subsidiary of
Leshner Financial, Inc., of which Robert H. Leshner is the controlling
shareholder. The Fund pays the Adviser a fee equal to the annual rate of .5% of
the average value of its daily net assets up to $500 million; .45% of such
assets from $500 million to $1 billion; and .4% of such assets in excess of $1
billion. As of the date of the initial public offering of shares of the Fund,
the Adviser is the sole shareholder of the Fund.
John J. Goetz, the Chief Investment Officer of the Adviser, is
primarily responsible for managing the Fund's portfolio. Mr. Goetz has been
employed by the Adviser in various capacities since 1981.
The Adviser retains Cash Reserve Consulting, Inc. ("CRC") to provide
consulting services regarding regulatory requirements and the use of the Fund
for mortgage service companies, state and local housing authorities, management
agents, developers and such other entities which may invest in the Fund.
The Fund is responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
nonrecurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
<PAGE>
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio, a subsidiary of Leshner Financial, Inc., to serve as the Fund's transfer
agent, dividend paying agent and shareholder service agent.
MGF Service Corp. also provides accounting and pricing services to the
Fund. MGF Service Corp. receives a monthly fee from the Fund for calculating
daily net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, MGF Service Corp. has been retained by the Adviser to
assist the Adviser in providing administrative services to the Fund. In this
capacity, MGF Service Corp. supplies executive, administrative and regulatory
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. The Adviser
(not the Fund) pays MGF Service Corp. a fee for these administrative services
equal to one-fourth of its advisory fee from the Fund.
The Adviser serves as principal underwriter for the Fund and, as such,
is the exclusive agent for the distribution of shares of the Fund. Robert H.
Leshner, Chairman and a director of the Adviser, is President and a Trustee of
the Trust. John F. Splain, Secretary and General Counsel of the Adviser, is
Secretary of the Trust.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund. Subject to the requirements of the
Investment Company Act of 1940 and procedures adopted by the Board of Trustees,
the Fund may execute portfolio transactions through any broker or dealer and pay
brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust or the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the Investment Company Act of 1940 or otherwise. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of Fund shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by MGF Service Corp.; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of the Fund; expenses of obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related to the
distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Adviser after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will
<PAGE>
be lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Fund, no preference will be shown for such
securities.
The Securities and Exchange Commission recently adopted amendments
proposed by the National Association of Securities Dealers to its Rules of Fair
Practice relating to asset-based sales charges of mutual funds. The amendments
require fund-level accounting in which all sales charges - front-end load, 12b-1
fees or contingent deferred load - terminate when a percentage of gross sales is
reached.
CALCULATION OF SHARE PRICE
- --------------------------
On each day that the Trust is open for business, the share price (net
asset value) of the Fund's shares is determined as of the close of the regular
session of trading on the New York Stock Exchange, currently 4:00 p.m., Eastern
time. The Trust is open for business on each day the New York Stock Exchange is
open for business and on any other day when there is sufficient trading in the
Fund's investments that its net asset value might be materially affected. The
net asset value per share of the Fund is calculated by dividing the sum of the
value of the securities held by the Fund plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of shares
outstanding of the Fund, rounded to the nearest cent.
U.S. Treasury bills are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities.
Tax-exempt portfolio securities are valued for the Fund by an outside
independent pricing service approved by the Board of Trustees. The service
generally utilizes a computerized grid matrix of tax-exempt securities and
evaluations by its staff to determine what it believes is the fair value of the
portfolio securities. The Board of Trustees believes that timely and reliable
market quotations are generally not readily available to the Fund for purposes
of valuing tax-exempt securities and that valuations supplied by the pricing
service are more likely to approximate the fair value of the tax-exempt
securities. If, in the Adviser's opinion, the valuation provided by the service
does not accurately reflect the fair value of a tax-exempt security, it will
value the security at the average of the prices quoted by at least two
independent market makers. The quoted price will represent the market maker's
opinion as to the price that a willing buyer would pay for the security. All
other securities (and other assets) of the Fund for which market quotations are
not readily available are valued at their fair value as determined in good faith
in accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees. The net asset value per share of
the Fund will fluctuate with the value of the securities it holds.
<PAGE>
PERFORMANCE INFORMATION
- -----------------------
From time to time, the Fund may advertise its "average annual total
return." The Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance.
The "average annual total return" of the Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
or, where the Fund has not been in operation for such period, over the life of
the Fund (which periods will be stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions. The Fund
may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return". A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. A nonstandardized quotation of total return may
also indicate average annual compounded rates of return over periods other than
those specified for "average annual total return." A non-standardized quotation
of total return will always be accompanied by the Fund's "average annual total
return" as described above.
The "yield" of the Fund is computed by dividing the net investment
income per share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period. In addition,
the Fund may advertise together with its "yield" a tax-equivalent yield which
reflects the yield which would be required of a taxable investment at a stated
income tax rate in order to equal the Fund's "yield."
From time to time, the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
<PAGE>
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.
<PAGE>
GOVERNMENT TAX-EXEMPT RESERVE FUND
Account Application
ACCOUNT NO. 17- _______________________________
(For Fund Use Only)
Please mail completed 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.:_________________________________
Rep. Signature:_________________________________
===============================================================================
Initial Investment of $ __________________ ($10,000 minimum)
Wire Instructions:
Fifth Third Bank
ABA #042000314
For MGF Service Corp. #713-76953
For further credit to
(Shareholder Name & Account #)
[ ] Check or draft enclosed payable to the Fund designated above.
[ ] Bank Wire From:_______________________________________________
[ ] Check Under Separate Cover From:______________________________
Account Name Tax I.D.#
_______________________________________ ______________________________
________________________________________ Citizenship U S./Other _______________
Address Phone
________________________________________ (____) ___________________
Fax
________________________________________ (____) _____________________
City State Zip
Check Appropriate Box: [ ] Mortgagor [ ] Mortgagee FBO Mortgagor
[ ] Individual [ ] Joint Tenant (Right of survivorship presumed)
[ ] Corporation [ ] Custodial [ ] Other
Occupation and Employer Name/Address___________________________________________
Are you an associated person of an NASD member? [ ] Yes [ ] No
===============================================================================
Distributions (Distributions are reinvested if no choice is indicated)
[ ] Reinvest all distributions [ ] Pay all distributions in cash
For Mortgagee FBO Mortgagor Accounts: All distributions are reinvested.
===============================================================================
Signatures
By signing this Application for the purchase of shares of the Fund, the
investor hereby acknowledges receipt and review of the Fund's Prospectus
and this Application form; acknowledges that he understands the risks of
investing in the Fund; including the requirement that under HUD regulations,
loss of principal caused by an early or premature withdrawal must be repaid;
represents to you that he is duly authorized to sign this form and to purchase
shares of the Fund on behalf of the investor and to redeem shares of the Fund,
or in the case of a Mortgagee FBO Mortgagor Account, to authorize the Mortgagee
to redeem shares of the Fund; and for purposes of IRS Regulations, certifies
under penalties of perjury that the taxpayer identification number provided
herein is correct. The investor hereby agrees to indemnify 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. For Mortgagee FBO Mortgagor
Accounts, the investor hereby agrees to indemnify the Mortgage Service
Company in whose name the account is issued against any losses, claim
or damage which is a result of an investment in the Fund. The Internal Revenue
Service does not require your consent to any provision of this document other
than the certifications required to avoid backup withholding.
By: _____________________________ _________________________________
Signature & Title Date
By:______________________________ __________________________________
Signature & Title Date
CORPORATIONS, TRUSTS AND ORGANIZATIONS MUST ATTACH RESOLUTIONS AUTHORIZING
INVESTMENT IN THE FUND AND NAMING THE OFFICERS AUTHORIZED TO SIGN FOR THE
CORPORATION, TRUST OR ORGANIZATION.
<PAGE>
Redemption Options - For Mortgagee FBO Mortgagor Accounts: Unless
written instructions from the Mortgagee are received to the contrary,
all redemptions will be mailed to the Mortgagee. MGF Service Corp. is hereby
authorized to act upon instructions received by telephone from the Mortgagee
to have amounts withdrawn from my account in the Fund.
=============================================================================
Redemption Options - For All Other Accounts: 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 the Midwest Group (see prospectus for limitations on this option)
and:
[ ] WIRED ($1,000 minimum) or MAILED to the bank account designated
below. I (we) further authorize the use of automated cash transfers (ACH) to
and from the account designated below.
NOTE: For wire and ACH redemptions, the indicated bank should be a commercial
bank. Please attach a voided check for the account.
Bank Account Number_________________________ Bank Routing Number_____________
Name of Account Holder________________________________________________________
Bank Name_____________________________________________________________________
Bank Address:_________________________________________________________________
Street City State
[ ] CHECKWRITING (A signature card must be completed)
... to deposit the proceeds of such redemptions in the MGF Service
Corp. 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 redemptions of my (our) shares of the Fund. I (we) agree
to be bound by the Rules and Regulations for the MGF Service Corp. Common
Clearing Accounts as such Rules and Regulations may be amended from time
to time.
=============================================================================
Duplicate Statement to Mortgagor (if necessary)
________________________________________________(_____) _______________
Mortgagor Phone
________________________________________________(_____)________________
Contact Person Fax
_______________________________________________________________________
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 Fund and that_____________________ is (are) hereby authorized to complete
and execute the Application on behalf of the corporation or organization and
to take any action for it as may be necessary or appropriate with respect to
its shareholder account with the Fund, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to
sign any documents necessary or 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 ____________________and were
(State)
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
(Date)
was present and acting throughout, and that the same are now in full force
and effect.
I further certify that the following is (are) duly elected officer(s)
of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
_______________________________ _________________________________
_______________________________ _________________________________
_______________________________ _________________________________
Witness my hand and seal of the corporation or organization
this____________day of_______________________, 19_______
_________________________________ _____________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by
the above resolutions, this certificate must also be signed by another officer.
<PAGE>
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...........................................
Dividends and Distributions..................................
Taxes........................................................
Operation of the Fund........................................
Distribution Plan. . . . ....................................
Calculation of Share Price...................................
Performance Information......................................
Application...................................................
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
MIDWEST GROUP TAX FREE TRUST
-----------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
February 1, 1996
Revised March 15, 1996
Government Tax-Exempt Reserve Fund
This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the
Prospectus of the Government Tax-Exempt Reserve Fund dated
February 1, 1996 and revised March 15, 1996. A copy of the
Fund's Prospectus can be obtained by writing the Trust at
312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202-4094, or
by calling the Trust nationwide toll-free 800-543-0407,
in Cincinnati 629-2050.
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Midwest Group Tax Free Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
- -----------------
THE TRUST
MUNICIPAL OBLIGATIONS
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
INVESTMENT LIMITATIONS
TRUSTEES AND OFFICERS
THE INVESTMENT ADVISER AND UNDERWRITER
DISTRIBUTION PLAN
SECURITIES TRANSACTIONS
PORTFOLIO TURNOVER
CALCULATION OF SHARE PRICE
TAXES
REDEMPTION IN KIND
HISTORICAL PERFORMANCE INFORMATION
CUSTODIAN
AUDITORS
MGF SERVICE CORP
TAX EQUIVALENT YIELD TABLE
THE TRUST
- ---------
Midwest Group Tax Free Trust (the "Trust") was organized as
a Massachusetts business trust on April 13, 1981. The Trust
currently offers seven series of shares to investors: the
Government Tax-Exempt Reserve Fund, the Tax-Free Money Fund, the
Tax-Free Intermediate Term Fund, the Ohio Insured Tax-Free Fund,
the Ohio Tax-Free Money Fund, the California Tax-Free Money Fund
and the Royal Palm Florida Tax-Free Money Fund. This Statement
of Additional Information provides information relating to the
Government Tax-Exempt Reserve Fund (the "Fund"). Information
relating to the Tax-Free Money Fund, the Tax-Free Intermediate
Term Fund, the Ohio Insured Tax-Free Fund, the Ohio Tax-Free
Money Fund, the California Tax-Free Money Fund and the Royal Palm
Florida Tax-Free Money Fund is provided in a separate Statement
of Additional Information. Each fund has its own investment
objective(s) and policies.
Each share of the Fund represents an equal proportionate
interest in the assets and liabilities belonging to the Fund with
each other share of the Fund and is entitled to such dividends
and distributions out of the income belonging to the Fund as are
declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or
combine the shares of the Fund into a greater or lesser number of
shares of the Fund so long as the proportionate beneficial
interest in the assets belonging to the Fund and the rights of
shares of any other fund are in no way affected. In case of any
liquidation of the Fund, the holders of shares of the Fund will
be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to the Fund. Expenses
attributable to the Fund are borne by the Fund. Any general
expenses of the Trust not readily identifiable as belonging to a
particular fund are allocated by or under the direction of the
Trustees in such manner as the Trustees determine to be fair and
equitable. Generally, the Trustees allocate such expenses on the
basis of relative net assets or number of shareholders. No
shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Under Massachusetts law, under certain circumstances,
shareholders of a Massachusetts business trust could be deemed to
have the same type of personal liability for the obligations of
the Trust as does a partner of a partnership. However, numerous
investment companies registered under the Investment Company Act
of 1940 have been formed as Massachusetts business trusts and the
Trust is not aware of an instance where such result has occurred.
In addition, the Trust Agreement disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of
the Trust property for all losses and expenses of any shareholder
held personally liable for the obligations of the Trust.
Moreover, it provides that the Trust will, upon request, assume
the defense of any claim made against any shareholder for any act
or obligation of the Trust and satisfy any judgment thereon. As
a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities,
management believes that the risk of shareholder liability is
slight and limited to circumstances in which the Trust itself
would be unable to meet its obligations. Management believes
that, in view of the above, the risk of personal liability is
remote.
MUNICIPAL OBLIGATIONS
- ---------------------
The Fund invests primarily in Municipal Obligations.
Municipal Obligations are debt obligations issued by a state and
its political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest
that is, in the opinion of bond counsel to the issuer, exempt
from federal income tax. Municipal Obligations include tax-
exempt bonds, notes and commercial paper. The Fund invests
primarily in pre-refunded, escrowed and GNMA collateralized
Municipal Obligations. Pre-refunded and escrowed Municipal
Obligations are issued originally as general obligation or
revenue bonds of governmental entities, but are now secured until
the call date or maturity of an escrow fund. GNMA collateralized
Municipal Obligations generally are bonds issued to provide funds
to the issuer of the bonds to purchase GNMA Certificates.
Tax-Exempt Bonds. Tax-exempt bonds are issued to obtain
----------------
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.
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:
GNMA Certificates. The term "GNMA Certificates" refers to
-----------------
mortgage-backed securities representing part ownership of a pool
of mortgage loans, which are guaranteed by the Government
National Mortgage Association and backed by the full faith and
credit of the United States.
1. The Life of GNMA Certificates. The average life of
-----------------------------
GNMA Certificates is likely to be substantially less than the
original maturity of the mortgage pools underlying the GNMA
Certificates due to prepayments, refinancing and payments from
foreclosures. Thus, the greatest part of principal will usually
be paid well before the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life
of a particular issue of GNMA Certificates. However, statistics
published by the FHA are normally used as an indicator of the
expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling
mortgages with 25-30 year maturities, the type of mortgages
backing the vast majority of GNMA Certificates, is approximately
12 years. However, mortgages with high interest rates have
experienced accelerated prepayment rates which would indicate a
shorter average life.
2. Yield Characteristics of GNMA Certificates. The coupon
------------------------------------------
rate of interest of GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the GNMA Certificates, but only by the amount of the
fees paid to the GNMA and the issuer. For the most common type
of mortgage pool, containing single-family dwelling mortgages,
the GNMA receives an annual fee of 0.06 of 1% of the outstanding
principal for providing its guarantee, and the issuer is paid an
annual fee of 0.44 of 1% for assembling the mortgage pool and for
passing through monthly payments of interest and principal to
Certificate holders.
The coupon rate by itself, however, does not indicate the
yield which will be earned on the GNMA Certificates for the
following reasons:
(a) GNMA Certificates may be issued at a premium or
discount, rather than at par.
(b) After issuance, GNMA Certificates may trade in the
secondary market at a premium or discount.
(c) Interest is earned monthly, rather than semi-
annually as for traditional bonds. Monthly compounding has
the effect of raising the effective yield earned on GNMA
Certificates.
(d) The actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool
underlying the Certificate. If mortgagors pay off their
mortgages early, the principal returned to Certificate
holders may be reinvested at more or less favorable rates.
3. Market for GNMA Certificates. Since the inception of
----------------------------
the GNMA mortgage-backed securities program in 1970, the amount
of GNMA Certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary market
by securities dealers and many types of investors make GNMA
Certificates highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and
depend on, among other things, the level of market rates, the
Certificate's coupon rate and the prepayment experience of the
pool of mortgages backing each Certificate.
Loans of Portfolio Securities. The Fund may lend its
-----------------------------
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 with respect to the
Fund without the affirmative vote of a majority of the
outstanding shares of the Fund. For the purpose of these
investment limitations, the identification of the "issuer" of
Municipal Obligations which are not general obligation bonds is
made by the Adviser on the basis of the characteristics of the
obligation, the most significant of which is the source of funds
for the payment of principal of and interest on such obligations.
The limitations applicable to the Fund are:
1. Borrowing Money. The Fund will not borrow money or
---------------
pledge, mortgage or hypothecate its assets, except as a temporary
measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets.
The Fund will not make any additional purchases of portfolio
securities while borrowings are outstanding.
2. Underwriting. The Fund will not act as underwriter of
------------
securities issued by other persons, either directly or through a
majority owned subsidiary. This limitation is not applicable to
the extent that, in connection with the disposition of its
portfolio securities (including restricted securities), the Fund
may be deemed an underwriter under certain federal securities
laws.
3. Illiquid Investments. The Fund will not purchase
--------------------
illiquid securities and securities for which there are legal or
contractual restrictions on resale if, as a result thereof, more
than 10% of the value of the net assets of the Fund would be
invested in such securities.
4. Real Estate. The Fund will not purchase, hold or deal
-----------
in real estate, but this shall not prevent investments in
Municipal Obligations which are secured by or represent interests
in real estate.
5. Commodities. The Fund will not purchase, hold or deal
-----------
in commodities or commodities futures contracts, or invest in
oil, gas or other mineral explorative or development programs.
6. Loans. The Fund will not make loans to other persons,
-----
except (a) by the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies
and limitations or (b) by loaning portfolio securities.
7. Certain Companies. The Fund will not purchase
-----------------
securities of a company, if such purchase at the time thereof,
would cause more than 5% of the Fund's total assets to be
invested in securities of companies, which, including
predecessors, have a record of less than three years' continuous
operation.
8. Obligations of One Issuer. The Fund will not purchase
-------------------------
more than 10% of the outstanding publicly issued debt obligations
of any issuer. This limitation is not applicable to privately
issued Municipal Obligations.
9. Investing for Control. The Fund will not invest in
---------------------
companies for the purpose of exercising control.
10. Other Investment Companies. The Fund will not invest
--------------------------
more than 10% of its total assets in the securities of other
investment companies and then only for temporary purposes in
companies whose dividends are tax-exempt, or invest more than 5%
of its total assets in the securities of any single investment
company. The Fund will not purchase more than 3% of the
outstanding voting shares of any investment company.
11. Margin Purchases. The Fund will not purchase
----------------
securities or evidences of interest thereon on "margin." This
limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemption of
securities.
12. Common Stocks. The Fund will not invest in common
-------------
stocks.
13. Securities Owned by Affiliates. The Fund will not
------------------------------
purchase or retain the securities of any issuer if those Trustees
and officers of the Trust or of the Adviser, who individually own
beneficially more than 0.5% of the outstanding securities of such
issuer, together own beneficially more than 5% of such
securities.
14. Short Sales and Options. The Fund will not sell any
-----------------------
securities short or write call options. This limitation is not
applicable to the extent that sales by the Fund of Municipal
Obligations with puts attached or sales by the Fund of other
securities in which it may otherwise invest would be considered
to be sales of options.
15. Concentration. The Fund will not invest more than 25%
-------------
of its total assets in the securities of issuers in any
particular industry; provided, however, that there is no
limitation with respect to investments in obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities.
16. Senior Securities. The Fund will not issue or sell any
-----------------
senior security as defined by the Investment Company Act of 1940
except insofar as any borrowing that the Fund may engage in may
be deemed to be an issuance of a senior security.
With respect to the percentages adopted by the Trust as
maximum limitations on the Fund's investment policies and
restrictions, an excess above the fixed percentage (except for
the percentage limitations relative to the borrowing of money)
will not be a violation of the policy or restriction unless the
excess results immediately and directly from the acquisition of
any security or the action taken.
The Trust does not presently intend to pledge, mortgage or
hypothecate the assets of the Fund. The Trust does not presently
intend to acquire, securities issued by any other investment
company or investment trust. As long as the rules promulgated
under the California Corporate Securities Law prohibit the Fund
from acquiring or retaining securities of any open-end investment
company, the Fund will not acquire or retain such securities,
unless the acquisition is part of a merger or acquisition of
assets or other reorganization. The Trust does not presently
intend to make loans of the Fund's portfolio securities. The
statements of intention in this paragraph reflect nonfundamental
policies which may be changed by the Board of Trustees without
shareholder approval.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive
officers of the Trust and their aggregate compensation from the
Trust and the Midwest complex (consisting of the Trust, Midwest
Trust and Midwest Strategic Trust) for the fiscal year ended June
30, 1995. Each Trustee who is an "interested person" of the
Trust, as defined by the Investment Company Act of 1940, is
indicated by an asterisk. Each of the Trustees is also a Trustee
of Midwest Trust and Midwest Strategic Trust.
<TABLE>
<C> <C> <C> <C> <C>
COMPENSATION
COMPENSATION FROM
NAME AGE POSITION HELD FROM TRUST MIDWEST COMPLEX
- ---- ---- ------------- ------------- ---------------
*Robert H. Leshner 56 President/Trustee $ 0 $ 0
+Dale P. Brown 48 Trustee 0 1,200
Gary W. Heldman 48 Trustee 2,200 4,400
+H. Jerome Lerner 57 Trustee 2,200 6,800
+Richard A. Lipsey 56 Trustee 0 2,400
Donald J. Rahilly 49 Trustee 0 1,800
Fred A. Rappoport 48 Trustee 0 2,400
Oscar P. Robertson 56 Trustee 1,950 3,900
Robert B. Sumerel 54 Trustee 0 600
John F. Splain 39 Secretary 0 0
Mark J. Seger 33 Treasurer 0 0
* Mr. Leshner, as an affiliated person of Midwest Group
Financial Services, Inc., the Trust's principal underwriter
and investment adviser, is an "interested person" of the Trust
within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940.
+ Member of Audit Committee
</TABLE>
The principal occupations of the Trustees and executive
officers of the Trust during the past five years are set forth
below:
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is
Chairman of the Board of Midwest Group Financial Services, Inc.
(the investment adviser and principal underwriter of the Trust),
MGF Service Corp. (a registered transfer agent) and Leshner
Financial, Inc. (a financial services company and parent of
Midwest Group Financial Services, Inc. and MGF Service Corp.).
He is also President of Midwest Trust and Midwest Strategic
Trust.
DALE P. BROWN, 36 East Seventh Street, Cincinnati, Ohio is
President and Chief Executive Officer of Sive/Young & Rubicam, an
advertising agency. She is also a director of The Ohio National
Life Insurance Company.
GARY W. HELDMAN, 4545 Malsbary Road, Cincinnati, Ohio is the
former President of The Fechheimer Brothers Company, a
manufacturer of uniforms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a
principal of HJL Enterprises and is Chairman of Crane
Electronics, a manufacturer of electrical connectors.
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is
President of Orchem Corp., a chemical specialties distributor,
and Orpack Stone Corporation, a corrugated box manufacturer.
RICHARD A. LIPSEY, 11478 Rue Concord, Baton Rouge, Louisiana
is President and Chief Executive Officer of Lipsey's, Inc., a
national sporting goods distributor. He is also a Regional
Director of Premier Bank, N.A.
DONALD J. RAHILLY, 9933 Alliance Road, Cincinnati, Ohio is
Chairman of S. Rosenthal & Co., Inc., a printing company.
FRED A. RAPPOPORT, 830 Birchwood Drive, Los Angeles,
California is President and Chairman of The Fred Rappoport
Company, a broadcasting and entertainment production company.
Until 1991, he was Vice President-Entertainment and Informational
Special Programs of CBS, Inc., a broadcasting company.
ROBERT B. SUMEREL, 8675 Bridgewater Lane, Cincinnati, Ohio
is Chief Executive Officer of Bob Sumerel Tire Inc., a tire sales
and service company.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is
Secretary and General Counsel of Leshner Financial, Inc., Midwest
Group Financial Services, Inc. and MGF Service Corp. He is also
Secretary of Midwest Trust, Midwest Strategic Trust, Brundage,
Story and Rose Investment Trust, Leeb Personal FinanceTM
Investment Trust, Williamsburg Investment Trust, Markman
MultiFund Trust and The Tuscarora Investment Trust and Assistant
Secretary of Schwartz Investment Trust and Fremont Mutual Funds,
Inc., all of which are registered investment companies.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio
is Vice President of Leshner Financial, Inc. and MGF Service
Corp. He is also Treasurer of Midwest Trust, Midwest Strategic
Trust, Brundage, Story and Rose Investment Trust, Leeb Personal
FinanceTM Investment Trust, Williamsburg Investment Trust and
Markman MultiFund Trust, Assistant Treasurer of Schwartz
Investment Trust and The Tuscarora Investment Trust and Assistant
Secretary of Fremont Mutual Funds, Inc.
THE INVESTMENT ADVISER AND UNDERWRITER
- --------------------------------------
Midwest Group Financial Services, Inc. (the "Adviser") is
the Fund's investment manager. The Adviser is a subsidiary of
Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Mr. Leshner may be deemed to be a
controlling person and an affiliate of the Adviser by reason of
his indirect ownership of its shares and his position as the
principal executive officer of the Adviser. Mr. Leshner, by
reason of such affiliation, may directly or indirectly receive
benefits from the advisory fees paid to the Adviser.
Under the terms of the investment advisory agreement between
the Trust and the Adviser, the Adviser manages the Fund's
investments. The Fund pays the Adviser a fee computed and
accrued daily and paid monthly at an annual rate of .5% of its
average daily net assets up to $500,000,000, .45% of such assets
from $500,000,000 to $1,000,000,000 and .4% of such assets in
excess of $1,000,000,000. The total fees paid by the Fund during
the first and second halves of each fiscal year of the Trust may
not exceed the semiannual total of the daily fee accruals
requested by the Adviser during the applicable six month period.
The Fund is responsible for the payment of all expenses
incurred in connection with the organization, registration of
shares and operations of the Fund, including such extraordinary
or non-recurring expenses as may arise, such as litigation to
which the Trust may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to
such litigation, except in instances of willful misfeasance, bad
faith, gross negligence or reckless disregard by such officers
and Trustees in the performance of their duties. The Adviser
bears promotional expenses in connection with the distribution of
the Fund's shares to the extent that such expenses are not
assumed by the Fund under its plan of distribution (see below).
The compensation and expenses of any officer, Trustee or employee
of the Trust who is an officer, director, employee or stockholder
of the Adviser are paid by the Adviser, except that the
compensation and expenses of the Chief Financial Officer of the
Trust are paid by the Trust regardless of the Chief Financial
Officer's relationship with the Adviser.
By its terms, the Fund's investment advisory agreement will
remain in force until January 30, 1998 and from year to year
thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of the Fund's outstanding
voting securities; provided that in either event continuance is
also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a
meeting called for the purpose of voting such approval. The
Fund's investment advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of
the Fund's outstanding voting securities, or by the Adviser. The
investment advisory agreement automatically terminates in the
event of its assignment, as defined by the Investment Company Act
of 1940 and the rules thereunder.
The Adviser will reimburse the Fund to the extent that the
expenses of the Fund for any fiscal year exceed the applicable
expense limitations imposed by state securities administrators,
as such limitations may be lowered or raised from time to time.
The most restrictive limitation is presently 2.5% of the first
$30 million of average daily net assets, 2% of the next $70
million of average daily net assets and 1.5% of average daily net
assets in excess of $100 million. If any such reimbursement is
required, the payment of the advisory fee at the end of any month
will be reduced or postponed or, if necessary, a refund will be
made to the Fund at the end of such month. Certain expenses such
as brokerage commissions, if any, taxes, interest, extraordinary
items and other expenses subject to approval of state securities
administrators are excluded from such limitations. If the
expenses of the Fund approach the applicable limitation in any
state, the Trust will consider the various actions that are
available to it, including suspension of sales to residents of
that state.
The Adviser may use the name "Midwest," "Midwest Group" or
any derivation thereof in connection with any registered
investment company or other business enterprise with which it is
or may become associated.
Cash Reserve Consulting, Inc. ("CRC") provides consulting
services to the Adviser regarding regulatory requirements and the
use of the Fund by mortgage service companies, state and local
housing authorities, management agents, developers and such other
entities which may invest in the Fund. CRC receives a fee equal
to the annual rate of .25% of the Fund's average daily net assets
up to $500,000,000, .225% of such assets from $500,000,000 to
$1,000,000,000 and .2% of such assets in excess of $1,000,000,000.
The services provided by CRC are paid for wholly by the Adviser.
The fee paid to CRC is subject to reduction in the event the
Adviser waives or reimburses any portion of its advisory fee from
the Fund in order to reduce the operating expenses of the Fund.
The Adviser also compensates CRC for providing
administration services to the Fund accounts for which CRC is
designated as the responsible party. CRC receives a fee equal to
the annual rate of .25% of the average balance of all such
accounts. The Fund may reimburse the Adviser for these amounts
pursuant to the Fund's plan of distribution (see "Distribution
Plan" below).
The Adviser is also the principal underwriter of the Fund
and, as such, the exclusive agent for distribution of shares of
the Fund. The Adviser is obligated to sell the shares on a best
efforts basis only against purchase orders for the shares.
Shares of the Fund are offered to the public on a continuous
basis.
The Fund may compensate dealers, including the Adviser and
its affiliates, based on the average balance of all accounts in
the Fund for which the dealer is designated as the party
responsible for the account. See "Distribution Plan" below.
DISTRIBUTION PLAN
- -----------------
As stated in the Prospectus, the Fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits the Fund to pay
for expenses incurred in the distribution and promotion of the
Fund's shares, including but not limited to, the printing of
prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation
and printing of sales literature, promotion, marketing and sales
expenses, and other distribution-related expenses, including any
distribution fees paid to securities dealers or other firms who
have executed a distribution or service agreement with the
Adviser. The Plan expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .25% of
the average daily net assets of the Fund. Unreimbursed expenses
will not be carried over from year to year.
Agreements implementing the Plan (the "Implementation
Agreement"), including agreements with dealers wherein such
dealers agree for a fee to act as agents for the sale of the
Fund's shares, are in writing and have been approved by the Board
of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.
The continuance of the Plan and the Implementation
Agreements must be specifically approved at least annually by a
vote of the Trust's Board of Trustees and by a vote of the
Trustees who are not interested persons of the Trust and have no
direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a
meeting called for the purpose of voting on such continuance.
The Plan may be terminated at any time by a vote of a majority of
the Independent Trustees or by a vote of the holders of a
majority of the outstanding shares of the Fund. In the event the
Plan is terminated in accordance with its terms, the Fund will
not be required to make any payments for expenses incurred by the
Adviser after the termination date. Each Implementation
Agreement terminates automatically in the event of its assignment
and may be terminated at any time by a vote of a majority of the
Independent Trustees or by a vote of the holders of a majority of
the outstanding shares of the Fund on not more than 60 days'
written notice to any other party to the Implementation
Agreement. The Plan may not be amended to increase materially
the amount to be spent for distribution without shareholder
approval. All material amendments to the Plan must be approved
by a vote of the Trust's Board of Trustees and by a vote of the
Independent Trustees.
In approving the Plan, the Trustees determined, in the
exercise of their business judgment and in light of their
fiduciary duties as Trustees, that there is a reasonable
likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of
the Fund's assets for distribution expenses under the Plan should
assist in the growth of the Fund which will benefit the Fund and
its shareholders through increased economies of scale, greater
investment flexibility, greater portfolio diversification and
less chance of disruption of planned investment strategies. The
Plan will be renewed only if the Trustees make a similar
determination for each subsequent year of the Plan. There can be
no assurance that the benefits anticipated from the expenditure
of the Fund's assets for distribution will be realized. While
the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made
must be reported quarterly to the Board of Trustees for its
review. In addition, the selection and nomination of those
Trustees who are not interested persons of the Trust are
committed to the discretion of the Independent Trustees during
such period.
By reason of his indirect ownership of shares of the
Adviser, Robert H. Leshner may be deemed to have a financial
interest in the operation of the Plan and the Implementation
Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the
placing of the Fund's securities transactions and negotiation of
commission rates where applicable are made by the Adviser and are
subject to review by the Board of Trustees of the Trust. In the
purchase and sale of portfolio securities, the Adviser seeks best
execution for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread),
the execution capability, financial responsibility and
responsiveness of the broker or dealer and the brokerage and
research services provided by the broker or dealer. The Adviser
generally seeks favorable prices and commission rates that are
reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the
dealers who make a market in the securities involved unless
better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account. On
occasion, portfolio securities for the Fund may be purchased
directly from the issuer. Because the portfolio securities of
the Fund are generally traded on a net basis and transactions in
such securities do not normally involve brokerage commissions,
the cost of portfolio securities transactions of the Fund will
consist primarily of dealer or underwriter spreads.
The Adviser is specifically authorized to select brokers who
also provide brokerage and research services to the Fund and/or
other accounts over which the Adviser exercises investment
discretion and to pay such brokers a commission in excess of the
commission another broker would charge if the Adviser determines
in good faith that the commission is reasonable in relation to
the value of the brokerage and research services provided. The
determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the
Fund and to accounts over which it exercises investment
discretion.
Research services include securities and economic analyses,
reports on issuers' financial conditions and future business
prospects, newsletters and opinions relating to interest trends,
general advice on the relative merits of possible investment
securities for the Fund and statistical services and information
with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to
the Fund and the Adviser, it is not possible to place a dollar
value on it. Research services furnished by brokers through whom
the Fund effects securities transactions may be used by the
Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer
in the execution of securities transactions. However, the
Adviser and other affiliates of the Trust or the Adviser may
effect securities transactions which are executed on a national
securities exchange or transactions in the over-the-counter
market conducted on an agency basis. The Fund will not effect
any brokerage transactions in its portfolio securities with the
Adviser if such transactions would be unfair or unreasonable to
its shareholders. Over-the-counter transactions will be placed
either directly with principal market makers or with broker-
dealers. Although the Fund does not anticipate any ongoing
arrangements with other brokerage firms, brokerage business may
be transacted from time to time with other firms. Neither the
Adviser nor affiliates of the Trust or the Adviser will receive
reciprocal brokerage business as a result of the brokerage
business transacted by the Fund with other brokers.
CODE OF ETHICS. The Trust and the Adviser have each adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act of
1940. The Code significantly restricts the personal investing
activities of all employees of the Adviser and, as described
below, imposes additional, more onerous, restrictions on
investment personnel of the Adviser. The Code requires that all
employees of the Adviser preclear any personal securities
investment (with limited exceptions, such as U.S. Government
obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition
or limitation applicable to the proposed investment. In
addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to
the knowledge of the employee is being considered for purchase or
sale, by the Fund. The substantive restrictions applicable to
investment personnel of the Adviser include a ban on acquiring
any securities in an initial public offering and a prohibition
from profiting on short-term trading in securities. Furthermore,
the Code provides for trading "blackout periods" which prohibit
trading by investment personnel of the Adviser within periods of
trading by the Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Adviser intends to hold the portfolio securities of the
Fund to maturity and to limit portfolio turnover to the extent
possible. Nevertheless, changes in the Fund's portfolio will be
made promptly when determined to be advisable by reason of
developments not foreseen at the time of the original investment
decision, and usually without reference to the length of time a
security has been held.
The Fund's portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the
fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. High
portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne
directly by the Fund. The Adviser anticipates that the Fund's
portfolio turnover rate normally will not exceed 100%. A 100%
turnover rate would occur if all of the Fund's portfolio
securities were replaced once within a one year period.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the shares of the Fund
are determined as of the close of the regular session of trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern
time), on each day the Trust is open for business. The Trust is
open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas. The Trust may also be open for business on other
days in which there is sufficient trading in the Fund's portfolio
securities that its net asset value might be materially affected.
For a description of the methods used to determine the share
price, see "Calculation of Share Price" in the Prospectus.
Tax-exempt portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Board of
Trustees. The service generally utilizes a computerized grid
matrix of tax-exempt securities and evaluations by its staff to
determine what it believes is the fair value of the portfolio
securities. The Board of Trustees believes that timely and
reliable market quotations are generally not readily available to
the Fund for purposes of valuing tax-exempt securities and that
valuations supplied by the pricing service are more likely to
approximate the fair value of the tax-exempt securities.
If, in the Adviser's opinion, the valuation provided by the
pricing service ignores certain market conditions affecting the
value of a security, the Adviser will use (consistent with
procedures established by the Board of Trustees) such other
valuation as it considers to represent fair value. Valuations,
market quotations and market equivalents provided to the Fund by
pricing services will only be used when such use and the methods
employed have been approved by the Board of Trustees. Valuations
provided by pricing services or the Adviser may be determined
without exclusive reliance on matrixes and may take into
consideration appropriate factors such as bid prices, quoted
prices, institution-size trading in similar groups of securities,
yield, quality, coupon rates, maturity, type of issue, trading
characteristics and other market data.
Since it is difficult to evaluate the likelihood of exercise
or the potential benefit of a put attached to an obligation, it
is expected that such puts will be determined to have a value of
zero, regardless of whether any direct or indirect consideration
was paid.
The Board of Trustees has adopted the policy for the Fund,
which may be changed without shareholder approval, that the
maturity of fixed rate or floating and variable rate instruments
with demand features will be determined as follows. The maturity
of each such fixed rate or floating rate instrument will be
deemed to be the period of time remaining until the principal
amount owed can be recovered through demand. The maturity of
each such variable rate instrument will be deemed to be the
longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount
owed can be recovered through demand.
Taxable securities, if any, held by the Fund for which
market quotations are readily available are valued at their most
recent bid prices as obtained from one or more of the major
market makers for such securities. Securities (and other assets)
for which market quotations are not readily available are valued
at their fair value as determined in good faith in accordance
with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
TAXES
- -----
The Prospectus describes generally the tax treatment of
distributions by the Fund. This section of the Statement of
Additional Information includes additional information concerning
federal and state taxes.
The Fund intends to qualify annually for the special tax
treatment afforded a "regulated investment company" under
Subchapter M of the Internal Revenue Code so that it does not pay
federal taxes on income and capital gains distributed to
shareholders. To so qualify the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock,
securities or foreign currency, or certain other income
(including but not limited to gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currencies; (ii) derive less
than 30% of its gross income in each taxable year from the sale
or other disposition of the following assets held for less than
three months: (a) stock or securities, (b) options, futures or
forward contracts not directly related to its principal business
of investing in stock or securities; and (iii) diversify its
holdings so that at the end of each quarter of its taxable year
the following two conditions are met: (a) at least 50% of the
value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment
companies and other securities (for this purpose such other
securities will qualify only if the Fund's investment is limited
in respect to any issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of
such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than
U.S. Government securities or securities of other regulated
investment companies).
The Fund intends to invest in sufficient obligations so that
it will qualify to pay, for federal income tax purposes, "exempt-
interest dividends" (as defined in the Internal Revenue Code) to
shareholders. The Fund's dividends payable from net tax-exempt
interest earned from tax-exempt obligations will qualify
as exempt-interest dividends for federal income tax purposes if,
at the close of each quarter of the taxable year of the Fund, at
least 50% of the value of its total assets consists of tax-exempt
obligations. The percentage of income that is exempt from
federal income taxes is applied uniformly to all distributions
made during each calendar year. This percentage may differ from
the actual tax-exempt percentage during any particular month.
The Fund intends to invest primarily in obligations with
interest income exempt from federal income taxes. Distributions
from net investment income and net realized capital gains,
including exempt-interest dividends, may be subject to state
taxes in other states.
Under the Internal Revenue Code, interest on indebtedness
incurred or continued to purchase or carry shares of investment
companies paying exempt-interest dividends, such as the Fund,
will not be deductible by the investor for federal income tax
purposes. Shareholders should consult their tax advisors as to
the application of these provisions.
Shareholders receiving Social Security benefits may be
subject to federal income tax (and perhaps state personal income
tax) on a portion of those benefits as a result of receiving tax-
exempt income (including exempt-interest dividends distributed by
the Fund). In general, the tax will apply to such benefits only
in cases where the recipient's provisional income, consisting of
adjusted gross income, tax-exempt interest income and 50% of any
Social Security benefits, exceeds a base amount ($25,000 for
single individuals and $32,000 for individuals filing a joint
return). In such cases, the tax will be imposed on the lesser of
50% of the recipient's Social Security benefits or the excess of
provisional income over the base amount. A second tier of
inclusion rules for high-income social security recipients has
been added for tax years after 1993. These new rules apply to
taxpayers who have provisional income over $44,000 (married
filing jointly) or $34,000 (single). For these taxpayers, the
amount of benefit subject to tax is the lesser of (1) 85% of the
social security benefit received or (2) 85% of the excess of the
taxpayer's provisional income over $44,000 (married filing
jointly) or $34,000 (single) plus the smaller of (a) $6,000
(married filing jointly) or $4,500 (single) or (b) the amount
taxable under the 50% inclusion rules described above.
Shareholders receiving Social Security benefits may wish to
consult their tax advisors.
The Fund's net realized capital gains from securities
transactions will be distributed only after reducing such gains
by the amount of any available capital loss carryforwards.
Capital losses may be carried forward to offset any capital gains
for eight years, after which any undeducted capital loss
remaining is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on
the excess, if any, of the Fund's "required distribution" over
actual distributions in any calendar year. Generally, the
"required distribution" is 98% of the Fund's ordinary income for
the calendar year plus 98% of its net capital gains recognized
during the one year period ending on October 31 of the calendar
year plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of
the excise tax.
The Trust is required to withhold and remit to the U.S.
Treasury a portion (31%) of dividend income on any account unless
the shareholder provides a taxpayer identification number and
certifies that such number is correct and that the shareholder is
not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees
deems it in the best interests of the Fund's shareholders, the
Fund may make payment for shares repurchased or redeemed in whole
or in part in securities of the Fund taken at current value. If
any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment
Company Act of 1940. This election will require the Fund to
redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90 day period for
any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in
converting such securities to cash. Portfolio securities which
are issued in an "in-kind" redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual
total return. Average annual total return quotations will be
computed by finding the average annual compounded rates of return
over 1, 5 and 10 year periods that would equate the initial
amount invested to the ending redeemable value, according to the
following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof)
The calculation of average annual total return assumes the
reinvestment of all dividends and distributions. If the Fund has
been in existence less than one, five or ten years, the time
period since the date of the initial public offering of shares
will be substituted for the periods stated.
The Fund may also advertise total return (a "non-
standardized quotation") which is calculated differently from
average annual total return. A nonstandardized quotation of
total return may be a cumulative return which measures the
percentage change in the value of an account between the
beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation may also indicate
average annual compounded rates of return over periods other than
those specified for average annual total return. A non-
standardized quotation of total return will always be accompanied
by the Fund's average annual total return as described above.
From time to time, the Fund may advertise its yield and tax-
equivalent yield. A yield quotation is based on a 30-day (or one
month) period and is computed by dividing the net investment
income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Generally, interest earned (for the purpose of "a" above) on debt
obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation
(including actual accrued interest) at the close of business on
the last business day prior to the start of the 30-day (or one
month) period for which yield is being calculated, or, with
respect to obligations purchased during the month, the purchase
price (plus actual accrued interest). Tax-equivalent yield is
computed by dividing that portion of the Fund's yield which is
tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the Fund's yield that is not
tax-exempt.
The performance quotations described above are based on
historical earnings and are not intended to indicate future
performance.
To help investors better evaluate how an investment in the
Fund might satisfy their investment objective, advertisements
regarding the Fund may discuss various measures of Fund
performance, including current performance ratings and/or
rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements
may also compare performance (using the calculation methods set
forth in the Prospectus) to performance as reported by other
investments, indices and averages. When advertising current
ratings or rankings, the Fund may use the following publications
or indices to discuss or compare Fund performance:
Lipper Fixed Income Fund Performance Analysis measures total
return and average current yield for the mutual fund industry and
ranks individual mutual fund performance over specified time
periods assuming reinvestment of all distributions, exclusive of
sales loads. The Fund may provide comparative performance
information appearing in the Short Municipal Debt Funds category.
Donoghue's Bond Fund Report provides a comparative analysis
of performance for various categories of bond funds. The Fund
may compare performance rankings with bond funds appearing in the
Municipal Short-Term Funds category.
In assessing such comparisons of performance an investor
should keep in mind that the composition of the investments in
the reported indices and averages is not identical to the Fund's
portfolio, that the averages are generally unmanaged and that the
items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the
Fund will continue this performance as compared to such other
averages.
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati,
Ohio, has been retained to act as Custodian for the Fund's
investments. The Fifth Third Bank acts as the Fund's depository,
safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and
maintains records in connection with its duties. As
compensation, The Fifth Third Bank receives from the Fund a base
fee at the annual rate of .005% of average net assets (subject to
a minimum annual fee of $1,500 and a maximum fee of $5,000) plus
transaction charges for each security transaction of the Fund.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as
independent auditors for the Trust for the fiscal year ending
June 30, 1996. Arthur Andersen LLP, 425 Walnut Street,
Cincinnati, Ohio, performs an annual audit of the Trust's
financial statements and advises the Fund as to certain
accounting matters.
MGF SERVICE CORP.
- -----------------
The Trust's transfer agent, MGF Service Corp. ("MGF"),
maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend
and distribution disbursing agent and performs other shareholder
service functions. MGF is an affiliate of the Adviser by reason
of common ownership. MGF receives for its services as the Fund's
transfer agent a fee payable monthly at an annual rate of $21 per
account, provided, however, that the minimum fee is $1,000 per
month. In addition, the Fund pays out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts,
forms, reports, record storage and communication lines.
MGF also provides accounting and pricing services to the
Trust. For calculating daily net asset value per share and
maintaining such books and records as are necessary to enable MGF
to perform its duties, the Fund pays MGF a fee in accordance with
the following schedule:
Asset Size of Fund Monthly Fee
------------------ -----------
$ 0 - $ 50,000,000 $3,250
$ 50,000,000 - $100,000,000 $3,750
$100,000,000 - $250,000,000 $4,250
Over $250,000,000 $4,750
In addition, the Fund pays all costs of external pricing
services.
MGF is retained by the Adviser to assist the Adviser in
providing administrative services to the Fund. In this capacity,
MGF supplies non-investment related statistical and research
data, internal regulatory compliance services and executive and
administrative services. MGF supervises the preparation of tax
returns, reports to shareholders of the Fund, reports to and
filings with the Securities and Exchange Commission and state
securities commissions, and materials for meetings of the Board
of Trustees. For the performance of these administrative
services, MGF receives a fee from the Adviser equal to one-fourth
of the fee payable from the Trust to the Adviser pursuant to the
Fund's investment advisory agreement with the Adviser. The
Adviser is solely responsible for the payment of these
administrative fees to MGF, and MGF has agreed to seek payment of
such fees solely from the Adviser.
TAX EQUIVALENT YIELD TABLE
- --------------------------
The tax equivalent yield table illustrates approximately the
yield an individual investor would have to earn on taxable
investments to equal a tax-exempt yield in various income tax
brackets. The table below shows the approximate taxable yields
for individuals that are equivalent to tax-exempt yields under
marginal federal 1995 income tax rates. No adjustments have been
made for state or local taxes.
For federal income tax purposes, the total amount otherwise
allowable as a deduction for personal exemptions in computing
taxable income is reduced by 2% for each $2,500 (or fraction of
that amount) by which the taxpayer's adjusted gross income
exceeds $114,700 (single return) or $172,050 (joint return). In
addition, the total amount otherwise allowable as itemized
deductions in computing taxable income is reduced by 3% of the
amount by which the taxpayer's adjusted gross income exceeds
$114,700. The tax equivalent yield table has not been adjusted
to reflect the impact of this adjustment to taxable income.
<TABLE>
Taxable Income Tax-Exempt Yield
- -------------- -----------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
Single Joint Federal
Return Return Tax Bracket Tax Equivalent Yield
- ------ ------ ----------- --------------------
Not Over $23,350 Not Over $39,000 15% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88%
$23,350-$56,550 $39,000-$94,250 28% 3.47 4.17 4.86 5.56 6.25 6.94
$56,550-$117,950 $94,250-$143,600 31% 3.62 4.35 5.07 5.80 6.52 7.25
$117,950-$256,500 $143,600-$256,50036% 3.91 4.69 5.47 6.25 7.03 7.81
Over $256,500 Over $256,500 39.6% 4.14 4.97 5.79 6.62 7.45 8.28
</TABLE>
